EXHIBIT 10.1: EMPLOYMENT AGREEMENT WITH ▇▇▇▇▇▇▇▇ ▇. JUDGE
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into by and
between Paychex, Inc., a Delaware corporation (the "Company"), and ▇▇▇▇▇▇▇▇ ▇.
Judge (the "Executive") as of the 1st day of October, 2004.
WHEREAS, the Company desires to employ Executive as Company's President
and Chief Executive Officer on the terms and conditions set forth herein, and
Executive desires to be so employed by Company;
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. EMPLOYMENT PERIOD. Company hereby agrees to employ Executive, and
Executive hereby agrees to be employed by Company, subject to the terms and
conditions of this Agreement, for a term commencing on October 1, 2004 (the
"Effective Date"), and, unless sooner terminated as provided herein, continuing
for a period of three (3) years (the "Employment Period").
2. POSITION AND DUTIES. During the Employment Period, Executive shall
serve as President and Chief Executive Officer of Company, reporting directly to
Company's Board of Directors (the "Board"), with such authority, duties and
responsibilities as are commensurate with such position. Executive shall also be
presented for appointment as a member of the Board at the Board's next regularly
scheduled meeting in fiscal year 2005 and shall serve as a member of the Board
thereafter, subject to Board nomination and shareholder approval commencing with
the Company's 2005 annual meeting of shareholders for fiscal year 2006.
3. COMPENSATION.
(a) BASE SALARY. During the Employment Period, Executive shall
receive an annual base salary of $800,000 paid bi-weekly on Fridays (the "Annual
Base Salary"). The amount of the Annual Base Salary shall be reviewed annually
and increased by such amount, if any, as may be determined by the Board upon
recommendation of the Compensation Committee of the Board. In no event will the
Annual Base Salary be reduced below $800,000.
(b) ANNUAL BONUS. During the Employment Period, Executive
shall be eligible to receive an annual cash incentive bonus (the "Annual
Bonus"). For Company's fiscal year 2005, Executive will be entitled to an Annual
Bonus of up to 100% of Annual Base Salary with a payout ranging from 20% to 100%
depending on achievement of Company objectives as described in Exhibit 1
attached hereto and made a part hereof, pro rated based upon the eight-month
portion of the Employment Period in fiscal 2005. For subsequent periods during
the Employment Period, Annual Bonus plans and objectives will be subject to
prior review and input by Executive, but shall be determined at the sole
discretion of the Board and the Governance and Compensation Committee of the
Board. It is anticipated that Annual Bonus plans and objectives for such
subsequent periods will generally follow the plans and objectives as applicable
for Company's fiscal year 2005.
(c) STOCK OPTION GRANTS.
(i) As an inducement material to Executive's entering
into this Agreement, Company shall grant Executive options to acquire 100,000
shares of Company's common stock for an exercise price equal to the fair market
value of Company's common stock on the Effective Date pursuant to the terms of a
Paychex, Inc. 2002 Stock Incentive Plan Non-Qualified Stock Option Agreement,
and options to acquire an additional 550,000 shares of Company's common stock
for an exercise price equal to the fair market value of Company's common stock
on the Effective Date pursuant to the terms of a Non-Qualified Stock Option
Agreement (collectively, the "Initial Option Grant"). Such options shall have a
term of ten (10) years and shall vest 33 1/3% on each of the second, third and
fourth anniversaries of the Effective Date, unless accelerated in accordance
with the provisions of Section 6(a)(ii) hereof.
(ii) In conjunction with the annual review process
for Company's executive officers, the Board will review Executive's compensation
plan and may, in its sole discretion, grant additional options to acquire shares
of Company's common stock based upon (A) Executive's performance, (B)
recommendations of the Governance and Compensation Committee, and (C) option
pool availability.
(d) EXPENSES. During the Employment Period, Executive shall
be entitled to reimbursement for all reasonable expenses incurred by Executive
associated with the conduct of Company's business in accordance with Company's
policies, including without limitation, the expenses described in Section 4,
below.
(e) OTHER BENEFITS. During the Employment Period, Executive
shall be entitled to participate in:
(i) Company's medical and dental insurance, life / AD&D
insurance, long term disability insurance and 401k plan;
(ii) Company's deferred compensation plan for senior
executives;
(iii) Healthcare benefits for Executive and members of
his family which are integral to Company's standard benefit schemes;
(iv) D&O insurance and indemnification consistent with
the coverage provided to other directors and officers; and
(v) All other standard benefits available to Company's
senior executive employees, including vacation entitlements, sick
leave, paid holidays and floating holidays, according to Company's
standard benefit schemes.
-2-
4. RELOCATION. On or before the date hereof, Executive shall begin
efforts to relocate to the greater Rochester, New York area, such relocation to
be completed within a reasonable time. Reasonable expenses incurred by Executive
in connection with travel, moving, living, accommodation and transportation to,
from and within Rochester, New York will be reimbursed to Executive in
accordance with Company's relocation policy. Following conclusion of relocation
to the greater Rochester, New York area, Executive shall be given a "gross-up"
payment for any and all income taxes incurred by Executive in connection with
reimbursement of such expenses by Company.
5. TERMINATION OF EMPLOYMENT.
(a) CAUSE. Company may terminate Executive's employment during
the Employment Period with or without Cause. For purposes of this Agreement,
"Cause" shall mean dereliction of duty (after notice and a reasonable
opportunity to cure, to the extent curable), conviction for a felony, willful
misconduct, or failure to follow a lawful directive from the Board of Directors
(after notice and a reasonable opportunity to cure, to the extent curable).
(b) GOOD REASON. Executive's employment may be terminated by
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean (i) failure of Company to make any payments or equity grants to Executive
or any other material breach by Company of its obligations to Executive within
30 days after the same shall be due, and (ii) any material reduction in
Executive's duties, authority or responsibilities.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) GOOD REASON; OTHER THAN FOR CAUSE. If, during the
Employment Period, Company shall terminate Executive's employment other than for
Cause or Executive shall terminate employment for Good Reason:
(i) Company shall pay to Executive within 30 days after the
Date of Termination the aggregate of one (1) year's Annual Base Salary, plus
(x) in the case of any such termination in Fiscal Year 2005, an Annual Bonus
determined at 100% of Plan (and without pro-ration) , and (y) in the case of
any termination thereafter, an Annual Bonus determined at the same percentage
of Plan as was the case for the bonus determination for the immediately
preceding fiscal year (and without pro-ration).
(ii) any options included in the Initial Option Grant that
have not previously vested shall vest and become exercisable immediately.
(b) CAUSE; OTHER THAN FOR GOOD REASON. If Executive's
employment is terminated during the Employment Period (i) by Company for Cause,
or (ii) by Executive without Good Reason, this Agreement shall terminate without
further obligations of Company to Executive or his legal representatives under
this Agreement, other than Company's obligations for accrued salary, vacation
and any earned and unpaid bonus.
-3-
7. LEGAL EXPENSES. Company shall reimburse Executive for his reasonable
legal, tax and other consultant fees associated with negotiation of this
Agreement, up to an aggregate maximum of $12,500.
8. CONFIDENTIAL INFORMATION.
(a) Executive shall hold in a fiduciary capacity for the benefit of
Company all secret or confidential information, knowledge or data relating to
Company or any of its affiliated companies, and their respective businesses,
which shall have been obtained by Executive during Executive's employment by
Company. After termination of Executive's employment with Company, Executive
shall not, without the prior written consent of Company or as may otherwise be
required by law or legal process, communicate or divulge any such information,
knowledge or data to anyone other than Company and those designated by it.
(b) In the event of a breach or threatened breach of this Section 8,
Executive agrees that Company shall be entitled to injunctive relief to remedy
any such breach or threatened breach. Executive acknowledges that damages would
be inadequate and insufficient. This Section 8 shall survive any termination of
Executive's employment or of this Agreement.
9. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York. The exclusive jurisdiction and venue of
any action arising out this Agreement shall be New York State Supreme Court,
County of Monroe.
(b) This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.
(c) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to Executive: If to Company:
---------------- --------------
▇▇▇▇▇▇▇▇ ▇. Judge Paychex, Inc.
_______________ ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
_______________ ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(d) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement. The Company represents and warrants that the
execution, delivery and performance of this Agreement have been duly authorized
and that it is legal, valid and binding upon the Company.
-4-
(e) Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation. Any amounts due to the
Executive hereunder shall not be subject to any duty of mitigation or offset and
shall be paid to his heirs and/or legal representatives in the event of his
death.
(f) This Agreement constitutes the entire agreement between
Company and Executive and supersedes any other agreements or understandings,
whether written or oral, which relate to the subject matter hereof.
IN WITNESS WHEREOF, Executive has hereunto set his hand and, pursuant
to the authorization from its Board of Directors, Company has caused this
Agreement to be executed in its name on its behalf, all as of the day and year
first above written.
Paychex, Inc.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
----------------------------------------
▇▇▇▇ ▇▇▇▇▇▇
Senior Vice President, Chief Financial
Officer, Secretary, and Treasurer
/s/ ▇▇▇▇▇▇▇▇ ▇. Judge
----------------------------------------
▇▇▇▇▇▇▇▇ ▇. Judge
-5-
EXHIBIT 1
FISCAL 2005 ANNUAL BONUS
------------------------
Executive's Annual Bonus for 2005 will be determined as a percentage of
Annual Base Salary, pro rated based upon the commencement date of the Employment
Period, based upon the following components:
Minimum Plan
------- ----
Revenue Growth % of Plan 97.0 100
Payout 5.0% 20.0%
Operating Income Growth* % of Plan 95.0 100
Payout 5.0% 20.0%
Operating Income %
Of Service Revenues Objective 33.3% 34.3%
Payout 10.0% 40.0%
Qualitative Bonus-Objectives Payout 0.0% 20.0%
------------------
20.0% 100%
------------------
Bonus awards, if any, for over-achievement of operating objectives will be
determined by and made at the recommendation of the Compensation Committee and
approval of the Board. In the event of the achievement of operating objectives
between "Minimum" and "Plan" the Executive will receive a pro rated "Payout"
between "Minimum" and "Plan."
*Excluding interest on funds held for clients.
-6-