EXHIBIT 10.7
10/21/04
METRIS COMPANIES INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
 

 

**TABLE OF CONTENTS**       **Page**ARTICLE I         PURPOSES  1      ARTICLE II         CERTAIN DEFINITIONS  1 2.1 Accrued Obligations  1 2.2 Agreement Term  1 2.3 Article  2 2.4 Beneficial owner  2 2.5 Cause  2 2.6 Change of Control  2 2.7 Code  3 2.8 Disability  4 2.9 Effective Date  4 2.10 Good Reason  4 2.11 Imminent Control Change Date  4 2.12 IRS  4 2.13 1934 Act  4 2.14 Notice of Termination  4 2.15 Plans  4 2.16 Policies  4 2.17 Post-Change Period  4 2.18 SEC  5 2.19 Section  5 2.20 Subsidiary  5 2.21 Termination Date  5 2.22 Voting Securities  5      ARTICLE III         POST-CHANGE PERIOD PROTECTIONS  5 3.1 Position and Duties  5 3.2 Compensation  6 3.3 Stock Options  8      ARTICLE IV         TERMINATION OF EMPLOYMENT  8 4.1 Disability  8 4.2 Death  8 4.3 Cause  9 4.4 Good Reason  9 4.5 Termination Prior to Effective Date  10 
 

 
       **Page**ARTICLE V         OBLIGATIONS OF THE COMPANY UPON TERMINATION  11 5.1 If by the Executive for Good Reason or by theCompany Other Than for Cause or Disability  11 5.2 If by the Company for Cause  12 5.3 If by the Executive Other Than for Good Reason  12 5.4 If by the Company for Disability  13 5.5 If upon Death  13 5.6 Certain Additional Payments by the Company  13 5.7 Withholding Taxes  16 5.8 Continued Employment  16      ARTICLE VI         NON-EXCLUSIVITY OF RIGHTS  17 6.1 Waiver of Other Severance Rights  17 6.2 Other Rights  17      ARTICLE VII         EXPENSES AND INTEREST  17 7.1 Legal Fees and Other Expenses  17 7.2 Interest  18      ARTICLE VIII         SET-OFF OR MITIGATION  18 8.1 Set-Off by Company  18 8.2 No Mitigation  18      ARTICLE IX         CONFIDENTIALITY AND NONCOMPETITION  18 9.1 Confidentiality  18 9.2 Intellectual Property  19 9.3 Noncompetition/Nonsolicitation  29 9.4 Remedy  20 9.5 Survival  21      ARTICLE X         MISCELLANEOUS  21 10.1 No Assignability  21 10.2 Successors  21 10.3 Payments to Beneficiary  22 10.4 Non-alienation of Benefits  22 10.5 Severability  22 
 

 
       **Page**10.6 Amendments  22 10.7 Notices  22 10.8 Counterparts  23 10.9 Governing Law  23 10.10 Captions  23 10.11 Employment with Subsidiaries  23 10.12 Company’s Option to Fix Expiration Date  23 10.13 No Waiver  23 10.14 Entire Agreement  23 
 

 

METRIS COMPANIES INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
     THIS AGREEMENT dated as of October 21, 2004 is made between METRIS COMPANIES INC., a Delawarecorporation having its principal place of business in Minnetonka, Minnesota (the “Company”), andWilliam A Houlihan (the “Executive”), a resident of the State of New Jersey.
**ARTICLE I**
**PURPOSES**
     The Board of Directors of the Company (the “Board”) has determined that it is in the bestinterests of the Company and its stockholders to assure that the Company will have the continuedservice of the Executive in the event of any threat or occurrence of, or negotiation or otheraction that could lead to, or create the possibility of, a Change of Control (as defined in Section2.6). The Board believes it is imperative to reduce the distraction of the Executive that wouldresult from the personal uncertainties caused by a pending or threatened change of control, toencourage the Executive’s full attention and continued dedication to the Company, and to providethe Executive with compensation and benefits arrangements upon a change of control which ensurethat the expectations of the Executive will be satisfied and are competitive with those ofsimilarly-situated corporations. The Board also believes that there is a need to protectconfidential records, data and intellectual property of the Company and provide certainnoncompetition protection. This Agreement is intended to accomplish these objectives.
**ARTICLE II**
**CERTAIN DEFINITIONS**
     When used in this Agreement, the terms specified below shall have the following meanings:
     2.1 “Accrued Obligations” has the meaning set forth in Section 5.3.
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     2.2 “Agreement Term” means the period commencing on the date of this Agreement and ending onthe date (the “Expiration Date”) which is the first to occur of (a) the date on which theExecutive’s employment by the Company terminates prior to the Effective Date, (b) if theExecutive’s employment by the Company terminates by reason of death, the date of death of theExecutive or (c) the expiration date fixed by the Board pursuant to Section 10.12.
     2.3 “Article” means an article of this Agreement.
     2.4 “Beneficial owner” means such term as defined in Rule 13d-3 of the SEC under the 1934Act.
     2.5 “Cause” has the meaning set forth in Section 4.3(b).
     2.6 “Change of Control” means, except as otherwise provided below, the occurrence of any ofthe following:
          a. any person (as such term is used in Rule 13d-5 of the SEC under the 1934 Act) or group (assuch term is defined in Section 13(d) of the 1934 Act), other than a Subsidiary or any employeebenefit plan (or any related trust) of the Company or a Subsidiary, becomes, directly orindirectly, the beneficial owner of 50% or more of the common stock of the Company or of VotingSecurities representing 50% or more of the combined voting power of all Voting Securities of theCompany, except that no Change of Control shall be deemed to have occurred solely by reason of anyMerger (as defined below) if, immediately after such Merger, each of the conditions described inclauses (i), (ii) and (iii) of Section 2.6.c(1) are satisfied.
          b. individuals who, as of the Effective Date, constitute the Board (the “Incumbent Directors”)cease for any reason to constitute at least a majority of the Board; provided that any individualwho becomes a director after the Effective Date whose election, or nomination for election by theCompany’s stockholders, was approved by a vote or written consent of at least two-thirds of thedirectors then comprising the Incumbent Directors shall be considered an Incumbent Director, butexcluding, for this purpose, any such individual whose initial assumption of office is inconnection with an actual or threatened election contest relating to the election of the directorsof the Company (as such terms are used in Rule 14a-11 of the SEC under the 1934 Act); or
          c. approval by the stockholders of the Company of any
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of the following:
     (1) a merger, reorganization or consolidation (“Merger”) unless immediately after suchMerger (i) more than 50% of the then outstanding shares of common stock of the corporationresulting from such merger and more than 50% of the combined voting power of the thenoutstanding Voting Securities of such corporation is then beneficially owned, directly orindirectly, by all or substantially all of the individuals or entities in substantially thesame proportion as their ownership immediately prior to the Merger; (ii) no person (as suchterm is used in Rule 13d-5 of the SEC under the 1934 Act) or group (as such term is definedin Section 13(d) of the 1934 Act), other than a Subsidiary or any employee benefit plan (orany related trust) of the Company or a Subsidiary becomes the beneficial owner of 50% ormore of the combined voting power of all Voting Securities of the Company and (iii) at leasta majority of the members of the board of directors of the corporation resulting from suchMerger were Incumbent Directors at the time of execution of the original agreement or actionof the Board providing for such Merger.
     (2) the sale or other disposition of all or substantially all of the assets of theCompany; or
     (3) a plan of complete liquidation or dissolution of the Company.
Despite clauses (a), (b) and (c) of this definition, a Change of Control shall not occur withrespect to the Executive if the Executive is, by written agreement executed before such Change ofControl, a participant on such Executive’s own behalf in a transaction in which the persons orentities (or their affiliates) with whom the Executive has the written agreement Acquire theCompany (as defined below) and, pursuant to the written agreement, the Executive has an equityinterest in the resulting entity or a right to acquire such an equity interest. “Acquire theCompany” means the acquisition of beneficial ownership by purchase, merger, or otherwise, of eithermore than 50% of the stock (such percentage to be computed in accordance with Rule 13d-3(d)(1)(i)of the SEC under the 1934 Act) or substantially all of the assets of the Company or its successors.
     2.7 “Code” means the Internal Revenue Code of 1986, as amended.
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     2.8 “Disability” has the meaning set forth in Section 4.1.b.
     2.9 “Effective Date” means the first date on which a Change of Control occurs during theAgreement Term. Despite anything in this Agreement to the contrary, if the Company terminates theExecutive’s employment before the date of a Change of Control, and if the Executive reasonablydemonstrates that such termination of employment (a) was at the request of a third party who hadtaken steps reasonably calculated to effect the Change of Control or (b) otherwise arose inconnection with or in anticipation of the Change of Control, then “Effective Date” shall mean thedate immediately before the date of such termination of employment.
     2.10 “Good Reason” has the meaning set forth in Section 4.4.b.
     2.11 “Imminent Control Change Date” means any date on which occurs (a) a presentation to theCompany’s stockholders generally or any of the Company’s directors or executive officers of aproposal or offer for a Change of Control, (b) the public announcement (whether by advertisement,press release, press interview, public statement, SEC filing or otherwise) of a proposal or offerfor a Change of Control, or (c) such proposal or offer remains effective and unrevoked.
     2.12 “IRS” means the Internal Revenue Service.
     2.13 “1934 Act” means the Securities Exchange Act of 1934.
     2.14 “Notice of Termination” means a written notice given in accordance with Section 10.7which sets forth (a) the specific termination provision in this Agreement relied upon by the partygiving such notice, (b) in reasonable detail the facts and circumstances claimed to provide a basisfor termination of the Executive’s employment under such termination provision and (c) if theTermination Date is other than the date of receipt of such Notice of Termination, the TerminationDate.
     2.15 “Plans” means plans, programs, policies or practices of the Company.
     2.16 “Policies” means policies, practices or procedures of the Company.
     2.17 “Post-Change Period” means the period commencing on
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the Effective Date and ending on the second anniversary of such date.
     2.18 “SEC” means the Securities and Exchange Commission.
     2.19 “Section” means, unless the context otherwise requires, a section of this Agreement.
     2.20 “Subsidiary” means (a) a corporation of which more than 50% of the combined voting powerof the Voting Securities is owned, directly or indirectly, by the Company or by one or more otherSubsidiaries of the Company or by the Company and one or more Subsidiaries or (b) any partnership,limited liability company, joint venture, business trust or other entity (other than a corporation)in which the Company or one or more other Subsidiaries of the Company or the Company and one ormore other Subsidiaries, directly or indirectly, has at least majority ownership thereof and powerto direct the policies, management and affairs thereof.
     2.21 “Termination Date” means the date of receipt of the Notice of Termination or any laterdate specified in such notice (which date shall be not more than 15 days after the giving of suchnotice), as the case may be; provided, however, that (a) if the Company terminates the Executive’semployment other than for Cause or Disability, then the Termination Date shall be the date ofreceipt of such Notice of Termination and (b) if the Executive’s employment is terminated by reasonof death or Disability, then the Termination Date shall be the date of death of the Executive orthe Disability Effective Date (as defined in Section 4.1.a), as the case may be.
     2.22 “Voting Securities” of a corporation means securities of such corporation that areentitled to vote generally in the election of directors of such corporation.
**ARTICLE III**
**POST-CHANGE PERIOD PROTECTIONS**
     3.1 Position and Duties.
          a. During the Post-Change Period, (1) the Executive’s position (including offices, titles,reporting requirements and responsibilities), authority and duties shall be at leastcommensurate in all material respects with the most significant
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of those held, exercised and assigned at any time during the 90-day period immediately before theEffective Date and (2) the Executive’s services shall be performed at the location where theExecutive was employed immediately before the Effective Date or any other location less than 40miles from such former location.
          b. During the Post-Change Period (other than any periods of vacation, sick leave or disabilityto which the Executive is entitled), the Executive agrees to devote the Executive’s full attentionand time to the business and affairs of the Company and, to the extent necessary to discharge theduties assigned to the Executive in accordance with this Agreement, to use the Executive’s bestefforts to perform faithfully and efficiently such duties. During the Post-Change Period, theExecutive may (1) serve on corporate, civic or charitable boards or committees, (2) deliverlectures, fulfill speaking engagements or teach at educational institutions and (3) manage personal investments, so long as such activities are consistent with the Policies of theCompany at the Effective Date and do not significantly interfere with the performance of theExecutive’s duties under this Agreement. To the extent that any such activities have beenconducted by the Executive before the Effective Date and were consistent with the Policies of theCompany at the Effective Date, the continued conduct of such activities (or activities similar innature and scope) after the Effective Date shall not be deemed to interfere with the performance ofthe Executive’s duties under this Agreement.
     3.2 Compensation.
          a. Base Salary. During the Post-Change Period, the Company shall pay or cause to be paid tothe Executive an annual base salary in cash (“Guaranteed Base Salary”), which shall be paid in amanner consistent with the Company’s payroll practices in effect immediately before the EffectiveDate at a rate at least equal to 12 times the highest monthly base salary paid or payable to theExecutive by the Company in respect of the 12-month period immediately before the Effective Date.During the Post-Change Period, the Guaranteed Base Salary shall be reviewed at least annually andshall be increased at any time and from time to time as shall be substantially consistent withincreases in base salary awarded to other peer executives of the Company. Any increase inGuaranteed Base Salary shall not limit or reduce any other obligation of the Company to theExecutive under this Agreement. After any such increase, the Guaranteed Base Salary shall not bereduced and the term “Guaranteed Base Salary” shall thereafter refer to the increased amount.
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          b. Incentive, Compensation, Savings and Retirement Plans. In addition to Guaranteed BaseSalary payable as provided in this Section, the Executive shall be entitled to participate duringthe Post-Change Period in all incentive (including long-term incentives), compensation, savings andretirement Plans applicable to other peer executives of the Company, but in no event shall suchPlans provide the Executive with incentive (including long-term incentives), compensation, savingsand retirement benefits which, in any case, are less favorable, in the aggregate, than the mostfavorable of those provided by the Company for the Executive under such Plans as in effect at anytime during the 90-day period immediately before the Effective Date.
          c. Welfare Benefit Plans. During the Post-Change Period, the Executive and the Executive’sfamily shall be eligible to participate in, and receive all benefits under, welfare benefit Plansprovided by the Company (including, without limitation, medical, prescription, dental, disability,salary continuance, individual life, group life, dependent life, accidental death and travelaccident insurance Plans) and applicable to other peer executives of the Company and theirfamilies, but in no event shall such Plans provide benefits which in any case are less favorable,in the aggregate, than the most favorable of those provided to the Executive under such Plans as ineffect at any time during the 90-day period immediately before the Effective Date.
          d. Fringe Benefits. During the Post-Change Period, the Executive shall be entitled to fringebenefits in accordance with the most favorable Plans applicable to peer executives of the Company,but in no event shall such Plans provide fringe benefits which in any case are less favorable, inthe aggregate, than the most favorable of those provided by the Company to peer executives undersuch Plans in effect at any time during the 90-day period immediately before the Effective Date.
          e. Expenses. During the Post-Change Period, the Executive shall be entitled to promptreimbursement of all reasonable employment-related expenses incurred by the Executive upon theCompany’s receipt of accounting in accordance with the most favorable Policies applicable to peerexecutives of the Company, but in no event shall such Policies be less favorable, in the aggregate,than the most favorable of those provided by the Company for the Executive under such Policies ineffect at any time during the 90-day period immediately before the
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Effective Date.
          f. Office and Support Staff. During the Post-Change Period, the Executive shall be entitledto an office or offices of a size and with furnishings and other appointments, and no exclusivepersonal secretarial and other assistance in accordance with the most favorable Policies applicableto peer executives of the Company, but in no event shall such Policies be less favorable, in theaggregate, than the most favorable of those provided by the Company for the Executive under suchPolicies in effect at any time during the 90-day period immediately before the Effective Date.
          g. Vacation. During the Post-Change Period, the Executive shall be entitled to paid vacationin accordance with the most favorable Policies applicable to peer executives of the Company, but inno event shall such Policies be less favorable, in the aggregate, than the most favorable of thoseprovided by the Company for the Executive under such Policies in effect at any time during the90-day period immediately before the Effective Date.
     3.3 Stock Options.
          In addition to the other benefits provided in this Section, on the Effective Date, theExecutive shall become fully vested in any and all outstanding stock options granted to theExecutive for shares of common stock of the Company or to the extent that such options are notvested, shall receive a lump-sum cash payment equal to the spread of all non-vested, forfeitedoptions as of the date such options are forfeited.
**ARTICLE IV**
**TERMINATION OF EMPLOYMENT**
     4.1 Disability.
          a. During the Post-Change Period, the Company may terminate the Executive’s employment uponthe Executive’s Disability (as defined in Section 4.1.b) by giving the Executive or his legalrepresentative, as applicable, (1) written notice in accordance with Section 10.7 of the Company’sintention to terminate the Executive’s employment pursuant to this Section and (2) a certificationof the Executive’s Disability by a physician selected by the Company or its insurers and reasonablyacceptable
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to the Executive or the Executive’s legal representative. The Executive’s employment shallterminate effective on the 30th day (the “Disability Effective Date”) after the Executive’s receiptof such notice unless, before the Disability Effective Date, the Executive shall have resumed thefull-time performance of the Executive’s duties.
          b. “Disability” means any medically determinable physical or mental impairment that haslasted for a continuous period of not less than six months and can be expected to be permanent orof indefinite duration, and that renders the Executive unable to perform the duties required underthis Agreement.
     4.2 Death. The Executive’s employment shall terminate automatically upon theExecutive’s death during the Post-Change Period.
     4.3 Cause.
          a. During the Post-Change Period, the Company may terminate the Executive’s employment forCause.
          b. “Cause” means any of the following:
     (1) a material breach by the Executive of those duties and responsibilities of theExecutive which do not differ in any material respect from the duties and responsibilitiesof the Executive during the 90-day period immediately before the Effective Date (other thanas a result of incapacity due to physical or mental illness) which is demonstrably willfuland deliberate on the Executive’s part, which is committed in bad faith or withoutreasonable belief that such breach is in the best interests of the Company and which is notremedied within a reasonable period of time after receipt of written notice from the Companyspecifying such breach;
     (2) any intentional act of fraud, embezzlement or theft by the Executive in connectionwith the Executive’s duties in the course of the Executive’s employment hereunder or anyprior employment, or the Executive’s admission or conviction of a felony or of any crimeinvolving moral turpitude, fraud, embezzlement, theft or misrepresentation;
     (3) any gross negligence or willful misconduct of the Executive in performing theExecutive’s duties which, if curable, has not been cured within 10 days of delivery by
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the Company to the Executive of written notice of such gross negligence or willfulmisconduct; or
     (4) any violation in any material respect of any statutory or common law duty ofloyalty to the Company or any of its affiliates which, if curable, has not been cured within10 days of delivery by the Company to the Executive of written notice of such violation.
          c. Any termination of the Executive’s employment by the Company for Cause shall becommunicated to the Executive by Notice of Termination.
     4.4 Good Reason.
          a. During the Post-Change Period, the Executive may terminate his or her employment for GoodReason.
          b. “Good Reason” means, without the Executive’s express written consent, any of thefollowing:
     (1) the assignment to the Executive of any duties inconsistent in any respect with theExecutive’s position (including offices, titles, reporting requirements orresponsibilities), authority or duties as contemplated by Section 3.1.a(1), or any otheraction by the Company which results in a diminution or other material adverse change in suchposition, authority or duties;
     (2) any failure by the Company to comply with any of the provisions of Article III;
     (3) the Company’s requiring the Executive to be based at any office or location otherthan the location described in Section 3.1.a(2);
     (4) any other material adverse change to the terms and conditions of the Executive’semployment; or
     (5) any purported termination by the Company of the Executive’s employment other thanas expressly permitted by this Agreement (any such purported termination shall not beeffective for any other purpose under this Agreement).
Any reasonable determination of “Good Reason” made in good faith by the Executive shall beconclusive; provided, however, that an isolated, insubstantial and inadvertent action taken in good
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faith and which is remedied by the Company promptly after receipt of written notice thereof givenby the Executive shall not constitute “Good Reason.”
          c. Any termination of employment by the Executive for Good Reason shall be communicated tothe Company by Notice of Termination within 60 days of the occurrence of the Good Reason. Afailure by the Executive to include in the Notice of Termination any fact or circumstance whichcontributes to a showing of Good Reason shall not waive any right of the Executive under thisAgreement or preclude the Executive from asserting such fact or circumstance in enforcing rightsunder this Agreement.
     4.5 Termination Prior to Effective Date. Nothing in this Agreement shall be deemedto entitle the Executive to continued employment with the Company or any Subsidiary, and if theExecutive’s employment with the Company or any Subsidiary shall terminate prior to the EffectiveDate, the Executive shall have no rights under Articles III, IV or V.
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**ARTICLE V**
**OBLIGATIONS OF THE COMPANY UPON TERMINATION**
     5.1 If by the Executive for Good Reason or by the Company Other Than for Cause orDisability. If, during the Post-Change Period, the Company shall terminate the Executive’semployment other than for Cause or Disability, or if the Executive shall terminate employment forGood Reason, the Company shall immediately pay the Executive, in addition to all vested rightsarising from the Executive’s employment as specified in Article III, a cash amount equal to the sumof the following amounts:
          a. to the extent not previously paid, the Guaranteed Base Salary and any accrued vacation paythrough the Termination Date;
          b. an amount equal to the Executive’s highest annual bonus (or annualized for any fiscal yearconsisting of less than 12 full months or with respect to which the Executive has been employed bythe Company for less than 12 full months) paid or payable, including by reason of any deferral, tothe Executive by the Company and its affiliated companies in respect of the two fiscal years of theCompany (or such portion thereof during which the Executive shall have been employed by the Companyfor less than such two-year period) immediately preceding the fiscal year in which the EffectiveDate occurs, multiplied by a fraction, the numerator of which is the number of days in the fiscalyear in which the Effective Date occurs through the Termination Date and the denominator of whichis 365 or 366, as applicable;
          c. all amounts previously deferred by or an accrual to the benefit of the Executive under anynonqualified deferred compensation or pension plan, together with any accrued earnings thereon, andnot yet paid by the Company;
          d. an amount equal to the product of (1) two multiplied by (2) the sum of (A) Guaranteed BaseSalary and (B) the Executive’s highest annual bonus (or annualized bonus for any fiscal yearconsisting of less than 12 full months or with respect to which the Executive has been employed bythe Company for less than 12 full months), paid or payable, including by reason of any deferral, tothe Executive by the Company and its affiliated companies in respect of the two fiscal years of theCompany if the Executive shall have been employed by the Company for less than such two fiscal yearperiod) immediately preceding the fiscal year in which the Effective Date occurs;
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          e. an amount equal to the sum of the value of the unvested portion of the Executive’saccounts or accrued benefits under any qualified plan maintained by the Company as of theTermination Date; and
          f. pay on behalf of the Executive all fees and costs charged by the outplacement firmselected by the Executive to provide outplacement services or at the election of the Executive,cash equal to the fees and expenses such outplacement firm would charge.
Until the first anniversary of the Termination Date or such later date as any Plan of the Companymay specify, the Company shall continue to provide to the Executive and the Executive’s familywelfare benefits (including, without limitation, medical, prescription, dental, disability, salarycontinuance, individual life, group life, accidental death and travel accident insurance plans andprograms) which are at least as favorable as the most favorable Plans of the Company applicable toother peer executives and their families as of the Termination Date, but which are in no event lessfavorable than the most favorable Plans of the Company applicable to other peer executives andtheir families during the 90-day period immediately before the Effective Date. The cost of suchwelfare benefits shall not exceed the cost of such benefits to the Executive immediately before theTermination Date or, if less, the Effective Date. Notwithstanding the foregoing, if the Executiveis covered under any medical, life, or disability insurance plan(s) provided by a subsequentemployer, then the amount of coverage required to be provided by the Employer hereunder shall bereduced by the amount of coverage provided by the subsequent employer’s medical, life, ordisability insurance plan(s). The Executive’s rights under this Section shall be in addition to,and not in lieu of, any post-termination continuation coverage or conversion rights the Executivemay have pursuant to applicable law, including, without limitation, continuation coverage requiredby Section 4980 of the Code.
     5.2 If by the Company for Cause. If the Company terminates the Executive’semployment for Cause during the Post-Change Period, this Agreement shall terminate without furtherobligation by the Company to the Executive, other than the obligation immediately to pay theExecutive in cash the Executive’s Guaranteed Base Salary through the Termination Date, plus theamount of any compensation previously deferred by the Executive, plus any accrued vacation pay, ineach case to the extent not
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previously paid.
     5.3 If by the Executive Other Than for Good Reason. If the Executive terminatesemployment during the Post-Change Period other than for Good Reason, Disability or death, thisAgreement shall terminate without further obligations by the Company, other than the obligationimmediately to pay the Executive in cash all amounts specified in clauses (a), (b) and (c) of thefirst sentence of Section 5.1 (such amounts collectively, the “Accrued Obligations”).
     5.4 If by the Company for Disability. If the Company terminates the Executive’semployment by reason of the Executive’s Disability during the Post-Change Period, this Agreementshall terminate without further obligations to the Executive, other than
          a. the Company’s obligation immediately to pay the Executive in cash all Accrued Obligations,and
          b. the Executive’s right after the Disability Effective Date to receive disability and otherbenefits at least equal to the greater of (1) those provided under the most favorable disabilityPlans applicable to disabled peer executives of the Company in effect immediately before theTermination Date or (2) those provided under the most favorable disability Plans of the Company ineffect at any time during the 90-day period immediately before the Effective Date.
     5.5 If upon Death. If the Executive’s employment is terminated by reason of theExecutive’s death during the Post-Change Period, this Agreement shall terminate without furtherobligations to the Executive’s legal representatives under this Agreement other than the obligationimmediately to pay the Executive’s estate or beneficiary in cash all Accrued Obligations. Despiteanything in this Agreement to the contrary, the Executive’s family shall be entitled to receivebenefits at least equal to the most favorable benefits provided by the Company to the survivingfamilies of peer executives of the Company under such Plans, but in no event shall such Plansprovide benefits which in each case are less favorable, in the aggregate, than the most favorableof those provided by the Company to the Executive under such Plans in effect at any time during the90-day period immediately before the Effective Date.
     5.6 Certain Additional Payments by the Company.
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          a. Notwithstanding anything to the contrary in this Agreement, in the event it shall bedetermined that any payment or distribution by the Company or its affiliated companies to or forthe benefit of the Executive (whether paid or payable or distributed or distributable pursuant tothe terms of this Agreement or otherwise, but determined without regard to any additional paymentsrequired under this Section 5.6) (a “Payment”) would be subject to the excise tax imposed bySection 4999 of the Code, or any interest or penalties are incurred by the Executive with respectto such excise tax (such excise tax, together with any such interest and penalties, are hereinaftercollectively referred to as the “Excise Tax”), then the Executive shall be entitled to receive anadditional payment (a “Gross-Up Payment”) in an amount such that after payment by the Executive ofall taxes (including any interest or penalties imposed with respect to such taxes), including,without limitation, any income taxes (and any interest and penalties imposed with respect thereto)and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-UpPayment equal to the Excise Tax imposed upon the Payments.
          b. Subject to the provisions of Section 5.6.c, all determinations required to be made underthis Section 5.6, including whether and when a Gross-Up Payment is required and the amount of suchGross-Up Payment and the assumptions to be utilized in arriving at such determination, shall bemade by the Company’s public accounting firm (the “Accounting Firm”) which shall provide detailedsupporting calculations both to the Company and the Executive within 15 business days of thereceipt of notice from the Executive that there has been a Payment, or such earlier time as isrequested by the Company. In the event that the Accounting Firm is serving as accountant orauditor for the individual, entity or group effecting the Change in Control, the Executive shallappoint another nationally recognized public accounting firm to make the determinations requiredhereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). Allfees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-UpPayment, as determined pursuant to this Section 5.6, shall be paid by the Company to the Executivewithin five days of the receipt of the Accounting Firm’s determination. If the Accounting Firmdetermines that no Excise Tax is payable by the Executive, it shall furnish the Executive with awritten opinion that failure to report the Excise Tax on the Executive’s applicable federal incometax return would not result in the imposition of a negligence or similar penalty. Anydetermination by the Accounting Firm shall be binding upon the Company and the
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Executive. As a result of the uncertainty in the application of Section 4999 of the Code at thetime of the initial determination by the Accounting Firm hereunder, it is possible that Gross-UpPayments which will not have been made by the Company should have been made (“Underpayment”),consistent with the calculations required to be made hereunder. In the event that the Companyexhausts its remedies pursuant to Section 5.6.c and the Executive thereafter is required to make apayment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment thathas occurred and any such Underpayment shall be promptly paid by the Company to or for the benefitof the Executive.
          c. The Executive shall notify the Company in writing of any claim by the IRS that, ifsuccessful, would require the payment by the Company of the Gross-Up Payment. Such notificationshall be given as soon as practicable but no later than 10 business days after the Executive isinformed in writing of such claim and shall apprise the Company of the nature of such claim and thedate on which such claim is requested to be paid. The Executive shall not pay such claim prior tothe expiration of the 30-day period following the date on which the Executive gives such notice tothe Company (or such shorter period ending on the date that any payment of taxes with respect tosuch claim is due). If the Company notifies the Executive in writing prior to the expiration ofsuch period that it desires to contest such claim, the Executive shall:
     (1) give the Company any information reasonably requested by the Company relating tosuch claim,
     (2) take such action in connection with contesting such claim as the Company shallreasonably request in writing from time to time, including, without limitation, acceptinglegal representation with respect to such claim by an attorney reasonably selected by theCompany,
     (3) cooperate with the Company in good faith in order effectively to contest suchclaim, and
     (4) permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and expenses(including additional interest and penalties) incurred in connection with such contest andshall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Taxor income tax
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including interest and penalties with respect thereto) imposed as a result of such representation andpayment of costs and expenses. Without limitation on the foregoing provisions of thisSection 5.6.c, the Company shall control all proceedings taken in connection with suchcontest and, at its sole option, may pursue or forgo any and all administrative appeals,proceedings, hearings and conferences with the taxing authority in respect of such claim andmay, at its sole option, either direct the Executive to pay the tax claimed and sue for arefund or contest the claim in any permissible manner, and the Executive agrees to prosecutesuch contest to a determination before any administrative tribunal, in a court of initialjurisdiction and in one or more appellate courts, as the Company shall determine; providedfurther, that if the Company directs the Executive to pay such claim and sue for a refund,the Company shall advance the amount of such payment to the Executive on an interest-freebasis and shall indemnify and hold the Executive harmless, on an after-tax basis, from anyExcise Tax or income tax (including interest or penalties with respect thereto) imposed withrespect to such advance or with respect to any imputed income with respect to such advance;and provided further, that any extension of the statute of limitations relating to paymentof taxes for the taxable year of the Executive with respect to which such contested amountis claimed to be due is limited solely to such contested amount. Furthermore, the Company’scontrol of the contest shall be limited to issues with respect to which a Gross-Up Paymentwould be payable hereunder and the Executive shall be entitled to settle or contest, as thecase may be, any other issue raised by the Internal Revenue Service or any other taxingauthority.
          d. If, after the receipt by the Executive of an amount advanced by the Company pursuant toSection 5.6.c, the Executive becomes entitled to receive, and receives, any refund with respect tosuch claim, the Executive shall (subject to the Company’s complying with the requirements ofSection 5.6.c) promptly pay to the Company the amount of such refund (together with any interestpaid or credited thereon after taxes applicable thereto). If, after the receipt by the Executiveof an amount advanced by the Company pursuant to Section 5.6.c, a determination is made that theExecutive shall not be entitled to any refund with respect to such claim and the Company does notnotify the Executive in writing of its intent to contest such denial of refund prior to theexpiration of 30 days after suchdetermination, then such advance shall be forgiven and shall not
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be required to be repaid and the amount of such advance shall offset, to the extent thereof, theamount of Gross-Up Payment required to be paid.
     5.7 Withholding Taxes. The Company may withhold from all payments due to theExecutive (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state,local or other law, the Company is required to withhold therefrom.
     5.8 Continued Employment. Nothing expressed or implied herein shall create any rightor duty of continued employment of the Executive by the Company or any Subsidiary. The Company andeach of its Subsidiaries reserves all rights to terminate the Executive’s employment at any timewith or without cause unless otherwise protected by law or contract.
**ARTICLE VI**
**NON-EXCLUSIVITY OF RIGHTS**
     6.1 Waiver of Other Severance Rights. To the extent that payments are made to theExecutive pursuant to Section 5.1, the Executive hereby waives the right to receive severancepayments under any other Plan oragreement of the Company.
     6.2 Other Rights. Except as provided in Section 6.1, this Agreement shall notprevent or limit the Executive’s continuing or future participation in any benefit, bonus,incentive or other Plans, provided by the Company or any of its Subsidiaries and for which theExecutive may qualify, nor shall this Agreement limit or otherwise affect such rights as theExecutive may have under any other agreements with the Company or any of its Subsidiaries. Amountswhich are vested benefits or which the Executive is otherwise entitled to receive under any Plan ofthe Company or any of its Subsidiaries and any other payment or benefit required by law at or afterthe Termination Date shall be payable in accordance with such Plan or applicable law except asexpressly modified by this Agreement.
**ARTICLE VII**
**EXPENSES AND INTEREST**
     7.1 Legal Fees and Other Expenses. a. If the Executive
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incurs legal fees or other expenses in a good faith effort to obtain benefits under this Agreement,the Company shall reimburse the Executive on a current basis for such fees and expenses to theextent not reimbursed under the Company’s officers and directors liability insurance policy, ifany. The existence of any controlling case or regulatory law which is directly inconsistent withthe position taken by the Executive shall be evidence that the Executive did not act in good faith.
          b. Reimbursement of legal fees and expenses shall be made monthly upon the written submissionof a request for reimbursement together with evidence that such fees and expenses are due andpayable or were paid by the Executive. If the Company shall have reimbursed the Executive forlegal fees and expenses and it is later determined that the Executive was not acting in good faithor the resolution of the dispute includes a finding denying, in total, the Executive’s claims insuch dispute, all amounts paid on behalf of, or reimbursed to, the Executive shall be promptlyrefunded to the Company.
7.2 Interest. If the Company does not pay any amount due to the Executive under thisAgreement within three days after such amount became due and owing, interest shall accrue on suchamount from the date it became due and owing until the date of payment at a annual rate equal totwo percent (2.0%) above the corporate base rate announced by Norwest Bank Minnesota, NationalAssociation, in effect from time to time during the period of such nonpayment.
**ARTICLE VIII**
**SET-OFF OR MITIGATION**
     8.1 Set-Off by Company. Except as provided in the following sentence, theExecutive’s right to receive when due the payments and other benefits provided for under thisAgreement is absolute, unconditional and subject to no set-off, counterclaim or legal or equitabledefense. Notwithstanding anything to the contrary in this Agreement, in the event that theExecutive breaches in any material respect any covenant or obligation set forth in Article IX, theCompany may withhold any further payment otherwise due to the Executive pursuant to clauses d. andf. of Section 5.1. Time is of the essence in the performance by the Company of its obligationsunder this Agreement.
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     8.2 No Mitigation. The Executive shall not have any duty to mitigate the amountspayable by the Company under this Agreement by seeking new employment following termination.Except as specifically otherwise provided in this Agreement, all amounts payable pursuant to thisAgreement shall be paid without reduction regardless of any amounts of salary, compensation orother amounts which may be paid or payable to the Executive as the result of the Executive’semployment by another employer.
**ARTICLE IX**
**CONFIDENTIALITY AND NONCOMPETITION**
     9.1 Confidentiality. Executive acknowledges that it is the policy of the Company andits subsidiaries to maintain as secret and confidential all valuable and unique information andtechniques acquired, developed or used by the Company and its relating to their business,operations, employees and customers, which gives the Company and its Subsidiaries a competitiveadvantage in the businesses in which the Company and its Subsidiaries are engaged except to theextent that such information is a matter of public record or is published and made available to thegeneral public (“Confidential Information”). Executive recognizes that all such ConfidentialInformation is the sole and exclusive property of the Company and its Subsidiaries, and thatdisclosure of Confidential Information would cause damage to the Company and its Subsidiaries.Executive agrees that, except as required by the duties of Executive’s employment with the Companyand/or its Subsidiaries and except in connection with enforcing the Executive’s rights under thisAgreement or if compelled by a court or governmental agency, Executive will not, without theconsent of the Company, disseminate or otherwise disclose any Confidential Information obtainedduring Executive’s employment with the Company. When the Executive shall cease to be employed bythe Company, the Executive shall surrender to the Company all records, computer tapes, software orother documents or data obtained by Executive or entrusted to Executive (together with all copiesthereof) which pertain to the businesses engaged in by the Company or its affiliates.
     9.2 Intellectual Property. The Executive hereby assigns to the Company theExecutive’s entire right, title and interest in and to all discoveries and improvements, patentableor otherwise, trade secrets and ideas, writings and copyrightable material, which may be conceivedby the Executive or developed or
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acquired by the Executive during the Executive’s employment, which may pertain directly orindirectly to the business of the Company or any of its affiliates. The Executive agrees todisclose fully all such developments to the Company upon its request, which disclosure shall bemade in writing promptly following any such request. The Executive shall, upon the Company’srequest, execute, acknowledge and deliver to the Company all instruments and do all other actswhich are necessary or desirable to enable the Company or any of its affiliates to file andprosecute applications for, and to acquire, maintain and enforce, all patents, trademarks andcopyrights in all countries. All copyrightable subject matter developed by the Executive under thisAgreement is work made for hire vesting title in the Company.
     9.3 Noncompetition/Nonsolicitation. a. The Executive agrees that, during the periodof his employment with the Company and/or its Subsidiaries and, if the Executive’s employment isterminated for any reason, thereafter for a period of two years, the Executive will not at any timedirectly or indirectly, in any capacity, engage or participate in, or become employed by or renderadvisory or consulting or other services in connection with any Prohibited Business (as defined inSection 9.3.d).
          b. The Executive agrees that, during the period of the Executive’s employment with theCompany and/or its Subsidiaries and, if the Executive’s employment is terminated for any reason,thereafter for a period of two years, the Executive shall not make any financial investment,whether in the form of equity or debt, or own any interest, directly or indirectly, in anyProhibited Business. Nothing in this Section 9.3.b shall, however, restrict the Executive frommaking any investment in a mutual fund or diversified investment company or any company whose stockis listed on a national securities exchange or actively traded in the over-the-counter market;provided that (1) such investment does not give the Executive the right or ability to control orinfluence the policy decisions of any Prohibited Business, (2) such investment does not create aconflict of interest between the Executive’s duties hereunder and the Executive’s interest in suchinvestment and (3) such investment does not exceed three percent of the outstanding stock of anyclass of stock of a corporation or three percent of the ownership interest of any other entity.
          c. The Executive agrees that, during the period of his employment with the Company and/or itsSubsidiaries and, if the Executive’s employment is terminated for any reason, thereafter
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for a period of two years, the Executive shall not (1) employ any employee of the Company and/orits Subsidiaries or (2) interfere with the Company’s or any of its Subsidiaries’ relationship with,or endeavor to entice away from the Company and/or its Subsidiaries any person, firm, corporation,or other business organization who or which at any time (whether before or after the date of theExecutive’s termination of employment), was an employee, customer, vendor or supplier of, ormaintained a business relationship with, any business of the Company and/or its Subsidiaries whichwas conducted at any time during the period commencing one year prior to the termination ofemployment.
          d. For the purpose of this Section 9.2, “Prohibited Business” shall be defined as anybusiness or other entity and any branch, office or operation thereof, which is engaged in managing,distributing, marketing, administering or otherwise providing general purpose payment cards orcredit cards, extended service plans and warranties, consumer credit products, fee-based productsand services or any other business being conducted by or contemplated by the Company or any of itsSubsidiaries as of the Termination Date, in any geographic area in which the Companydoes business, in the United States or abroad.
     9.4 Remedy. a. The Executive and the Company specifically agree that, in the eventthat the Executive shall breach the Executive’s obligations under this Article IX, the Company andits subsidiaries will suffer irreparable injury and no adequate remedy for such breach, and shallbe entitled to injunctive relief or other relief in order to enforce or present any such violationthereof (including the extension of the non-competition and nonsolicitation periods by a periodequal to the length of the violation and the length of proceedings necessary to stop suchviolation). In particular, without limiting the generality of the foregoing, the Company shall notbe precluded from pursuing any and all remedies it may have at law or in equity for breach of suchobligations.
          If, at any time of enforcement of this Article IX, a court or an arbitrator holds that therestrictions stated herein are unreasonable under circumstances then existing, the parties heretoagree that the maximum period, scope or geographical area reasonable under such circumstances shallbe substituted for the stated period, scope or area and that the court or arbitrator shall beallowed to revise the restrictions contained herein to cover the maximum period, scope and areapermitted by law. This Agreement shall not authorize a court or arbitrator to increase
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or broaden any of the restrictions in this Article IX.
          b. In addition to any other remedies provided for herein, in the event that the Executiveshall breach in any material respect any obligation under this Article IX, the Executive shallrefund to the Company all compensation paid to the Executive pursuant to paragraphs d. and f. ofSection 5.1. Any such refund shall neither relieve the Executive of his obligations under thisArticle IX nor limit the remedies the Company may have at law or in equity for breach of suchobligation.
     9.5 Survival Article IX of this Agreement shall survive and continue in full forceand effect in accordance with its terms, notwithstanding the expiration of the Agreement Term.
**ARTICLE X**
**MISCELLANEOUS**
     10.1 No Assignability. This Agreement is personal to the Executive and without theprior written consent of the Company shall not be assignable by the Executive otherwise than bywill or the laws of descent and distribution. This Agreement shall inure to the benefit of and beenforceable by the Executive’s legal representatives.
     10.2 Successors. This Agreement shall inure to the benefit of and be binding uponthe Company and its successors and assigns. The Company will require any successor (whether director indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of thebusiness or assets of the Company to assume expressly and agree to perform this Agreement in thesame manner and to the same extent that the Company would be required to perform it if no suchsuccession had taken place. Any successor to the business and/or assets of the Company whichassumes or agrees to perform this Agreement by operation of law, contract, or otherwise shall bejointly and severally liable with the Company under this Agreement as if such successor were theCompany.
     10.3 Payments to Beneficiary. If the Executive dies before receiving amounts towhich the Executive is entitled under this Agreement, such amounts shall be paid in a lump sum tothe beneficiary designated in writing by the Executive, or if none is so designated, to theExecutive’s estate.
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     10.4 Non-alienation of Benefits. Benefits payable under this Agreement shall not besubject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,charge, garnishment, execution or levy of any kind, either voluntary or involuntary, beforeactually being received by the Executive, and any such attempt to dispose of any right to benefitspayable under this Agreement shall be void.
     10.5 Severability. If any one or more articles, sections or other portions of thisAgreement are declared by any court or governmental authority to be unlawful or invalid, suchunlawfulness or invalidity shall not serve to invalidate any article, section or other portion notso declared to be unlawful or invalid. Any article, section or other portion so declared to beunlawful or invalid shall be construed so as to effectuate the terms of such article, section orother portion to the fullest extent possible while remaining lawful and valid.
     10.6 Amendments. Except as provided in Section 2.2, this Agreement shall not bealtered, amended or modified except by written instrument executed by the Company and theExecutive.
     10.7 Notices. All notices and other communications under this Agreement shall be inwriting and delivered by hand or by first class registered or certified mail, return receiptrequested, postage prepaid, addressed as follows:
     If to the Executive:    William Houlihan