Exhibit 10.12
EMPLOYMENT
AGREEMENT
EMPLOYMENT AGREEMENT, dated as of
March 18, 2006 by and among Madison River Telephone Company
LLC, a Delaware limited liability company (“Holdings”),
and J. Stephen Vanderwoude (“Executive”).
RECITALS
Holdings and Executive entered into
an employment agreement dated as of June 4, 1996 and such
agreement has been amended on five occasions on or about
October 8, 1996, January 24,
1997, October 16, 1997, September 15, 1999 and
November 1, 2002, and such agreement with its amendments
expires on December 31, 2005.
Holdings and Executive desire to
renew and amend an employment agreement.
Holdings has acquired and operates
rural telephone companies and other telecommunications
operations.
Holdings has the following classes
of equity: Class A equity, Class B equity, Class C equity and
Class D equity. Class A equity will be entitled to
distributions prior to the Class B, Class C equities and Class D
equity.
In order to induce Executive to
agree to continue to serve as Managing Director—Chief
Executive Officer of Holdings (hereinafter “Managing
Director”), Holdings desires to provide Executive with
compensation and other benefits on the terms and conditions set
forth in this Agreement.
Executive is willing to enter into
such employment and perform services for Holdings on the terms and
conditions set forth in this Agreement.
It is therefore hereby agreed by the
parties as follows:
1. Employment .
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(a)
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Subject to the
terms and conditions of this Agreement, Holdings agrees to employ
Executive during the term hereof as Managing Director—Chief
Executive Officer. In his capacity as Managing Director of
Holdings, Executive shall have the customary powers,
responsibilities and authorities of Managing Director and Chief
Executive Officer of corporations of the size, type and nature of
Holdings, as they exist from time to time. Executive shall also be
Managing Director—Chief Executive Officer of all of
Holdings’ subsidiaries unless otherwise agreed by Executive.
Compensation and expenses of Executive shall be allocated based on
the procedures agreed upon by and between Holdings and
subsidiaries.
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(b)
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Holdings shall,
as long as Executive is employed in his capacity as Managing
Director, use its best efforts to cause the election and retention
of Executive to the Board of Members of Holdings (the
“Board”) as a member of the Board and as Chairman of
the Board of Member and Chief Executive Officer of Holdings.
Holdings shall, as long as Executive is employed in his capacity as
Managing Director, cause Executive to be elected a member and
chairman of the Board of Directors and Chief Executive Officer of
all of Holdings’ subsidiaries unless otherwise agreed by
Executive.
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(c)
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Subject to the terms and
conditions of this Agreement, Executive hereby accepts employment
as Managing Director—Chief Executive Officer of Holdings and
agrees to devote his full working
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time and efforts, to the best of
his ability, experience and talent, to the performance of services,
duties and responsibilities in connection therewith. Nothing in
this Agreement shall preclude Executive from engaging, consistent
with his duties and responsibilities hereunder, in charitable and
community affairs, from managing his personal investments or,
except as otherwise provided in Section 12 hereof, from
serving as a member of boards of directors or as a trustee of other
companies, associations or entities.
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2. Term of Employment
.
Executive’s term of employment
under this Agreement shall commence on January 1, 2006 (the
“Approval Date”) and, subject to the terms hereof,
shall terminate on March 31, 2009 (unless and until extended
from time to time by mutual written agreement of the parties, the
“Termination Date”).
3. Compensation .
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3.1
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Initial
Compensation .
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(a)
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Beginning on
the Approval Date and continuing until the Termination Date,
Holdings shall pay Executive a base salary (“Base
Salary”) at the annual rate of $300,000. The Base Salary
shall be payable in accordance with the ordinary payroll practices
of Holdings but in no event less often than monthly in
arrears.
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(b)
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Under
Holding’s Short Term Incentive Compensation Plan,
Executive’s annual target award shall be $375,000.
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(c)
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Executive shall
participate in any compensation plan or program, annual or
long-term, maintained by Holdings and participated in by senior
executives of Holdings generally on terms taking into account
Executive’s title and position with Holdings
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3.2
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Adjustments
to Compensation . The
compensation components as described in Section 3.1 above and
other Sections herein shall be increased from time to time as the
Board shall determine taking into account the success of Holdings,
the performance of Executive, the size, revenues, and earnings of
the businesses held or operated, or contemplated to be held or
operated, by Holdings and market factors
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3.3
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Expenses . Executive is authorized to incur reasonable
expenses in carrying out his duties and responsibilities on behalf
of Holdings under this Agreement, including, without limitation,
expenses for travel and similar items related to such
responsibilities which are consistent with Holdings’ policies
in effect from time to time with respect to travel and other
business expenses. Holdings will reimburse Executive for all such
expenses upon presentation by Executive from time to time of an
itemized account of such expenditures; provided that such expenses
are in compliance with any other Holdings’ policies in effect
from time to time with respect to reporting and documentation of
such expenses; it being understood, furthermore, that the cost of
commuting between Executive’s residence and Holdings’
principal place of business and expenses for lodging in connection
with such commuting shall not be reimbursed other than in the event
the principal offices of Holdings are relocated greater than a 40
miles radius from its current location.
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4. Employee Benefits
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4.1
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Employee
Benefit Programs, Plans and Practices . During the term of his employment hereunder,
Holdings shall provide to Executive coverage under any employee
benefit programs, plans and practices (commensurate with his
position in Holdings and to the extent possible under any employee
benefit plan), in accordance with the terms hereof, which Holdings
makes available to its senior executive officers generally,
including but not limited to (i) retirement, pension and
profit-sharing, and (ii) medical, dental, hospitalization,
life insurance, short-and long-term disability, accidental death
and dismemberment and travel accident coverage.
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4.2
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Vacation and
Fringe Benefits .
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(a)
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Executive shall
be entitled to paid vacation each calendar year of no less than 25
working days. Holdings may grant additional vacation time to
Executive.
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(b)
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In addition,
Executive shall be entitled to all of the other perquisites and
fringe benefits accorded the senior officers of Holdings
generally.
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5. Incentive Equity
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5.1
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Purchase
Rights; Vesting.
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(a)
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As of the date
hereof, Executive has purchased from Holdings Class B equity of
Holdings equal to 30% of the total Class B equity of Holdings for
an aggregate purchase price of $3,000 and Class C equity of
Holdings equal to 15.50% of the total Class C equity of Holdings
for an aggregate purchase price of $1,550. Executive has been
awarded 24.0% of Class D equity valued at $2,400 at the time of the
award. Hereafter, Class B, Class C and Class D equity collectively
shall be referred to as “Incentive Equity”. Within 30
days after such purchase or award of Incentive Equity, the
Executive made an election with the Internal Revenue Service under
Section 83(b) of the Internal Revenue Code and the regulations
promulgated thereunder. The parties agree that purchase price or
value for Incentive Equity at the time of purchase or award was at
fair market value: for Class B is $3,000; for Class C is $1,550;
and Class D is $2,400 and that parties shall use and have used such
value for all Federal income tax purposes.
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(b)
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As of the date
hereof, one hundred percent (100%) of Executive’s Class
B equity of Holdings and Class C equity of Holdings is fully vested
and nonforfeitable.
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(c)
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Fifty percent
(50%) of Executive’s Class D Equity vested on
January 1, 2006 and, provided that (except in the case of
vesting pursuant to Section 5.3 (a), 6.2 and 6.3) Executive is
still employed by Holdings, the remaining unvested Class D equity
shall vest on a daily basis over a two year period beginning with
the Approval Date so that the remainder shall have fully vested by
January 1, 2008. In the event of an Initial Public Offering
(“IPO”), fifty percent (50%) of then unvested
Class D Equity shall vest. Any unvested remaining portion of Class
D Equity after the Liquidity Event shall vest pro-rata over the
remaining term through 2008 as described earlier herein.
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(d)
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“Liquidity Event”
means (i) any sale of all or substantially all of the assets
of Holdings on a consolidated basis in one transaction or series of
related transactions (but excluding sales to affiliates) for cash
or marketable securities, (ii) any sale of 50% or
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more of the Investor Equity (as
defined in the LOI) in one transaction or series of related
transactions (but excluding sales to affiliates and, with respect
to individuals, related persons) for cash or marketable securities
or (iii) a merger, share exchange or similar transaction which
accomplishes one of the foregoing.
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5.2
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Distributions . Executive’s unvested Incentive Equity
outstanding at the time of any dividend or other distribution to
Incentive Equity will be entitled to receive the same distributions
per unit as vested Incentive Equity.
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(a)
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Executive’s unvested Incentive Equity will
be subject to repurchase in whole by Holdings, at its option (which
option to repurchase must be elected in writing by Holdings within
ten days of termination and, subject to such repurchase option
being suspended as provided below, consummation of such repurchase
must be effected within 80 days thereafter), at the lower of its
original cost (less all amounts distributed in respect of
Executive’s unvested Incentive Equity) or its Fair Market
Value at the time of termination if Executive ceases to be employed
by Holdings for any reason. Notwithstanding anything in this
agreement to the contrary, in the event that Executive’s
employment is terminated for any reason including due to death or
Disability (but other than by the Executive without Good Reason)
and (i) at or prior to such termination Holdings has entered
into an agreement or agreements regarding a transaction or has
publicly announced its intention to consummate a transaction
(including, but not limited to, a public announcement of an
intention to seek to consummate a transaction), which upon
consummation would trigger a Liquidity Event, or (ii) at or
within six months prior to such termination is or was in active
negotiations regarding a transaction, which upon consummation would
trigger a Liquidity Event, then in either case Holdings’
repurchase right pursuant to the foregoing sentence will be
suspended and if any such transaction is consummated then
Executive’s unvested Incentive Equity shall immediately prior
to the consummation of such transaction become fully vested and all
distributions that would have been payable to Executive on account
of such unvested Incentive Equity subsequent to Executive’s
termination and prior to such vesting shall be made to Executive,
with interest on each such distribution at a rate per annum equal
to the prime rate in effect at the time of each such distribution,
at such time (and any repurchase by Holdings of such Incentive
Equity in connection with Executive’s termination of
employment shall be governed by Section 5.3(b)), it being
understood and agreed that, upon exercise of the repurchase option,
during such suspension and prior to any such vesting hereunder,
distributions that would have been payable to Executive on account
of such unvested Incentive Equity shall not be for the account of
Executive unless and until such Incentive Equity shall become
vested; provided that if none of such transactions is consummated
within two years after Executive’s termination of employment,
or within such two-year period another transaction is consummated
which constitutes a Liquidity Event, then Holdings’ above
repurchase rights shall be reinstated. “Fair Market
Value” shall mean, with respect to any security, the amount
that would be paid to the holder thereof with respect to such
security if all of the assets of Holdings were sold for fair value
to a willing buyer in exchange for cash, all of the debt and other
liabilities not assumed by the buyer were paid in full, all of the
convertible debt and other convertible securities were repaid or
converted (whichever yields more cash to the holders), and then
Holdings were completely liquidated.
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(b)
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Executive’s vested Incentive Equity will
not be subject to repurchase in whole or in part by
Holdings.
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5.4
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Investors’ Agreement
. Holdings has entered into an
investors’ agreement (the “Investors’
Agreement”), registration agreement, and certain other
agreements with Executive and the other members of Holdings
(collectively, the “Investors”).
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5.5
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Restrictions
on Transfer of Incentive Equity . Other than pursuant to Tag-Along Rights,
Registration Rights, and other Exit Rights with respect to his
vested Incentive Equity (as such terms are defined in the LOI and
as such concepts may be incorporated in the agreements referred to
in Section 5.4) Executive may not transfer his Incentive
Equity at any time (other than transfers of Incentive Equity for
estate planning purposes to immediate family members and trusts
and/or other vehicles for the benefit of immediate family members)
without the approval of members of the Board holding a majority of
the votes of all members of the Board who do not have a pecuniary
interest in such transfer, which majority shall include approval by
members of the Board holding a majority of the votes of all of the
members of the Board designated by the Institutional Investors.
However, after a Liquidity Event, any and all vested Incentive
Equity may be transferred subject only to the restrictions that are
then in place for the securities received by other Class A
equity holders in exchange or in consideration for their
Class A equity.
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6. Termination of Employment
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6.1
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Termination
Not for Cause or Termination for Good Reason
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(i)
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Holdings may
terminate Executive’s employment at any time, and Executive
may terminate his employment at any time. If Executive’s
employment is terminated by Holdings other than for Cause (as
defined herein) or due to Executive’s death or Disability (as
defined herein) or Executive terminates his employment for Good
Reason prior to the Termination Date, Executive shall be entitled
to receive from Holdings continued Base Salary (payable in
accordance with the last sentence of Section 3.1 hereof) for
12 months after date of the termination plus, on the sixtieth day
following the end of the fiscal year during which the termination
of Executive’s employment pursuant to this
Section 6.1(a) occurs, an amount in respect of any additional
compensation and plans under Section 3.1 for the period
employed for the fiscal year in which Executive’s employment
is terminated calculated on a pro rata basis using the higher of
target amount under Section 3.1 (b) or the then current
target amount so long as the Short Term Incentive Compensation
(“STIC”) Plan targets are met for such fiscal year;
however, in the event STIC Plan target is not met, then using the
same percentage payout, if any, applicable to the payout of any
bonuses for other senior executives employed by
Holdings.
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(ii)
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In addition, Executive shall
(1) be entitled to receive, within a reasonable period of time
after the date of termination, a cash lump sum equal to
(A) any compensation payments deferred by Executive, together
with any applicable interest or other accruals thereon so long as
it is in compliance with Section 409A of the Internal Revenue
Code, otherwise paid in its original schedule; and (B) any
unpaid amounts, as of the date of such termination, in respect of
any bonus for the fiscal year ending before the fiscal year in
which such termination occurs; (2) for the period from the
date of termination of Executive’s employment until the
eighteen month anniversary of the
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Termination Date (as then in
effect), continue to be covered under and participate in
Holdings’ employee benefit programs, plans and practices with
respect to medical, dental, hospitalization, life insu
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