Transition and Retention Plan - Executone Information Systems Inc. and Robert Hopwood
EXECUTONE Information Systems, Inc.
Transition and Retention Plan
Robert Hopwood
The Boards of Directors of EXECUTONE Information Systems, Inc.
("Executone," which together with its subsidiaries, including Unistar Gaming
Corp. ("Unistar"), is herein referred to as the "Company"), and of Unistar
recognize the current uncertainty associated with the succession in chief
executive leadership in the Company and the Executone Board's announced
consideration of a possible corporate restructuring that would be intended to
(1) enhance shareholder value, (2) more efficiently allocate corporate resources
and (3) channel management focus. The Executone Board also recognizes that
senior management of the Company has made a significant, debt-financed financial
investment in the Company and its future through the EXECUTONE 1994 Executive
Stock Incentive Plan (the "Stock Plan") and that management expects, and is
committed to, playing a leadership role in implementing the Company's business
plans in order to protect and enhance the value of their investment in the
Company and that of all shareholders.
The Executone Board and the Unistar Board have determined, due to the
substantial changes in the Company's business plan and focus since the date the
Stock Plan was adopted and due to the further substantial changes currently
being considered for the Company's business focus and leadership, including the
separation of Unistar from Executone (the "Separation"), to offer a retention
and incentive program ("Transition and Retention Plan") to Robert Hopwood
("Participating Employee") who is currently participating in the Stock Plan.
1. Employment Commitment. Participating Employee will become entitled to
the benefits described below as they vest according to the terms of this Plan,
provided he discharges his employment duties diligently in support of the
business plans, unity and harmony of the Company, and, after the Separation,
Unistar.
2. Extension of Loan Maturity Date. The maturity date on the Participating
Employee's Loan (as defined in the following section) will be the earlier of
March 31, 2001 or the date the Participating Employee ceases to be employed by
Unistar, but shall not occur upon the Separation. All interest due under a Loan
will accrue but will not be payable by the Participating Employee until the
maturity date of the Loan. Unistar shall pay such interest as it becomes due.
Participating Employee acknowledges and agrees that Unistar shall be solely
responsible for the current payment of interest accruing after the Separation.
3. Free Transferability. Shares of Executone purchased by Participating
Employees under the Stock Plan and shares of Unistar purchased upon exercise of
rights distributed to the Participating Employee in connection with the
Separation (collectively, "Plan Shares") will be freely transferable, subject to
applicable securities laws, Company or Unistar policy and the pledge of such
shares to Executone as collateral for Executone's guarantee of the employee's
loan ("Loan") from Bank of America National Trust and Savings Association (the
"Bank") and the advance of interest on the Loan by Executone prior to the
Separation for the Participating Employee's benefit. (The collective amount owed
to the Bank, Executone and Unistar for principal and interest outstanding on a
Loan at any given time is referred to hereafter as the "Loan Balance.") Any
shortfall between the portion of a Loan attributable to any Plan Shares that are
sold and the application of the net sales proceeds against the Loan Balance will
continue to be an outstanding obligation of the Participating Employee, subject
to being offset by a Retention Payment as described in paragraph 5 below.
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4. Purchase Option. Executone [or Unistar] will have the right, but not
the obligation, to purchase Plan Shares from the Participating Employee, at the
market price therefor, at any time on or before March 31, 2001 if the market
price of a share of Executone Common Stock, plus after the Separation one-fifth
of a share of Unistar Common Stock is greater than $3.00 per share. The purchase
price will be paid in each case by first offsetting any Loan Balance, with any
remaining proceeds being delivered to the Participating Employee. To the extent
the net proceeds from the exercise of such purchase option are not sufficient to
offset fully the Loan Balance, the Participating Employee will remain liable for
the Loan Balance under the Loan (which will continue to have the same maturity
date and other provisions described herein), subject to the right to earn a
Retention Payment and the other provisions of this plan.
5. Retention Payment. The Participating Employee will earn a Retention
Payment, as defined below. A Retention Payment will be deemed earned and vested
ratably on a quarterly basis from March 31, 1999 until March 31, 2001, through
continued employment by either Executone Information Systems, Inc. or by UniStar
Gaming Corp. of the Participating Employee as provided herein, as follows: on
March 31, 1999, 33 1/3%; and 8.333% at the end of each calendar quarter
thereafter until March 31, 2001. The Retention Payment earned by a Participating
Employee will be paid in one installment on the maturity date (as defined in
paragraph 2 above) of the Participating Employee's Loan.
6. Determination of Retention Payment Amount. The Retention Payment shall
be that amount as shall be equal to 110% of the excess of the Loan Balance of
the Participating Employee's Loan over (1) the purchase price paid for the
Participating Employee's Plan Shares if Executone or Unistar exercises its
option under paragraph 4 and purchases any or all of the Participating
Employee's Plan Shares, and/or (2) the closing market price of the Participating
Employee's Plan Shares still owned as of the maturity date of the Participating
Employee's Loan (either March 31, 2001, or as of the date of an earlier
termination of employment as provided herein). The Retention Payment will be
applied against a Participating Employee's Loan Balance, and any excess after
the Loan Balance has been paid in full will be paid in cash, subject to any
applicable withholding requirements, at the time the Retention Payment is paid.
7. Acceleration of Vesting. A Retention Payment will be deemed fully
earned, vested and payable prior to March 31, 2001, if the Participating
Employee has remained continuously employed by the Company or Unistar since the
date of this Plan and dies, becomes incapacitated, is terminated without cause
by either the Company or Unistar, or if a "change in control" of the Company
(prior to the Separation) or Unistar (after the Separation) occurs. In each
case, the Retention Payment will be deemed fully earned, vested and payable as
of the date of the qualifying occurrence.
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For purposes of this plan, a "change in control" shall be deemed to have
occurred if, (i) any person, including a "group" as defined in Section 13(d)(3)
of the Securities Exchange Act of 1934, becomes the owner or beneficial owner of
all or substantially all of the Company's assets or of Company securities having
50% or more of the combined voting power of the then outstanding Company
securities that may be cast for the election of the Company's directors (other
than as a result of an issuance of securities initiated by the Company, or open
market purchases approved by the Board, as long as the majority of the Board of
Directors approving the purchases is the majority at the time the purchases are
made); or (ii) as the direct or indirect result of, or in connection with, a
cash tender or exchange offer, a merger or other business combination, a sale of
assets, a contested election or any combination of these transactions, the
persons who were directors of the Company before such transactions cease to
constitute a majority of the Company's Board, or any successor's board, within
one year of the last of such transactions. For purpose of this Plan, the Control
Change Date is the date on which an event described in (i) or (ii) occurs. If a
Change in Control occurs on account of a series of transactions, the Control
Change Date is the date of the last of such transactions. Neither the Separation
of Unistar, nor the sale of all or a portion of the assets of the Company's
Healthcare division, nor the combination of those two events, shall constitute a
Change in Control for the purposes of this plan.
8. Application of Proceeds. The net proceeds from any sales of Plan
Shares, whether a full or partial sale in the market or a full or partial
purchase by Executone or Unistar under paragraph 4, and any Retention Payment
earned by a Participating Employee will in each case be applied first against
any Loan Balance then due the Bank or Executone, then against any Loan Balance
due to Unistar, with any excess proceeds or remaining Retention Payment being
payable to the Participating Employee. The 10% will be paid to the employee.
Unlike under the Stock Plan, employees participating in the Transition and
Retention Plan will not be required to apply 25% of any bonus earned toward
repayment of the Loan Balance.
9. Examples. The following examples illustrate the application of the
Retention Payment in certain cases. These examples are given for illustrative
purposes only and reflect a few, but not all, potential circumstances. The
actual definition of the Retention Payment set forth above, as interpreted by
the Board of Directors of Executone, shall determine the computation and
application of a Retention Payment in each specific case.
Example (a). Assume Participating Employee works for Unistar until
March 31, 2001; the Participating Employee's Loan comes due on March 31, 2001;
the Participating Employee's Plan Shares are contemporaneously sold in the
market for $2.50 a share with the net proceeds delivered to the Bank,
Executone and Unistar; the Loan Balance equals $4.90 a share on the date the
Plan Shares are sold and the proceeds delivered to the Bank, Executone and/or
the Company, as the case may be.
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The Retention Payment is $2.64 [1.10 x ($4.90-2.50)] a share. The
Participating Employee would have discharged fully his or her liability to the
Company and the Bank on the Loan and would receive $0.24 [($4.90-$2.50)*10%] a
share in cash.
Example (b). Participating Employee voluntarily quits on July 1,
1999; the Participating Employee's Loan comes due on the date employment is
terminated; the Participating Employee's Plan Shares are sold in the market
for $2.50 a share and the proceeds applied against the Loan Balance to the
Bank, Executone and Unistar; the Loan Balance equals $4.37 a share at the time
of sale and delivery of proceeds. The Participating Employee is 41.67% vested
in the maximum Retention Payment.
The Retention Payment is $0.86 [($4.37 - $2.50) x 1. 10 x .41671
a share. The Participating Employee remains liable for the remaining Loan
Balance of $ 1.01 a share ($4.37 - $2.50 - $0.86), which is then due and
payable.
Example (c). The Participating Employee sells Plan Shares on
December 15, 1998 for $3.00 a share and continues to be employed; the Loan
Balance at the time of sale and delivery of proceeds equals $4.05 a share; the
sales proceeds are applied against the Loan Balance.
No Retention Payment is yet due and payable. The Retention Payment
that can be earned, as determined by the difference between the Loan Balance and
the net sales proceeds of the Plan Shares that were sold, is $1.16(1) a share
[1.10 x $1.05] for each share sold. The Retention Payment is still subject to
being earned and vested for the Participating Employee's account as the
Participating Employee's employment continues. So, for example, the
Participating Employee continues to be obligated for $1.05(1) a share plus
interest, but that amount will be offset and reduced ratably to zero, and the
Participating Employee will become entitled to receive any excess by the vesting
of the Retention Payment as each quarter passes towards March 31, 2001.
Example (d). A Participating Employee sells Plan Shares on June 15,
1999 for $5.00 a share and continues to be employed; the Loan Balance at the
time of sale and delivery of proceeds equals $4.37 a share; the sales proceeds
fully liquidates the Loan Balance to the Bank, Executone and Unistar.
The Participating Employee retains $0.63 a share and receives no
Retention Payment under the plan.
10. Separation Payment and Benefits. The Participating Employee is
expected to execute a 3-year Employment Agreement with Unistar. Separation
payments and related benefits will be covered solely by that agreement.
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(1) These amounts will be increased by any interest that continues to
accrue on the Loan Balance, or is imputed for federal income tax purposes.
<PAGE>
For purposes of the Transition and Retention Plan, Cause shall be defined
as defined in the Participating Employee's Employment Agreement with Unistar. A
termination otherwise without Cause that results from a change in control or a
downsizing shall be considered a termination without Cause. If Participating
Employee is offered comparable employment with a purchaser of all or part of the
Company's or Unistar's business or with Unistar, he shall not be considered to
have been terminated for purposes of this plan.
11. Distributions on Plan Shares. Plan Shares, as used herein, shall
include any shares of Unistar or other property that may be distributed with
respect to Plan Shares. Any dividends or other distributions with respect to
Plan Shares will be first applied against any Loan Balance.
12. General. The grant of the payment rights and options proposed by this
plan will be in lieu of (a) any and all other rights or claims a Participating
Employee may have prior hereto for incentive, retention, separation or similar
payments or rights, whether relating to the Stock Plan, Loans, the change in
leadership of the Company, any proposed restructuring of the Company, or
otherwise, as well as (b) all claims arising from the employee's employment
prior to the effective date of the Plan, and shall be so confirmed as the
Company requires; provided, however, that this plan will not (i) affect options
already granted and outstanding or written incentive plans already issued; or
(ii) preclude the grant of other options or performance and incentive awards
from time to time as part of any other key employee option or incentive program
the Company may adopt in the future. Participating Employee shall be responsible
for any and all income taxes attributable to any of the payments or benefits
received or receivable by him hereunder. Participation in this program will be
solely for incentive purposes and will not be deemed an entitlement to
employment for a minimum term or otherwise change the at-will nature of each
Participating Employee's employment. All rights and obligations hereunder, as
well as those set forth in the accompanying Transition Plan Acknowledgment and
Waiver, are subject to obtaining the Bank's consent to implement the plan. This
plan shall be binding upon Unistar after the Separation.
Dated: ____________ EXECUTONE INFORMATION SYSTEMS, INC.
By:__________________________________
Stanley Kabala, Chief Executive Officer
UNISTAR GAMING CORP.
By: ________________________________
Michael W. Yacenda, President
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Robert Hopwood
<PAGE>
Acknowledgment of Participation and Waiver of Claims
I, Robert Hopwood, hereby acknowledge my voluntary participation in the
Transition and Retention Plan ("TRP"). I agree that the TRP provides me with
consideration over and above that which I am due under any existing benefit plan
offered by EXECUTONE or under any contract or agreement which I have with, or
have been promised by, EXECUTONE. I further acknowledge that the EXECUTONE
benefits to which I am entitled under the TRP shall be determined exclusively by
the TRP plan document attached hereto, and that severance or retention payments
made to others at levels or amounts different than set forth in the TRP plan
document shall not entitle me to additional payments or benefits.
In exchange for the consideration provided me by the TRP, subject to its
approval by the Bank (see TRP 14), I agree to waive, release, and covenant not
to sue with respect to any and all claims I now have or may have against
EXECUTONE which arise from events taking place prior to my signature on this
form. This waiver of claims shall include but not be limited to: claims related
to my employment with EXECUTONE; claims related to the EXECUTONE Executive Stock
Incentive Plan, my participation in that plan, or any loans incurred in
connection with that plan; claims for salary, bonuses, or other compensation or
benefits not provided to me in writing by the TRP or other Company-authored
document; any claim under the Age Discrimination in Employment Act, 29 U.S.C.
623 et seq.; and any claim under the Employee Retirement Income Security Act of
1974, 29 U.S.C. 1001 et seq. The Company agrees that by signing this form I do
not waive any rights to any benefits due to me under an "employee benefit plan"
as defined in section 3(3) of ERISA.
I acknowledge that I have read the TRP plan document and this
Acknowledgment of Participation and Waiver of Claims ("Acknowledgment and
Waiver"), and that I have been given up to twenty-one (21) days to consider
their terms and consult with an attorney if I so choose. I agree that the TRP
plan document and this Acknowledgment and Waiver constitute the only agreement
between me and EXECUTONE concerning severance or retention payments, and that
any prior offer or representation made to me, orally or in writing, is rendered
null and void by the TRP plan document and this Acknowledgment and Waiver. By
signing below, I indicate that I understand the terms of the TRP and this
Acknowledgment and Waiver, am satisfied with them and agree to be bound by them.
I understand that this Acknowledgment and Waiver shall become effective
and enforceable seven (7) days after the date I sign it, and that I have the
right to revoke this Acknowledgment and Waiver at any time within that seven (7)
day period.
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Date Participating Employee
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Company Witness