Exhibit 10.2
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this
“ Agreement ”) is made and entered into
to be effective as of November 13, 2007 (the “
Effective Date ”) by and between National
Medical Health Card Systems, Inc. , a Delaware corporation
(“ NMHC ”) and Mark Adkison , a
resident of Maine (“ Executive ”).
Certain capitalized terms used in this Agreement are defined in
Section 9 hereof.
RECITAL
WHEREAS, Executive is employed as the
Chief Specialty Officer of NMHC;
WHEREAS, NMHC and Executive wish to
document the terms of the employment of Executive in such
capacity;
WHEREAS, NMHC and Executive currently
are parties to certain agreements relating to their employment
relationship as described on Exhibit “A”
attached hereto (the “ Preexisting Agreements
”), which NMHC and Executive desire to terminate in their
entirety and replace with this Agreement.
WHEREAS, Executive has represented to
NMHC and NMHC has relied on Executive’s representation that
the execution of this Agreement by Executive, and the provision of
services by Executive to NMHC as contemplated in this Agreement,
will not conflict with, or cause Executive or any other Person to
be in breach of (i) any other contract to which Executive is a
party or (ii) any duty which Executive may owe to any other
Person.
AGREEMENT
NOW, THEREFORE, for good and
valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follows:
1. Duties;
Disclosure of Information .
1.1
Duties . During the term of this Agreement (including all
renewal periods, if any, the “ Term ”),
Executive agrees to be employed by and to serve NMHC as Chief
Specialty Officer, and NMHC agrees to employ and retain Executive
in such capacity subject to the provisions of this Agreement.
Executive shall have such duties and responsibilities as are
customarily assigned to individuals serving in such positions, as
the same may be described in NMHC’s bylaws, as the same may
be amended from time to time, and such other duties consistent with
Executive’s titles and positions as the Board of Directors of
NMHC (the “ Board ”) shall from time to
time lawfully direct. Executive shall devote substantially all of
Executive’s business time, energy, and skill to the business
of NMHC and the other NMHC Entities. Executive shall at all times
act in a manner consistent with, and otherwise comply with, any and
all codes of business conduct and ethics of NMHC and all insider
trading policies of NMHC, as the same may be adopted or amended
from time to time and provided to Executive in
writing.
Executive will promote the goodwill of NMHC among its customers,
shareholders, employees, vendors, and the general public.
1.2
Disclosure of Competitively Sensitive Information .
Executive acknowledges that NMHC has disclosed to Executive various
Confidential Information. During the Term, NMHC shall disclose to
Executive various additional Confidential Information, including
without limitation pricing and marketing information and strategies
being used and contemplated to be used by NMHC Entities, and human
resources information. Executive acknowledges and agrees that all
Confidential Information which may have been previously disclosed
to him belongs to NMHC and, in consideration of the promises
contained herein, Executive disclaims any interest in the
Confidential Information.
2. Term and
Termination .
2.1
Term . Subject to Section 2.2, the term of employment
of Executive by NMHC pursuant to this Agreement shall be one
(1) year commencing on the Effective Date and shall thereafter
automatically renew for successive additional one-year terms unless
either party provides the other with written notice of its intent
not to renew this Agreement at least ninety (90) days prior to
the end of the Term (including any renewal term, as applicable)
unless terminated earlier pursuant to the provisions of this
Agreement.
2.2 Termination of Employment
.
2.2.1
Termination For Cause . “ Termination For
Cause ” shall mean the termination by NMHC of
Executive’s employment with NMHC as the result of
(i) the failure of Executive substantially to perform
Executive’s duties hereunder; (ii) Executive’s
engaging in misconduct that has caused or is reasonably expected by
the Board to cause material injury to NMHC or all NMHC Entities
taken as a whole; (iii) Executive’s violation of any
material policy of NMHC, including without limitation insider
trading, harassment and discrimination policies, copies of which
have been provided to Executive in writing;
(iv) Executive’s indictment or conviction of, or
entering a plea of guilty or nolo contendere to, a crime that
constitutes a felony; or (v) the material breach by Executive
of any of Executive’s obligations hereunder or under any
other written agreement or covenant with NMHC or any NMHC Entity,
in each case in clauses (i), (ii), (iii) and (v) after
receipt of written notice from NMHC specifying the grounds for
Termination for Cause and (only in the event that the nature of the
grounds, in the good faith opinion of the Board, are not related to
any willful misconduct or dishonesty of Executive and otherwise are
able to be cured) failure by Executive to cure such breach within
fifteen (15) days from receipt of notice. Executive’s
inability to perform Executive’s obligations under this
Agreement despite Executive’s best efforts as a result of
being Permanently Disabled shall not result in a Termination For
Cause. Upon any Termination For Cause, Executive shall be paid the
Accrued Obligations within three (3) business days following
the effective date of termination but shall not be paid any
severance compensation. Any other accrued benefits provided under
employee benefit programs maintained by NMHC, including qualified
and nonqualified programs, shall be payable according to their
terms.
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2.2.2
Termination Other Than For Cause . “ Termination
Other Than For Cause ” shall mean
(i) termination by NMHC of Executive’s employment with
NMHC (for any reason other than a Termination For Cause,
Termination by Reason of Death, Termination by Reason of
Incapacity, or a refusal by NMHC to renew the Term of this
Agreement following the expiration of the initial or any renewal
term as set forth in Section 2.1), or (ii) termination by
Executive upon constructive termination of Executive’s
employment with NMHC by reason of (A) a reduction in
Executive’s Base Salary; (B) a Material Diminution;
(C) a requirement by NMHC that Executive change the office to
which Executive is primarily assigned to a location that is outside
the Office Area; (D) a change by NMHC of its reimbursement
policy for travel and living expenses (compared to such policy as
in effect on the Effective Date) that would have a material
negative impact on reimbursement payments to Executive in respect
of the travel obligations required of Executive by NMHC; or
(E) NMHC’s continued material breach of this Agreement
(other than based on circumstances that could constitute a Material
Diminution) after, in each case, receipt of written notice from
Executive specifying the basis for such constructive termination
and failure by NMHC to cure within fifteen (15) days from
receipt of such notice. Termination Other Than For Cause may be
effected by NMHC at any time by providing Executive with written
notice of such termination by NMHC. The termination shall be
effective as of the date of the notice or such later date as may be
determined by NMHC. Executive may effect a Termination Other Than
For Cause upon written notice to NMHC at any time specifying any of
the conditions for constructive termination set forth in clause
(ii) above (including without limitation the expiration of the
cure period) have been met; provided, however, that during the six
(6) month period following a Change in Control, Executive may
not effect a Termination Other Than For Cause based upon a Material
Diminution. Upon any Termination Other Than For Cause, Executive
shall be paid (i) within three (3) business days
following the effective date of termination the amount of the
Accrued Obligations; and (ii) (subject to Section 2.2.8) the
Severance Compensation. Any other accrued benefits provided under
employee benefit programs maintained by NMHC, including qualified
and nonqualified programs, shall be payable according to their
terms.
2.2.3
Executive Voluntary Termination . “ Executive
Voluntary Termination ” shall mean termination by
Executive of Executive’s employment with NMHC for any reason
other than Termination Other Than For Cause, Termination by Reason
of Death or Termination by Reason of Incapacity. Executive
Voluntary Termination may be effected by Executive at any time by
providing NMHC with written or oral notice of such termination. The
termination shall be effective as of the date of the notice. In the
event of an Executive Voluntary Termination, Executive shall be
paid within three (3) business days following the effective
date of termination the amount of the Accrued Obligations but shall
not be paid any severance compensation. Any other accrued benefits
provided under employee benefit programs maintained by NMHC,
including qualified and nonqualified programs, shall be payable
according to their terms.
2.2.4
Termination by Reason of Incapacity . If, during the Term,
Executive shall become Permanently Disabled, NMHC may terminate
Executive’s employment with NMHC effective on the earliest
date permitted under applicable law, if any, and such termination
shall be deemed “ Termination by Reason of
Incapacity ”. Upon termination of
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employment under this Section, Executive shall be paid
(i) within three (3) business days following the
effective date of termination the amount of the Accrued
Obligations; and (ii) (subject to Section 2.2.8) an amount
equal to the difference of (A) the Severance Compensation less
(B) the Prorated Disability Benefit Amount. As used herein,
“ Prorated Disability Benefit Amount ”
means an amount equal to the product of (i) any payment or
payments payable to Executive during the twelve (12) month
period following the time of termination under any long-term
disability policy multiplied by (ii) the percentage of the
premiums under such policy that were paid by NMHC. Any other
accrued benefits provided under employee benefit programs
maintained by NMHC, including qualified and nonqualified programs,
shall be payable according to their terms.
2.2.5
Termination by Reason of Death . In the event of
Executive’s death during the Term (“ Termination
by Reason of Death ”), Executive’s employment
with NMHC shall be deemed to have terminated as of the date on
which Executive’s death occurs, and the estate of Executive
shall be paid (i) within fifteen (15) days following the
effective date of termination, the amount of the Accrued
Obligations; and (ii) an amount equal to the difference of
(A) the Severance Compensation less (B) the Prorated
Death Benefit Amount. As used herein, “ Prorated Death
Benefit Amount ” means an amount equal to the product
of (i) any payment or payments payable to Executive’s
beneficiaries under any life insurance policy multiplied by
(ii) the percentage of the premiums under such policy that
were paid by NMHC. Any other accrued benefits provided under
employee benefit programs maintained by NMHC, including qualified
and nonqualified programs, shall be payable according to their
terms.
2.2.6
Termination Upon Expiration of Agreement . In the event that
NMHC refuses for any reason to extend the Term of this Agreement by
giving written notice at least ninety (90) days prior to the
initial or any renewal period as set forth in Section 2.1,
Executive shall be paid (i) within three (3) business days
following the effective date of termination the amount of the
Accrued Obligations; and (ii) (subject to Section 2.2.8) the
Severance Compensation. Any other accrued benefits provided under
employee benefit programs maintained by NMHC, including qualified
and nonqualified programs, shall be payable according to their
terms. In the event that Executive refuses for any reason (except
as otherwise provided herein) to extend the Term of this Agreement
by giving written notice at least ninety (90) days prior to
the initial or any renewal period as set forth in Section 2.1,
the expiration of this Agreement shall be deemed an Executive
Voluntary Termination.
2.2.7
Termination of Relationship with Affiliated Entities .
Unless agreed by NMHC (or another NMHC Entity) and Executive in a
separate written agreement (other than corporate minutes,
resolutions, charter documents, bylaws, or partnership agreements),
upon the termination of Executive’s employment with NMHC for
any reason, Executive shall tender a written resignation (in form
and substance reasonably acceptable to NMHC) of any positions
Executive may have with NMHC and any and all other NMHC
Entities.
2.2.8
Conditions to Payment; Sole Remedy . Except in the case of a
Termination by Reason of Death, Executive shall not be entitled to
receive any Severance
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Compensation or Change in Control Compensation unless Executive
shall have executed and delivered to NMHC (i) a release
substantially in the form attached hereto as Exhibit
“B” (the “ Release ”)
within ten (10) business days following the date of
termination of Executive’s employment and all revocation and
waiting periods applicable to such Release have expired and (ii) a
written resignation as contemplated in Section 2.2.7. In
addition, in the event that Executive breaches any of the
restrictive covenants set forth in Section 4 at any time, NMHC
shall be entitled to discontinue any Severance Compensation
(provided, however, that if it is finally determined by a court of
competent jurisdiction or an arbitrator that NMHC asserted in bad
faith that Executive breached any of the restrictive covenants set
forth in Section 4, the payments of the Severance Compensation
shall be extended for two months for each calendar month that
payments were delayed, with the intent and effect that Executive
shall be paid double for each delayed month). The Severance
Compensation (or Change in Control Compensation, as applicable) to
be paid to Executive shall, except as expressly provided in the
proviso in the immediately preceding sentence, represent the sole
and exclusive remedy of Executive in connection with the
termination of Executive’s employment and this Agreement upon
a Termination Other Than for Cause, a Termination by Reason of
Incapacity, a Termination by Reason of Death, or a refusal by NMHC
to extend the Term of this Agreement.
2.2.9
Timing of Severance Payments.
2.2.9.1
Generally . Unless otherwise required to be delayed pursuant
to Section 2.2.9.2 below, the Severance Compensation shall be paid
in equal installments over a period of twelve (12) months from
the date of termination of employment in accordance with
NMHC’s normal payroll policies.
2.2.9.2
Limitations . If Executive is a “specified
employee” within the meaning of Section 409A of the Code
and the final regulations thereunder (“
Section 409A ”) at the time of
Executive’s termination, and the Severance Compensation to be
paid to Executive pursuant to this Agreement will not be paid in
full by March 15 of the year following the year in which
termination of Executive’s employment occurs, then only that
portion of such Severance Compensation which does not exceed the
Section 409A Limit may be paid within the first six
(6) months following termination of Executive’s
employment in accordance with the payment schedule set forth in
Section 2.2.9.1 above. Any portion of such Severance
Compensation in excess of the Section 409A Limit shall accrue
and, to the extent such portion of the Severance Compensation would
otherwise have been payable within the first six (6) months
following termination of Executive’s employment pursuant to
Section 2.2.9.1 above, will become payable on the date that is six
(6) months and one (1) day following the date of
Executive’s termination of employment (such payment, the
“ Catch-Up Payment ”). All subsequent
Severance Compensation, if any, will be payable as provided in
Section 2.2.9.1 of this Agreement. It is the intent of this
provision to comply with the requirements of Section 409A, and
any ambiguities herein will be interpreted to so comply. For
purposes of this Agreement, the “ Section 409A
Limit ” means the lesser of two (2) times:
(i) the Executive’s annualized compensation based upon
the Executive’s annual rate of pay (unless otherwise defined
by applicable guidance issued by the IRS after the date of this
Agreement, “annual rate of pay” shall include Base
Salary and bonus compensation, adjusted for any increase during
that year that was expected to continue
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indefinitely had Executive’s employment not terminated) to
Executive during NMHC’s taxable year preceding NMHC’s
taxable year during which termination of employment occurs, or
(ii) the maximum amount that may be taken into account under a
qualified plan pursuant to Section 401(a)(17) of the Code for
the year in which Executive’s employment is terminated.
Notwithstanding the foregoing, (i) any payment that would not
be considered a deferral of compensation for purposes of
Section 409A shall be made at the time scheduled for payment
without regard to the six (6) month delay referred to above,
and (ii) except for the Catch-Up Payment, if any, under no
circumstances shall Executive be entitled to receive payments in
any pay period exceeding the pro rata portion of the Severance
Compensation that otherwise would be payable in such pay period
under Section 2.2.9.1. Each periodic payment of Severance
Compensation shall be considered a separate payment for purposes of
Section 409A.
3. Salary,
Benefits, Bonus and Equity .
3.1
Base Salary . As payment for the services to be rendered by
Executive as provided in Section 1 and subject to the terms
and conditions of Section 2, NMHC agrees to pay to Executive a
“ Base Salary ” at the rate of $220,000
per annum. The Board shall review Executive’s Base Salary
annually during the period of Executive’s employment
hereunder and, in its sole discretion, may increase (but not at any
time decrease) such Base Salary from time to time based upon the
Executive’s performance, the financial condition of NMHC,
salaries of executives in similar positions at other comparable
companies in the industry, and such other factors as the Board
shall consider relevant. The Base Salary shall be payable in
accordance with the then-current payroll policies of NMHC. Any
failure to pay Base Salary in accordance with the terms of this
Section 3.1 shall be considered a material breach of this
Agreement.
3.2
Bonuses . Executive shall be eligible to receive a bonus
each year (with a target amount equal to fifty percent (50%) of
Executive’s Base Salary) as may be determined from time to
time by the Board, with the actual amount (if any) of any such
bonus to be determined in the sole discretion of the Board. The
Board is under no obligation to declare, and NMHC is under no
obligation to pay, any bonus to Executive under the terms of this
Agreement or otherwise. If after the Effective Date, Executive and
NMHC enter into a written agreement or plan executed by both NMHC
and Executive that governs bonus arrangements, and the provisions
thereof conflict with this Section 3.2, the terms of such
other written agreement or plan shall supersede this
Section 3.2.
3.3
Additional Benefits . During the Term (or thereafter, to the
extent expressly provided herein), Executive shall be entitled to
the following fringe benefits:
3.3.1
Benefits and Vacation . Executive shall be entitled to
participate in such profit sharing, pension, retirement, deferred
compensation, savings, life, medical, dental, disability and other
welfare benefit plans maintained by NMHC in accordance with the
terms thereof, as the same may be amended and in effect from time
to time, as are now generally available or later made generally
available to executive officers of NMHC. A termination or
expiration of this Agreement for any reason or for no reason shall
not affect any rights which Executive may have pursuant to any
agreement, policy, plan, program or arrangement of NMHC providing
Executive benefits (including under any stock option agreement or
bonus plan or
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similar
agreements which may exist), which rights shall be governed by the
terms thereof. Executive shall be entitled to 22 days paid
vacation each calendar year (prorated for partial years). Accrued
vacation not taken in any applicable period shall not be carried
forward or used in any subsequent period.
3.3.2
Reimbursement for Expenses . NMHC shall reimburse Executive
for reasonable and properly documented out-of-pocket business
and/or entertainment expenses incurred by Executive in connection
with Executive’s duties under this Agreement. Any such
expenses shall be submitted by Executive to NMHC on a periodic
basis and will be paid in accordance with the then-current NMHC
policies and procedures.
3.3.3
Change in Control Compensation; Transition Period
Obligations .
3.3.3.1
Change in Control Compensation . In the event that
(i) a Change in Control occurs during the Term and
(ii) Executive’s employment with NMHC terminates at any
time within two (2) years following the occurrence of the
Change in Control pursuant to a Permitted Termination Event, then
in lieu of any Severance Compensation then owed or that otherwise
may be owed in the future to Executive under this Agreement, NMHC
shall pay Executive both (A) the Accrued Obligations within
three (3) business days after the termination of
Executive’s employment and (B) subject to
Section 2.2.8, the Change in Control Compensation within three
(3) business days after all revocation and waiting periods
applicable to the Release have expired. In the interest of clarity,
NMHC and Executive agree that, following the occurrence of a Change
in Control and a payment of the Change in Control Compensation to
Executive, the provisions of this Agreement requiring payment of
Severance Compensation to Executive shall automatically be deemed
null and void and shall not apply with respect to any termination
of Executive’s employment (whether such termination is
effected in connection with the Change in Control or at any time in
the future following the Change in Control), and under no
circumstances shall NMHC ever be obligated to pay Executive both
Change in Control Compensation and Severance Compensation.
3.3.3.2
Transition Period Obligations . Executive agrees to remain
an employee of NMHC to provide transition and other services for a
period of six (6) months following the occurrence of a Change
in Control (such six (6) month period, the “
Transition Period ”) as requested by NMHC. The
parties agree that NMHC will incur damages in the event that
(i) a Change in Control occurs during the Term and
(ii) Executive’s employment with NMHC terminates at any
time during the Transition Period for any reason other than a
Permitted Termination Event. The amount of damages to be sustained
by NMHC are uncertain and would be difficult to ascertain.
Therefore, in the event that (i) a Change in Control occurs
during the Term and (ii) Executive’s employment with
NMHC terminates at any time during the Transition Period for any
reason other than a Permitted Termination Event, then Executive
shall pay to NMHC, within two (2) business days following the
date of termination, the Transition Period Default Payment. As used
herein, the “ Transition Period Default Payment
” means an amount equal to thirty percent (30%) of the
Accelerated Restricted Stock Value. As used herein, “
Accelerated Restricted Stock Value ” means an
amount equal to the value (computed using the value per share of
NMHC Common Stock at the effective time of the Change in Control)
of the
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number
of shares of Common Stock granted to Executive under the Restricted
Stock Agreement between NMHC and Executive dated November 13,
2007 with respect to which lapsing of restrictions and vesting
accelerated pursuant to the Change in Control. The parties believe
that payment of the Transition Period Default Payment is the
reasonable estimate of the loss of revenues, costs of recruiting a
replacement for Executive to provide transition services following
a Change in Control, and related expenses and is reasonable
compensation to NMHC for these damages. Executive promises to pay,
and NMHC agrees to accept, the Transition Period Default Payment as
liquidated damages, and not as a penalty, if Executive’s
employment shall terminate at any time during the Transition Period
for any reason other than a Permitted Termination Event. NMHC may
setoff any amount to which it may be entitled under this Section
against amounts otherwise payable to Executive to the extent
permitted by Treasury
Regulation Section 1.409A-3(j)(4)(xiii). The exercise of
such right of setoff by NMHC in good faith, whether or not
ultimately determined to be justified, will not constitute an event
of default under this Agreement or any other agreement between NMHC
and Executive. Neither the exercise of nor the failure to exercise
such right of setoff will constitute an election of remedies or
limit NMHC in any manner in the enforcement of any other remedies
that may be available to it.
3.3.3.3
Successor Entities . As used in this Section 3.3.3,
“NMHC” shall be deemed to include NMHC’s
successor in interest, as applicable.
3.3.3.4
Recruiting Firms . In the event the Executive’s
employment is terminated at any time during the Transition Period
for a Permitted Termination Event, NMHC shall, upon the written
request of Executive: (i) waive, by written notice to the
applicable recruiting firms, any restrictions contained in
NMHC’s contracts with such recruiting firms that otherwise
would restrict any recruiting firm then under contract with NMHC
from providing services to the Executive or otherwise contacting
the Executive for other positions and (ii) thereafter refrain
from entering into any contract with a recruiting firm which would
contractually restrict the recruiting firm from providing services
to the Executive or otherwise contacting the Executive for other
positions. Notwithstanding the foregoing, nothing in this Section
shall be construed to terminate, modify or diminish the restrictive
covenants contained in Section 4.
3.3.4
Section 280G Gross-Up .
3.3.4.1
Generally . Anything in this Agreement or any other plan,
arrangement or agreement with NMHC (collectively, Executive’s
“ Employment Related Agreements ”) to the
contrary notwithstanding, in the event Executive shall become
entitled to payments and/or benefits provided by any Employment
Related Agreement or any other amounts in the “nature of
compensation” (whether pursuant to the terms of any
Employment Related Agreement or any other plan, arrangement or
agreement with NMHC, any Person whose actions result in a change of
ownership or effective control of NMHC covered by
Section 280G(b)(2) of the Code or any Person affiliated with
NMHC or such Person) as a result of such change in ownership or
effective control of NMHC (a “ Payment
”), which Payments would subject the Executive to the excise
tax imposed by Section 4999 of the Code or any similar tax
that may hereafter be imposed (the “ Excise Tax
”), NMHC will pay to Executive an additional amount
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(the
“ Gross-Up Payment ”), such that the net
amount retained by Executive with respect to such Payments, after
deduction of any Excise Tax (including any penalties and interest
thereon) on the Payments and any Federal, state and local income
tax, payroll tax, and Excise Tax on the Gross-Up Payment provided
for by this Section 3.3.4 , but before deduction for
any Federal, state or local income or employment tax withholding on
such Payments, will be equal to the amount of the Payments,
together with an amount equal to the product of any deductions
disallowed to Executive for Federal, state, or local income tax
purposes because of the inclusion of the Gross-Up Payment in
Executive’s adjusted gross income multiplied by the highest
applicable marginal rate of Federal, state, or local income
taxation, respectively, for the calendar year in which the Gross-Up
Payment is to be made. The Gross-Up Payment is intended to place
the Executive in the same position he would have been in if the
Excise Tax did not apply.
3.3.4.2
Determination of Amount . Subject to the provisions of
Section 3.3.4.3, all determinations required to be made under
this Agreement, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall
be made by an accounting firm (the “ Accounting
Firm ”), which shall provide detailed supporting
calculations both to NMHC and the Executive within 15 business days
of the receipt of notice from the Executive that there has been or
the Executive reasonably believes there may have been a Payment, or
such earlier time as is requested by NMHC. The Accounting Firm
shall be jointly selected by NMHC and the Executive and shall not,
during the two years preceding the date of its selection, have
acted in any way on behalf of NMHC or its affiliated companies. If
NMHC and the Executive cannot agree on the firm to serve as the
Accounting Firm, then NMHC and the Executive shall each select an
accounting firm and those two firms shall jointly select an
accounting firm to serve as the Accounting Firm. All fees and
expenses of the Accounting Firm shall be borne solely by NMHC. Any
Gross-Up Payment, as determined pursuant to this Agreement, shall
be paid by NMHC to the Executive as provided in
Section 3.3.4.6. If the Accounting Firm determines that no
Excise Tax is payable by the Executive, it shall furnish the
Executive with a written opinion of its determination. Any
determination by the Accounting Firm shall be binding upon NMHC and
the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments that will not have been made by NMHC should have
been made (the “ Underpayment ”),
consistent with the calculations required to be made hereunder. In
the event that NMHC exhausts its remedies pursuant to
Section 3.3.4.3 and Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such
Underpayment shall be paid by NMHC to or for the benefit of the
Executive, together with interest at the rate provided in section
1274(b)(2)(B) of the Code, at the time provided in
Section 3.3.4.6.
3.3.4.3
IRS Claims . The Executive shall notify NMHC in writing of
any claim by the IRS that, if successful, would require the payment
by NMHC of a Gross-Up Payment. Such notification shall be given as
soon as practicable, but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise
NMHC of the nature of such claim and the date on which such claim
is requested to be paid. The failure of the Executive to give the
notice provided in the immediately preceding sentence by the
date
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specified therein shall not affect NMHC’s obligations
hereunder except to the extent NMHC is prejudiced thereby. The
Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which Executive gives such
notice to NMHC (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If NMHC
notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive
shall:
(a) give
NMHC any information reasonably requested by NMHC relating to such
claim,
(b) take
such action in connection with contesting such claim as NMHC shall
reasonably request in writing from time to time, including, without
limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by NMHC,
(c) cooperate
with NMHC in good faith in order effectively to contest such claim,
and
(d) permit
NMHC to participate in any proceedings relating to such claim;
provided , however , that NMHC shall bear and pay
directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and penalties
with respect thereto) imposed as a result of such representation
and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 3.3.4.3, NMHC shall
control all proceedings taken in connection with such contest and,
at its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as NMHC shall
determine; provided, however, that if NMHC directs the Executive to
pay such claim and sue for a refund, NMHC shall advance the amount
of such payment to the Executive, on an interest-free basis and
shall indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such
advance or with respect to any imputed income with respect to such
advance; and further provided the Executive shall not be required
by NMHC to agree to any extension of the statute of limitations
relating to the payment of taxes for the taxable year of the
Executive with
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