KEY EXECUTIVE EMPLOYMENT PROTECTION AGREEMENT
THIS AGREEMENT between Landstar System, Inc., a Delaware corporation (the Company), andJames B. Gattoni (the Executive), dated as of this 30th day of December, 2000.
W I T N E S S E T H:
WHEREAS, the Company has employed the Executive in an executive officer position and hasdetermined that the Executive holds a position of significant importance with the Company;
WHEREAS, the Company believes that, in the event it is confronted with a situation that couldresult in a change in ownership or control of the Company, continuity of management will beessential to its ability to evaluate and respond to such situation in the best interests ofshareholders;
WHEREAS, the Company understands that any such situation will present significant concerns forthe Executive with respect to his financial and job security;
WHEREAS, the Company desires to assure itself of the Executives services during the period inwhich it is confronting such a situation, and to provide the Executive certain financial assurancesto enable the Executive to perform the responsibilities of his position without undue distractionand to exercise his judgment without bias due to his personal circumstances;
WHEREAS, to achieve these objectives, the Company and the Executive desire to enter into anagreement providing the Company and the Executive with certain rights and obligations upon theoccurrence of a Change of Control (as defined in Section 2);
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it ishereby agreed by and between the Company and the Executive as follows:
1. Operation of Agreement. (a) Effective Date. The effective date of thisAgreement shall be the date on which a Change of Control occurs (the Change of Control Date),provided that, except as provided in Section 1(b), if the Executive is not employed by theCompany on the Change of Control Date, this Agreement shall be void and without effect.Notwithstanding the foregoing, if, prior to the occurrence of a Change of Control or a PotentialChange of Control (as defined in Section 2), the Executive is demoted, the Board of Directors shallhave the right to declare this Agreement void and without effect.
(b) Termination of Employment Following a Potential Change of Control.Notwithstanding Section 1(a), if (i) the Executives employment is terminated by theCompany without Cause (as defined in Section 2) after the occurrence of a Potential Change ofControl and prior to the occurrence of a Change of Control and (ii) a Change of Controloccurs within one year of such termination, the Executive shall be deemed, solely for purposes ofdetermining his rights under this Agreement, to have remained employed until the date such Changeof Control occurs and to have been terminated by the Company without Cause immediately after thisAgreement becomes effective.
(c) Termination of Employment Following Death or Disability. This Agreement shallterminate automatically upon the Executives death or termination due to Disability (as defined inSection 2).
2. Definitions. (a) Change of Control. For the purposes of thisAgreement, a Change of Control shall mean (i) any person, including a group (as suchterms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended(the Act)), but excluding the Company, any of its subsidiaries, or any employee benefit plan ofthe Company or any of its subsidiaries, or any employee benefit plan of the Company or any of itssubsidiaries, is or becomes the beneficial owner (as defined in Rule 13(d)(3) under the Act),directly or indirectly, of common stock of the Company representing the greater of 35% or more ofthe combined voting power of the Companys then outstanding common stock; (ii) theshareholders of the Company approve a definitive agreement (a) for the merger or otherbusiness combination of the Company with or into another corporation, a majority of the directorsof which were not directors of the Company immediately prior to the merger and in which theshareholders of the Company immediately prior to the effective date of such merger directly orindirectly own less than 50% of the voting power in such corporation or (b) for the sale orother disposition of all or substantially all of the assets of the Company; or (iii) thepurchase of common stock of the Company pursuant to any tender or exchange offer made by anyperson, including a group (as such terms are used in Sections 13(d) and 14(d)(2) of the Act),other than the Company, any of its subsidiaries, or an employee benefit plan of the Company or anyof its subsidiaries for 35% or more of the common stock of the Company.
(b) Potential Change of Control. For the purposes of this Agreement, a PotentialChange of Control shall be deemed to have occurred if (i) any person (as such term isused in Sections 13(d) and 14(d)(2) of the Act) commences a tender offer for common stock, which ifconsummated, would result in such person owning 35% or more of the combined voting power of theCompanys then outstanding common stock; (ii) the Company enters into an agreement theconsummation of which would constitute a Change of Control; (iii) proxies for the electionof directors of the Company are solicited by anyone other than the Company; or (iv) anyother event occurs which is deemed to be a Potential Change of Control by the Board of Directors ofthe Company.
(c) Cause. For the purposes of this Agreement, Cause means (i) theExecutives conviction or plea of nolo contendere to a felony; (ii) an act or actsof extreme dishonesty or gross misconduct on the Executives part which result or are intended toresult inmaterial damage to the Companys business or reputation; or (iii) repeated materialviolations by the Executive of his position, authority or responsibilities as in effect at theChange of Control Date, which violations are demonstrably willful and deliberate on the Executivespart and which result in material damage to the Companys business or reputation.
(d) Good Reason. Good Reason means the occurrence of any of the following, withoutthe express written consent of the Executive, after the occurrence of a Potential Change of Controlor a Change of Control:
(i) (A) the assignment to the Executive of any duties inconsistent in anymaterial adverse respect with the Executives position, authority or responsibilities as ineffect at the Change of Control Date, or (B) any other material adverse change insuch position, including titles, authority or responsibilities;
(ii) any failure by the Company, other than an insubstantial or inadvertent failureremedied by the Company promptly after receipt of notice thereof given by the Executive, toprovide the Executive with (A) an annual base salary, as it may be increased fromtime to time (the Base Salary), which is at least equal to the Base Salary paid to theExecutive immediately prior to the Change of Control Date, or (B) incentivecompensation opportunities at a level which is at least equal to the level of incentivecompensation opportunities made available, to the Executive immediately prior to the Changeof Control Date;
(iii) the failure by the Company to permit the Executive (and, to the extentapplicable, his dependents) to participate in or be covered under all pension, retirement,deferred compensation, savings, medical, dental, health, disability, group life, accidentaldeath and travel accident insurance plans and programs of the Company and its affiliatedcompanies at a level that is commensurate with the Executives participation in such plansimmediately prior to the Change of Control Date (or, if more favorable to the Executive, atthe level made available to the Executive or other similarly situated officers at any timethereafter);
(iv) the Companys requiring the Executive to be based at any office or location morethan 50 miles from that location at which he performed his services for the Companyimmediately prior to the Change of Control, except for travel reasonably required in theperformance of the Executives responsibilities; or
(v) any failure by the Company to obtain the assumption and agreement to perform thisAgreement by a successor as contemplated by Section 5.
In no event shall the mere occurrence of a Change of Control, absent any further impact on theExecutive, be deemed to constitute Good Reason.
(e) Disability. For purposes of this Agreement, Disability shall mean theExecutives inability to perform the duties of his position, as determined in accordancewith the policies and procedures applicable with respect to the Companys long-term disabilityplan, as in effect immediately prior to the Change of Control Date.
(f) Notice of Termination. Any termination by the Company for Cause or by theExecutive for Good Reason shall be communicated by Notice of Termination to the other party heretogiven in accordance with Section 6(d). For purposes of this Agreement, a Notice of Terminationmeans a written notice given, in the case of a termination for Cause, within 10 business days ofthe Companys having actual knowledge of the events giving rise to such termination, and in thecase of a termination for Good Reason, within 90 days of the later to occur of (x) theChange of Control Date or (y) the Executives having actual knowledge of the events givingrise to such termination, and which (i) indicates the specific termination provision inthis Agreement relied upon, (ii) sets forth in reasonable detail the facts andcircumstances claimed to provide a basis for termination of the Executives employment under theprovision so indicated, and (iii) if the termination date is other than the date of receiptof such notice, specifies the termination date of this Agreement (which date shall be not more than30 days after the giving of such notice). The failure by the Executive to set forth in the Noticeof Termination any fact or circumstance which contributes to a showing of Good Reason shall notwaive any right of the Executive hereunder or preclude the Executive from asserting such fact orcircumstance in enforcing his rights hereunder.
(g) Date of Termination. For the purpose of this Agreement, the term Date ofTermination means (i) in the case of a termination for which a Notice of Termination isrequired, the date of receipt of such notice of Termination or, if later, the date specifiedtherein, as the case may be, and (ii) in all other cases, the actual date on which theExecutives employment terminates.
3. Employment Protection Benefits. (a) Basic Benefits. If (x) onor before the second anniversary of the Change of Control Date (i) the Company terminatesthe Executives employment for any reason other than for Cause or Disability or (ii) theExecutive voluntarily terminates his employment for Good Reason at any time on or before the secondanniversary of the Change of Control Date or (y) if the Executive voluntarily terminateshis employment, with or without Good Reason, at any time within the 60 day period beginning on the181st day following the Change of Control Date, then the Company shall pay the Executive thefollowing amounts:
(i) the Executives Base Salary earned through the Date of Termination (the EarnedSalary);
(ii) a cash amount (the Severance Amount) equal to one times the sum of
|(A)||one-half (1/2) of the Executives AnnualBase Salary; and|
|(B)||the amount that would have been payable tothe Executive as a target bonus for the year in which the Change ofControl occurs; and|
(iii) any vested amounts or benefits owing to the Executive under the Companysotherwise applicable employee benefit plans and programs, including any compensationpreviously deferred by the Executive (together with any accrued earnings thereon) and notyet paid by the Company and any accrued vacation pay not yet paid by the Company (theAccrued Obligations).
The Earned Salary and Severance Amount shall be paid in a single lump sum as soon aspracticable, but in no event more than ten business days (or at such earlier date required by law)following the Executives Date of Termination. Accrued Obligations shall be paid in accordancewith the terms of the applicable plan, program or arrangement.
(b) Continuation of Benefits. If the Executive receives the Severance Amountdescribed in this Section 3, the Executive (and, to the extent applicable, his dependents) shall beentitled, after the Date of Termination until the earlier of (x) the first anniversary ofhis Date of Termination (the End Date) or (y) the date the Executive becomes eligible forcomparable benefits under a similar plan, policy or program of a subsequent employer, to continueparticipation in all of the Companys employee and executive welfare and fringe benefit plans (theBenefit Plans) as were generally provided to the Executive in accordance with the Companyspolicies and practices immediately prior to the Change of Control Date. To the extent any suchbenefits cannot be provided under the terms of the applicable plan, policy or program, the Companyshall provide a comparable benefit under another plan or from the Companys general assets. TheExecutives participation in the Benefit Plans will be on the same terms and conditions that wouldhave applied had the Executive continued to be employed by the Company through the End Date.
(c) Indemnification. The Company shall indemnify the Executive and hold theExecutive harmless from and against any claim, loss or cause of action arising from or out of theExecutives performance as an officer, director or employee of the Company or any of itssubsidiaries or in any other capacity, including any fiduciary capacity, in which the Executiveserves at the request of the Company to the maximum extent permitted by applicable law and theCompanys Certificate of Incorporation and By-Laws (the Governing Documents), providedthat in no event shall the protection afforded to the Executive hereunder be less than thatafforded under the Governing Documents as in effect immediately prior to the Change of ControlDate.
(d) Certain Further Payments by the Company. In the event that any amounts orbenefits paid or distributed to the Executive pursuant to this Agreement, taken together with anyamounts or benefits otherwise paid or distributed to the Executive by the Company or any affiliatedcompany (collectively, the Covered Payments), are or become subject to the tax (the Excise Tax)imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the Code), or anysimilar tax that may hereafter be imposed, the Company shall pay to the Executive at the timespecified below an additional amount (the Tax Reimbursement Payment) such that the net amountretained by the Executive with respect to such Covered Payments, after deduction of any Excise Taxon the Covered Payments and any Federal, state and local income or employment taxand Excise Tax on the Tax Reimbursement Payment provided for by this Section 3(d), but beforededuction for any Federal, state or local income or employment tax withholding on such CoveredPayments, shall be equal to the amount of the Covered Payments.
The Tax Reimbursement Payment shall be paid to the Executive not later than 10 business daysfollowing the payment of the Covered Payments; provided, however, that if theamount of such Tax Reimbursement Payment cannot be finally determined on or before the date onwhich payment is due, the Company shall pay to the Executive by such date an amount estimated ingood faith by the Companys independent certified public accountants appointed prior to the Changeof Control Date or tax counsel selected by such accountants (the Accountants) to be the minimumamount of such Tax Reimbursement Payment and shall pay the remainder of such Tax ReimbursementPayment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soonas the amount thereof can be determined, but in no event later than 45 calendar days after paymentof the related Covered Payments. In the event that the amount of the estimated Tax ReimbursementPayment exceeds the amount subsequently determined to have been due, such excess shall constitute aloan by the Company to the Executive, payable on the fifth business day after written demand by theCompany for payment (together with interest at the rate provided in Section 1274(b)(2)(B) of theCode).
For purposes of determining whether any of the Covered Payments will be subject to the ExciseTax and the amount of such Excise Tax,
(i) such Covered Payments will be treated as parachute payments within the meaningof Section 280G of the Code, and all parachute payments in excess of the base amount(as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the ExciseTax, unless, and except to the extent that, in the good faith judgment of the Accountants,the Company has a reasonable basis to conclude that such Covered Payments (in whole or inpart) either do not constitute parachute payments or represent reasonable compensationfor personal services actually rendered (within the meaning of Section 280G(b)(4)(B) of theCode) in excess of the base amount, or such parachute payments are otherwise not subject tosuch Excise Tax, and
(ii) the value of any non-cash benefits or any deferred payment or benefit shall bedetermined by the Accountants in accordance with the principles of Section 280G of theCode.
For purposes of determining the amount of the Tax Reimbursement Payment, the Executive shallbe deemed to pay:
(A) Federal income taxes at the highest applicable marginal rate of Federal incometaxation for the calendar year in which the Tax Reimbursement Payment is to be made, and
(B) any applicable state and local income taxes at the highest applicable marginalrate of taxation for the calendar year in which the Tax Reimbursement Payment is to bemade, net of the maximum reduction in Federal income taxes which could be obtained from thededuction of such state or local taxes if paid in such year.
(e) Adjustments to the Tax Reimbursement Payment. In the event that the Excise Taxis subsequently determined by the Accountants or pursuant to any proceeding or negotiations withthe Internal Revenue Service to be less than the amount taken into account hereunder in calculatingthe Tax Reimbursement Payment made, the Executive shall repay to the Company, at the time that theamount of such reduction in the Excise Tax is finally determined, the portion of such prior TaxReimbursement Payment that would not have been paid if such Excise Tax had been applied ininitially calculating such Tax Reimbursement Payment, plus interest on the amount of such repaymentat the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in theevent any portion of the Tax Reimbursement Payment to be refunded to the Company has been paid toany Federal, state or local tax authority, repayment thereof shall not be required until actualrefund or credit of such portion has been made to the Executive, and interest payable to theCompany shall not exceed interest received or credited to the Executive by such tax authority forthe period it held such portion. The Executive and the Company shall mutually agree upon thecourse of action to be pursued (and the method of allocating the expenses thereof) if theExecutives good faith claim for refund or credit is denied.
In the event that the Excise Tax is later determined by the Accountants or pursuant to anyproceeding or negotiations with the Internal Revenue Service to exceed the amount taken intoaccount hereunder at the time the Tax Reimbursement Payment is made (including, but not limited to,by reason of any payment the existence or amount of which cannot be determined at the time of theTax Reimbursement Payment), the Company shall make an additional Tax Reimbursement Payment inrespect of such excess (plus any interest or penalty payable with respect to such excess) at thetime that the amount of such excess is finally determined.
(f) Discharge of the Companys Obligations. Except as expressly provided in Section4, the Severance Amount and the other amounts payable and benefits provided in respect of theExecutive pursuant to this Section 3 following termination of his employment shall be in full andcomplete satisfaction of the Executives rights under this Agreement and any other claims he mayhave in respect of his employment by the Company or any of its subsidiaries. Such amounts shallconstitute liquidated damages with respect to any and all such rights and claims and, upon theExecutives receipt of such amounts, the Company shall be released and discharged from any and allliability to the Executive in connection with this Agreement or otherwise in connection with theExecutives employment with the Company and its subsidiaries. Without limiting the generality ofthe foregoing, the Companys obligation to make the payments provided for in this Agreement andotherwise to perform its obligations hereunder shall not be affected by any circumstances,including, without limitation, any set-off, counterclaim, recoupment, defense or other right whichthe Company may have against the Executiveor others whether by reason of the subsequent employment of the Executive or otherwise.Nothing in this Section 3(f), however, shall in any way limit the Companys obligations to theExecutive pursuant to Section 3(c) hereof.
4. Legal Fees and Expenses. If the Executive asserts any claim in any contest(whether initiated by the Executive or by the Company) as to the validity, enforceability orinterpretation of any provision of this Agreement, the Company shall pay the Executives legalexpenses (or cause such expenses to be paid) including, without limitation, his reasonableattorneys fees, on a quarterly basis, upon presentation of proof of such expenses, providedthat the Executive shall reimburse the Company for such amounts, plus simple interest thereonat the 90-day United States Treasury Bill rate as in effect from time to time, compounded annually,if the Executive shall not prevail, in whole or in part, as to any material issue as to thevalidity, enforceability or interpretation of any provision of this Agreement.
5. Successors. This Agreement shall inure to the benefit of and be binding upon theCompany and its successors. The Company shall require any successor to all or substantially all ofthe business and/or assets of the Company, whether direct or indirect, by purchase, merger,consolidation, acquisition of stock, or otherwise, by an agreement in form and substancesatisfactory to the Executive, expressly to assume and agree to perform this Agreement in the samemanner and to the same extent as the Company would be required to perform if no such succession hadtaken place. This Agreement is personal to the Executive and is not assignable by the Executiveotherwise than by will or the laws of descent and distribution. This Agreement shall inure to thebenefit of and be enforceable by the Executives legal representatives.
6. Miscellaneous. (a) Applicable Law. This Agreement shall be governed byand construed in accordance with the laws of the State of Delaware, applied without reference toprinciples of conflict of laws.
(b) Arbitration. Any dispute or controversy arising under or in connection with thisAgreement shall be resolved by binding arbitration. The arbitration shall be held in Jacksonville,Florida, and except to the extent inconsistent with this Agreement, shall be conducted inaccordance with the Expedited Employment Arbitration Rules of the American Arbitration Associationthen in effect at the time of the arbitration, and otherwise in accordance with principles whichwould be applied by a court of law or equity. The arbitrator shall be acceptable to both theCompany and the Executive. If the parties cannot agree on an acceptable arbitrator, the disputeshall be heard by a panel of three arbitrators, one appointed by each of the parties and the thirdappointed by the other two arbitrators.
(c) Entire Agreement. Upon the Change of Control Date, this Agreement shallconstitute the entire agreement between the parties hereto with respect to the matters referred toherein. There are no promises, representations, inducements or statements between the partiesother than those that are expressly contained herein. This Agreement may not be amended ormodified otherwise than by a written agreement executed by the parties hereto or their respectivesuccessors and legal representatives. In the event anyprovision of this Agreement is invalid or unenforceable, the validity and enforceability ofthe remaining provisions hereof shall not be affected. The Executive acknowledges that he isentering into this Agreement of his own free will and accord, and with no duress, that he has readthis Agreement and that he understands it and its legal consequences.
(d) Notices. All notices and other communications hereunder shall be in writing andshall be given by hand-delivery to the other party or by registered or certified mail, returnreceipt requested, postage prepaid, addressed as follows:
|If to the Executive:||at the home address of the Executive noted on therecords
of the Company
|If to the Company:||Landstar System, Inc.
13410 Sutton Park Drive South
Jacksonville, Florida 32224
Attn.: General Counsel
or to such other address as either party shall have furnished to the other in writing in accordanceherewith. Notice and communications shall be effective when actually received by the addressee.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the Company has caused thisAgreement to be executed in its name on its behalf, and its corporate seal to be hereunto affixedand attested by its Secretary, all as of the day and year first above written.
|LANDSTAR SYSTEM, INC.
|JAMES B. GATTONI|