INCOME CONTINUITY PROGRAM
(As Amended and Restated Effective September 16, 2015)
Section 1 Definitions. The following terms shall have the meaning ascribed to them:
(A) Applicable Bonus shall mean the higher of (i) the Target level bonus for the Participant or (ii) the average of the Participants actual bonus payments for the previous three full years (or shorter if the Participant has been employed by the Company less than three years).
(B) Base Salary shall mean a Participants annual base salary in effect on the date of the Change of Control or the date of termination, whichever is higher.
(C) Board shall mean the board of directors of the Company.
(D) Cause shall mean (i) the Participants conviction of a felony, or (ii) either of the following that, in each case, results in demonstrable harm to the Companys financial condition or business reputation (I) the Participants willful malfeasance or misconduct in relation to the performance of his/her duties to the Company, or (II) the Participants repeated willful refusal to perform his/her duties.
(E) Change of Control shall mean the occurrence of any one or more of the following:
(a) The beneficial ownership (as defined in Rule 13d-3 of the Exchange Act) of securities representing more than twenty-five percent (25%) of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the Company Voting Securities) is accumulated, held or acquired by a Person (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company or an Affiliate thereof, or any corporation owned, directly or indirectly, by the Companys stockholders in substantially the same proportions as their ownership of stock of the Company); provided, however, that any acquisition from the Company or any acquisition pursuant to a transaction that complies with clauses (i), (ii) and (iii) of subparagraph (c) of this definition will not be a Change of Control under this subparagraph (a), and provided further, that immediately prior to such accumulation, holding or acquisition, such Person was not a direct or indirect beneficial owner of 25% or more of the Company Voting Securities; or
(b) Individuals who, as of the effective date of this Program, constitute the Board of Directors (the Incumbent Board) cease for any reason to constitute at least a majority of the Board; provided, however, that an individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Companys stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board will be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
(c) Consummation by the Company of a reorganization, merger or consolidation, or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets or stock of another entity (a Business Combination), in each case, unless immediately following such Business Combination: (i) more than 60% of the combined voting power of then outstanding voting securities entitled to vote generally in the election of directors of (A) the corporation resulting from such Business Combination (the Surviving Corporation), or (B) if applicable, a corporation that as a result of such transaction owns the Company or all or substantially all of the Companys assets either directly or through one or more subsidiaries (the Parent Corporation), is represented, directly or indirectly, by Company Voting Securities outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Company Voting Securities, (ii) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) except to the extent that such ownership of the Company existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
(d) Approval by the Companys stockholders of a complete liquidation or dissolution of the Company.
However, in no event will a Change of Control be deemed to have occurred, with respect to a Participant, if the Participant is part of a purchasing group that consummates the Change of Control transaction. A Participant will be deemed part of a purchasing group for purposes of the preceding sentence if the Participant is an equity holder in the purchasing company or group (except: (i) passive ownership of less than 2% of the stock of the purchasing company; or (ii) ownership of equity participation in the purchasing company or group that is otherwise not significant, as determined prior to the Change of Control by a majority of the nonemployee continuing directors).
(F) Code shall mean the Internal Revenue Code of 1986, as amended, and, as applicable, the regulations promulgated thereunder.
(G) Company shall mean MAXIMUS, Inc., and, after a Change of Control, any successor or successors thereto.
(H) Compensation shall mean the sum of a Participants Applicable Bonus and Base Salary.
(I) Employee Benefits shall mean the employee and fringe benefits and perquisites (including without limitation all medical, dental, life insurance, disability and pension (including maximum matching contributions) benefits) made available to a Participant (and his or her eligible dependents) immediately prior to a Change of Control (or the economic equivalent thereof where pension laws prohibit or restrict such benefits).
(J) Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
(K) Good Reason shall mean with respect to a Participant (i) a material decrease (or failure to increase in accordance with the terms of any employment contract) in the Participants base salary, bonus opportunity or target long-term equity awards, (ii) a material diminution in the Participants authority, duties, or responsibilities, (iii) a material diminution in the authority, duties, or responsibilities of the supervisor to whom the Participant is required to report, (iv) a material diminution in the budget for which the Participant retains authority, (v) a relocation of the Participants primary office more than thirty-five (35) miles from its current location, or (vi) the material breach by the Company of the agreement under which the Participant provides services. If one or more of the above conditions exists, the Participant must provide notice to the Company within a period not to exceed ninety (90) days of the initial existence of the condition. Upon such notice, the Company must be provided a period of thirty (30) days during which it may remedy the condition.
(L) Participant shall mean an employee of the Company designated by the Board as an officer under Section 16 of the Exchange Act, or any other employee specifically designated as a Participant by the Board, at the time of the Change of Control or when terminated pursuant to Section 3(B) of the Program. Once so designated, a Participants rights hereunder may not be diminished unless (i) such Participants position is changed such that he or she is no longer designated as a officer under Section 16 of the Exchange Act in a manner that will not permit him or her to become eligible for any payments hereunder, (ii) the employees designation as a Participant is specifically eliminated by the Board in a manner that will not permit him or her to become eligible for any payments hereunder or (iii) such Participants employment with the Company is terminated in a manner that will not permit him or her to become eligible for any payments hereunder.
(M) Person shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof.
(N) Program shall mean this Income Continuity Program, as it may be amended from time to time.
(O) Severance Payments shall have the meaning ascribed to such term in Section 4.
(P) Total Payments shall have the meaning ascribed to such term in Section 4.
Section 2 Term. This Program shall be effective as of March 21, 2006 and shall continue in effect through December 31, 2009; provided, however, that, commencing on December 31, 2009, and on each December 31 thereafter, this Program shall be automatically extended for one additional year unless, not later than October 31 of such year, the Company provides written notice to each Participant that this Program shall not be so extended. In addition, if this Program is in effect on the date of a Change of Control, then it shall continue in effect for not less than three years following such Change of Control.
Section 3 Income Continuity. If during the term of this Program
(A) a Participants employment with the Company is terminated by the Company without Cause, or a Participant resigns for Good Reason, in each case within 36 months following a Change of Control (or, if later, within 30 days after the lapse of the Companys right to cure the condition resulting in Good Reason), or
(B) a Participants employment with the Company is terminated one year prior to a Change of Control at the request of a party involved in such Change of Control, or otherwise in connection with or in anticipation of a Change of Control.
then in the case of each of clauses (A) and (B) such Participant shall become entitled to the following compensation, benefits and rights, except as otherwise specified by the Chief Executive Officer of the Company with respect to a Participant at the time such Participant is designated as a Participant:
(i) A cash lump sum, payable within ten days following the date of termination, equal to the sum of: (1) any unpaid Base Salary through the date of termination, (2) any bonus earned but unpaid as of the date of termination for any previously completed year, (3) reimbursement for any unreimbursed expenses incurred by such Participant prior to the date of termination, and (4) in the case of the Companys Chief Executive Officer (CEO), an amount equal to 300% of his or her Compensation, and in the case of other Participants, an amount equal to 200% of such Participants Compensation.
(ii) Any unvested Company stock options, restricted stock units or similar equity incentives held by such Participant that are outstanding on the date of termination shall be immediately vested as further described in the terms and conditions applicable to such options, restricted stock units or equity incentives.
(iii) Continued Employee Benefits, at the Companys expense, for such Participant and his/her eligible dependents for a period of 36 months in the case of the CEO and for a period of 24 months in the case of all other Participants following such Participants date of termination, except where the provision of such Employee Benefits would result in a duplication of benefits provided by any subsequent employer. To the extent that these payments are not exempt from Section 409A under the COBRA, reimbursement, in-kind benefit, or other applicable exceptions
thereunder, such payments shall be made at the time and in the amount required under the documents governing each Employee Benefit.
(iv) A lump sum, payable within ten days following the date of termination, equal to $50,000, which is intended for outplacement and financial planning services.
(v) The amounts specified in Section 4.
(vi) All rights such Participant has to indemnification from the Company immediately prior to the Change of Control shall be retained for the maximum period permitted by applicable law, and any directors and officers liability insurance covering such Participant immediately prior to the Change of Control shall be continued throughout the period of any applicable statute of limitations.
(vii) The Company shall reimburse a Participant for all costs and expenses, including all attorneys fees and disbursements, incurred by such Participant in connection with any legal proceedings (including arbitration), which relate to the termination of employment or the interpretation or enforcement of any provision of this Program, where such Participant prevails in such proceeding with respect to at least one material issue. Notwithstanding the foregoing, the Company shall not be obligated to reimburse a Participant for any such costs and expenses in excess of $500,000. Such reimbursements shall be made no later than the two and one-half months following the end of the calendar year, or if later the Companys fiscal year, during which such Participant prevails in such proceeding with respect to at least one material issue.
(C) In no event will the eligibility, compensation, benefits, and rights described above be decreased within one year before or thirty-six months after a Change of Control.
(D) Each payment made under this Program shall be considered a separate payment for purposes of Section 409A of the Code.
Section 4 No Excise Tax Gross-Up; Potential Cutback.
(A) In the event a Participant becomes entitled to any amounts or benefits payable in connection with a Change of Control (whether or not such amounts are payable pursuant to this Program) (the Severance Payments), if any of such Severance Payments are subject to the tax (the Excise Tax) imposed by Section 4999 of the Code (or any similar federal, state or local tax that may hereafter be imposed), then the total amount payable under this Program to such Participant shall be reduced so that the maximum amount of the Severance Payments (after reduction) shall be one dollar ($1.00) less than the amount that would cause the Severance Payments to be subject to the Excise Tax; provided, however, that the Severance Payments shall only be reduced to the extent that the after-tax value of amounts received by the Executive after application of the above reduction would exceed the after-tax value of the amounts received without application of such reduction. For this purpose, the after-tax value of an amount shall be determined taking into account all federal, state, and local income, employment and excise taxes applicable to such amount. In making any determination as to
whether the Severance Payments would be subject to an Excise Tax, consideration shall be given to whether any portion of the Severance Payments could reasonably be considered, based on the relevant facts and circumstances, to be reasonable compensation for services rendered (whether before or after the consummation of applicable Change of Control).
(B) All determinations required to be made under this Section 4 and the assumptions to be used in arriving at such determinations, shall be made by the independent public accountants then regularly retained by the Company (the Accounting Firm), which shall provide detailed supporting calculations both to the Company and the Participant. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Company shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company.
Section 5 No Mitigation or Offset. Except as provided in Section 3(iii), a Participant shall not be required to mitigate the amount of any payment or benefit provided for under this Program by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for hereunder be reduced by any compensation or benefits earned or received by such Participant as the result of employment by a subsequent employer, by retirement benefits, by offset against any amount claimed to be owed by such Participant to the Company or otherwise.
Section 6 Validity. The invalidity or unenforceability of any provision of this Program shall not affect the validity or enforceability of any other provision of this Program, which other provision shall remain in full force and effect.
Section 7 Withholding. All payments hereunder shall be reduced by any applicable taxes required by applicable law to be withheld by the Company.
Section 8 Modification or Waiver. No provision of this Program may be modified, waived or discharged, unless such waiver, modification, or discharge is agreed to in writing and signed by any Participant whose rights hereunder would be adversely affected thereby.
Section 9 Applicable Law. This Program shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia, without regard to conflicts of laws principles thereof.
Section 10 No Liability. Neither the Board nor any officer of the Company shall have any liability for any decision made in good faith in interpreting, implementing or operating this Program, including without limitation, any changes made to the definition Good Reason or in identifying the Participants. The Company hereby agrees to indemnify and hold harmless each member of the Board and each officer, for (and in each case, advance) any and all costs and expenses incurred in connection with the administration, operation and implementation of the Program, including without limitation any changes made to the definition Good Reason or in identifying the Participants. No amounts paid under this Section 10 for or on account of any of the foregoing officers or directors shall be included in Compensation under this Program.
Section 11 Arbitration. A Participant and the Company shall attempt to settle amicably through negotiation any controversy, claim or dispute between the parties arising out of or relating to this Program (a Dispute). If a Dispute cannot be settled by such means, the parties agree that it will be submitted to final and binding arbitration before an arbitration tribunal which is, and pursuant to arbitration procedures which are, acceptable to all parties. If the parties cannot or do not otherwise agree within 30 days of the date on which notice of a Dispute is given, any such claim shall be submitted for arbitration by the American Arbitration Association pursuant to the Commercial Arbitration Rules of the American Arbitration Association then in effect. Any arbitration shall be conducted in Virginia. Notice of demand for arbitration shall be provided in writing to the other party. The parties further intend and agree that the final decision or award of the arbitration tribunal shall be binding on the parties and their successors and fully enforceable by any court of competent jurisdiction. The facts and other information relating to any arbitration arising out of or in connection with this Agreement shall be kept confidential to the fullest extent permitted by law. In addition, each party shall bear its own expenses in connection with such arbitration unless otherwise ordered by the arbitrator.
Section 12 Distributions to Specified Employees. Notwithstanding any provision to the contrary, to the extent the Participant is considered a specified employee under Section 409A of the Code and would be entitled to a payment during the six month period beginning on the Participants date of termination that is not otherwise excluded under Section 409A of the Code under the exceptions for short-term deferrals, separation pay arrangements, reimbursements, in-kind distributions, or an otherwise applicable exemption, the payment will not be made to the Participant until the earlier of the six month anniversary of the Participants date of termination or the Participants death.
Section 13 Section 409A of the Code. This Program is intended to comply and shall be administered in a manner that is intended to comply with Section 409A of the Code and the interpretive guidance thereunder, including the exceptions for short-term deferrals, separation pay arrangements, reimbursements, and in-kind distributions. The Program shall be construed and interpreted in accordance with such intent. To the extent potential payments could become subject to Section 409A of the Code, the Company shall amend this Program with the goal of providing Participants with the economic benefits described herein in a manner that does not result in such tax being imposed.