June 28, 2006

 

 

 

Gary C. Butler

195 Mt. Harmony Road

Bernardsville, New Jersey 07924

 

Dear Gary:

 

This letter outlines our understandings concerning your employment by Automatic
Data Processing, Inc. (“ADP”).

 

 

1.

Employment. You are currently ADP’s President and chief operating officer and,
effective August 31, 2006, shall become its chief executive officer and
President, subject to the direction and control of ADP’s Board of Directors. You
shall also be a member of ADP’s Board of Directors.

 

 

2.

Compensation.

 

 

a)

Effective July 1, 2006, ADP shall pay you a base salary of at least $850,000 per
annum.

 

 

b)

Effective July 1, 2006, your target bonus for each fiscal year (i.e. July 1 to
June 30) shall be at least $1,200,000. The actual bonus paid for each fiscal
year shall be based upon your accomplishments in relation to pre-established
performance goals (including revenue growth, increased profitability and other
significant items) established by the Compensation Committee of ADP’s Board of
Directors (the “Compensation Committee”) pursuant to the terms of ADP’s 2001
Executive Incentive Compensation Plan and any successor plan thereto
(collectively, the “Incentive Plan”).

 

 

c)

(i) ADP will, provided that the pre-established performance goals established by
the Compensation Committee under the applicable ADP 2-year performance-based
restricted stock program (“PBRS”, the first program of which, pending approval
by the Compensation Committee, will commence July 1, 2006 and end June 30, 2008)
have been achieved at the 100% target level, sell you at least 32,000 shares of
ADP restricted stock in accordance with the terms and conditions of each such
PBRS program and pursuant to the Incentive Plan. If the pre-established
performance goals at the 100% target level for any such PBRS program are
exceeded or are not achieved, the number of shares of restricted stock sold to
you pursuant to such PBRS program will be increased or decreased,

 

 

as the case may be, by the amount determined pursuant to the terms and
conditions in such program. (The first time shares of ADP restricted stock can
be sold to you pursuant to this Paragraph 2(c)(i) will be after the completion
of the first PBRS program.)

 

(ii) ADP will, on July 1, 2006, sell you 10,000 shares of its restricted common
stock, of which 5,000 shares will have their restrictions lapse January 1, 2007
and 5,000 shares will have their restrictions lapse on January 1, 2008. This
grant will bring your total number of shares of restricted stock that have their
restrictions lapsing in each of fiscal 2007 and fiscal 2008 to 32,000 shares.

 

 

d)

(i) You will be granted stock options for a minimum of 200,000 shares of ADP
common stock each fiscal year (commencing with fiscal 2007) during the term of
this agreement; your fiscal 2007 stock option grant made shall be made on July
1, 2006. Subject to the attainment of any pre-established performance goals that
may be set by the Compensation Committee (in its sole discretion), vesting of
each such stock option shall be in five equal installments of 20% each,
commencing one year after the applicable grant date.

 

(ii) In addition, you will be granted a one-time stock option grant for 150,000
shares on July 1, 2006. Subject to the attainment of any pre-established
performance goals that may be set by the Compensation Committee (in its sole
discretion), vesting of such option shall be in five equal installments of 20%
each, commencing one year after the grant date.

 

 

e)

Under ADP’s current 3-year growth incentive plan (the “GIP”), your 100% target
level cash bonus will be equal to 70% of your applicable base salary (all as
determined by the terms and conditions of the GIP). Under each ADP 2-year
accelerated revenue growth program (the “ARP”, the first program of which will,
pending approval by the Compensation Committee, commence July 1, 2006 and will
end June 30, 2008), the “target number of shares” of ADP restricted stock shall
be based on 70% of your applicable base salary (all as determined by the terms
and conditions of the applicable ARP).

 

 

f)

Effective July 1, 2006, ADP will pay you a prerequisite allowance of $125,000
each fiscal year.

 

 

g)

The above salary, bonus, stock and other arrangements will be reviewed annually
by the Compensation Committee and may be increased in its sole discretion. You
shall also be entitled to participate in all of ADP’s then current pension,
401(k), medical and health, life, accident, disability and other insurance
programs, stock purchase and other plans and arrangements (including all ADP
policies relating to the exercise of stock options following a person’s
retirement from, or cessation of employment with, ADP) that are generally
available to other ADP senior executives.

 

 

3.

Term. The initial term of this letter agreement shall be for a period of one
year. This letter agreement shall automatically continue after its initial term
for successive one-

 

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year periods, unless and until either of us gives the other written notice at
least six months prior to the end of the applicable one-year term that this
letter agreement shall terminate as at the end of such term.

 

 

4.

Termination. If your employment with ADP is terminated, you or, in the case of
your death, the “Trust” (as defined in Paragraph 4(c) below) will receive the
following compensation:

 

 

a)

If you are discharged for cause, ADP’s obligation to make payments to you shall
cease on the date of such discharge. As used herein, the term “for cause” shall
cover circumstances where ADP elects to terminate your employment because you
have: (i) been convicted of a felony and such conviction has been upheld by a
final court of law; (ii) failed or refused to perform your obligations as chief
executive officer; (iii) committed any act of negligence in the performance of
your duties hereunder and failed to take appropriate corrective action (if such
corrective action can be taken); or (iv) committed any act of willful
misconduct.

 

 

b)

If ADP terminates your employment for any reason other than (A) “for cause”, (B)
for death or permanent or serious disability, either physical or mental, (C) on
account of a “Change in Control” (as defined in Paragraph 5(a) below), or (D)
under the circumstances covered by Paragraphs 6(a) and 6(b) below , you will,
for 24 months after such termination date: (i) receive the compensation provided
for under Paragraph 2(a) above; (ii) have your Company stock options continue to
vest; (iii) have the restrictions on your restricted stock continue to lapse
(without regard to any performance goals); and (iv) continue to participate in
each of the then ongoing PBRS and ARP restricted stock programs, and the GIP
cash program, in the same manner as would have been the case had you continued
to be an ADP employee and, if the performance goals established by the
Compensation Committee under the applicable programs have been met, you shall
receive the number of shares of restricted stock or cash, as the case may be,
that you would have been entitled to receive had you continued to be an ADP
employee.

 

 

c)

If you die or become permanently and seriously disabled, either physically or
mentally, so that you are absent from your office due to such disability and
otherwise unable substantially to perform your services hereunder, ADP may
terminate your employment. ADP shall continue to pay to the Gary C. Butler
Irrevocable Trust dated February 5, 1986, J. Michael Campbell, Trustee (the
“Trust”), in the case of your death, or to you, in the case of your termination
for disability, your full compensation up to and including the effective date of
your termination for death or disability. For 36 months after such termination
date, the Trust or you, as the case may be, will: (i) receive the compensation
provided for under Paragraph 2(a) above; (ii) receive your restricted stock and
unvested ADP stock options, all of which shall automatically vest on the date of
your death or termination for disability; and (iii) continue to participate in
each of the then ongoing PBRS and ARP restricted stock programs, and the GIP
cash program, in the same manner as would have been the case had you continued
to be an ADP employee and, if the performance goals established by the
Compensation

 

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Committee under the applicable programs have been met, the Trust or you, as the
case may be, shall receive the number of shares of restricted stock or cash, as
the case may be, that you would have been entitled to receive had you continued
to be an ADP employee.

 

 

d)

If you elect to voluntarily leave ADP in the absence of a Change in Control
(other than under the circumstances covered by Paragraphs 6(a) and 6(b) below),
ADP’s obligation to make any payment to you under this Paragraph 4 shall cease
on the date your employment ends.

 

 

e)

If a Change in Control occurs and if your employment is terminated (other than
for cause) or you resign for “Good Reason” within 24 months after such Change in
Control event, you will receive a termination payment equal to 300% of your
“Current Total Annual Compensation”. This termination payment will be reduced to
either 200% or 100% of your Current Total Annual Compensation if such
termination or resignation occurs during the third year (i.e. more than 24
months and less than 37 months), or more than three years (i.e. more than 36
months), after such Change in Control event, whichever is applicable. In
addition, all of your ADP stock options will become fully vested, and all of
your ADP restricted stock having restrictions lapsing within three years after
the date of such termination or resignation shall have such restrictions
automatically removed (without regard to any performance goals). In addition,
(i) the number of shares of restricted stock you would have been entitled to
receive had the performance goals been achieved at the 100% target rate in each
of the then ongoing PBRS and ARP restricted stock programs shall be immediately
and automatically sold to you and all restrictions thereon removed, and (ii) if
the Change in Control occurs prior to the completion of the GIP, you will
receive the same payment you otherwise would have received had the GIP achieved
its 100% target rate. ADP will also pay you a tax equalization payment in an
amount which when added to the other amounts payable to you under this Paragraph
4(e) will place you in the same after-tax position as if the excise tax penalty
of Section 4999 of the Internal Revenue Code of 1986 or any successor statute of
similar import did not apply. You are also entitled to receive, on an
item-by-item basis, the greater of the benefits and payments and more favorable
conditions provided under this letter agreement and/or the Automatic Data
Processing, Inc. Change in Control Severance Plan for Corporate Officers.

 

 

f)

The termination of this letter agreement or your employment shall not affect
those provisions of this letter agreement that apply to any period or periods
subsequent to such termination.

 

 

5.

Definitions. For purposes of this Agreement, the following definitions shall
apply:

 

 

a)

“Change in Control” shall mean the occurrence of any of the following: (A) any
“Person” (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”)), excluding ADP, any subsidiary of ADP, or any
employee benefit plan sponsored or maintained by ADP (including any trustee of
any such plan acting in his capacity as trustee), becoming the “beneficial
owner”

 

4

 

 

(as defined in Rule 13d-3 under the Exchange Act) of securities of ADP
representing 25% or more of the total combined voting power of ADP’s then
outstanding securities; (B) the merger, consolidation or other business
combination of ADP (a “Transaction”), other than a Transaction immediately
following which the stockholders of ADP immediately prior to the Transaction
continue to be the beneficial owners of securities of the resulting entity
representing more than 65% of the voting power in the resulting entity, in
substantially the same proportions as their ownership of ADP voting securities
immediately prior to the Transaction; or (C) the sale of all or substantially
all of ADP’s assets, other than a sale immediately following which the
stockholders of ADP immediately prior to the sale are the beneficial owners of
securities of the purchasing entity representing more than 65% of the voting
power in the purchasing entity, in substantially the same proportions as their
ownership of ADP voting securities immediately prior to the Transaction.

 

 

b)

“Good Reason” shall mean: (A) any action which results in a diminution in any
respect in your current position, authority, duties or responsibilities as ADP’s
chief executive officer; or (B) a reduction in the overall level of your
compensation or benefits.

 

 

c)

“Current Total Annual Compensation” shall be the total of the following amounts:
(A) the greater of your current annual salary for the calendar year in which
your employment terminates or for the calendar year immediately prior to the
year of such termination; and (B) the average of your annual bonus compensation
(prior to any bonus deferral election), for the two most recent calendar years
immediately preceding the year in which your employment terminates.

 

 

6.

Retirement.

 

 

(a)

If the Compensation Committee deems it to be in ADP’s best interests that you
retire prior to reaching your 65th birthday or if you decide (at your sole
discretion) to retire at any time after your 65th birthday, then on the date of
your retirement:

 

i.

all of your restricted stock then owned by you shall continue to be owned by you
and the restrictions thereon will continue to lapse in the same manner as would
have been the case had you continued to be an ADP employee;

 

ii.

you will continue to participate in each of the then ongoing PBRS and ARP
restricted stock programs and the GIP cash program in the same manner as would
have been the case had you continued to be an ADP employee and you shall receive
the number of shares of restricted stock and/or cash, as the case may be, you
would have been entitled to receive had you continued to be an ADP employee, the
restrictions on which will continue to lapse in the same manner as would have
been the case had you continued to be an ADP employee; and

 

iii.

all of your outstanding unvested stock options shall vest on your retirement
date

 

 

(b)

If ADP’s Board of Directors confers on any other person (including any other ADP
director, officer or associate) any authority, duties, responsibilities or
powers

 

5

 

 

superior or equal to the authority, duties, responsibilities or powers you have
as ADP’s chief executive officer on August 31, 2006, you may (at your sole
option and discretion) deem such action to constitute a request that you
immediately retire in the best interests of ADP, in which case the provisions of
Paragraph 6(a) above shall apply.

 

 

(c)

If you elect to retire from ADP for any reason whatsoever, ADP will: (i),
subject to ADP’s reasonable prior approval, provide you with appropriate office
and secretarial support until your 72nd birthday, which office will not, in any
event, be located in an ADP facility; (ii) allow you to keep your company car;
and (iii) allow you to use the ADP travel group to make your personal travel
arrangements using your own funds.

 

 

7.

SORP. Under the Automatic Data Processing, Inc. Supplemental Officers Retirement
Plan (the “SORP”):(i) if your employment hereunder terminates other than for
cause, your “Final Average Annual Pay” shall, to the extent applicable, be
deemed to include the applicable compensation attributable to the periods
covered by the termination payments made to you hereunder; and (ii) if the
Compensation Committee deems it to be in ADP’s best interests that you retire
prior to your 65th birthday, any early retirement benefit payable under the SORP
will not be actuarially reduced to reflect the payment of benefits before your
“Normal Retirement Date” (as defined in the SORP).

 

If the foregoing correctly sets forth our understandings, please sign this
letter agreement where indicated, whereupon it will become a binding agreement
between us.

 

 

Very truly yours,

 

 

 

AUTOMATIC DATA PROCESSING, INC.

 

 

 

By: /s/ Arthur F. Weinbach                                  

 

Arthur F. Weinbach

 

 

Chairman and Chief Executive Officer

 

ACCEPTED AND AGREED:

 

/s/     Gary C. Butler            

Gary C. Butler

 

 

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