Document:

Exhibit 10.24

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (the “Agreement”) is made and entered into effective the 14th day of January, 2011 by and between Classmates Online, Inc., a Washington corporation (the “Company”), with a principal place of business at 333 Elliott Avenue West, Suite 500, Seattle, Washington 98119, and Harold Alan Zeitz of Redmond, Washington, whose address for purposes of this Agreement is 333 Elliott Avenue West, Suite 500, Seattle, Washington 98119 (“Employee”).

 

WHEREAS, effective as of the date hereof, Employee and the Company desire to enter into an employment agreement.

 

NOW THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

1.             Term; Position.

 

(a)           The original term of this Agreement will commence on Employee’s start date to occur on or before February 14, 2011 (such start date being referred to as the “Effective Date”) and extend through February 15, 2014, unless this Agreement is earlier terminated as provided herein (the “Term”).

 

(b)           Employee will serve as President of the Company and report to the Chief Executive Officer of the Company.  Employee agrees to devote Employee’s full-time attention, skill and efforts to the performance of Employee’s duties for the Company.

 

2.             Salary and Benefits.

 

(a)           Employee will be paid a salary at Employee’s current annualized rate of $400,000, payable in successive bi-weekly or other installments in accordance with the Company’s standard payroll practices for salaried employees.  Employee’s rate of salary will be subject to such increases as may be determined from time to time by the Board of Directors.  As used in this Agreement, the term “Board of Directors” shall refer to the Board of Directors of United Online, Inc. or other governing body or committee to which the authority of the Board of Directors of United Online, Inc. with respect to executive compensation matters has been delegated, including (without limitation) the Compensation Committee of the Board of Directors of United Online, Inc.

 

(b)           Employee will be eligible to participate in each of the Company’s employee benefit plans that is made generally available either to the Company’s employees or to the Company’s senior executives and for which Employee satisfies the applicable eligibility requirements.  Employee will be entitled to a minimum of four (4) weeks of paid vacation each year or such greater amount as determined in accordance with the Company’s standard vacation policy.

 

(c)           The Company will promptly reimburse Employee for all reasonable and necessary business expenses Employee incurs in connection with the business of the Company and the performance of Employee’s duties hereunder upon Employee’s submission of reasonable and timely documentation of those expenses.  In no event shall any expense be reimbursed later than the end of the calendar year following the calendar year in which that expense is incurred, and the amounts reimbursed in any one calendar year shall not affect the amounts reimbursable in any

 

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other calendar year.  Employee’s right to receive such reimbursements may not be exchanged or liquidated for any other benefit.

 

(d)           Employee will receive a signing bonus in the amount of $75,000, less applicable withholding and payroll taxes, which will be paid in a lump sum within thirty (30) days following the Effective Date.

 

3.             Bonus.  For each fiscal year of the Company during the Term of this Agreement, Employee will be eligible to participate in a bonus program with a target bonus set by the Board of Directors in an amount of up to 100% of Employee’s annual rate of base salary.  The performance criteria for purposes of determining Employee’s actual bonus for each fiscal year will be established by the Board of Directors, and Employee’s annual bonus for one or more of those fiscal years may be increased to include any additional amounts approved by the Board of Directors.  Except as otherwise determined by the Board of Directors or set forth herein, Employee will not be entitled to a bonus payment for any fiscal year unless Employee is employed by, and in good standing with, the Company at the time such bonus payment is paid.  Employee’s bonus payment for each fiscal year shall in no event be paid later than the 15th day of the third month following the end of the Company’s fiscal year for which such bonus is earned.

 

4.             Restricted Stock Units and Other Equity Awards.

 

(a)           On February 15, 2011 (the “Grant Date”), Employee will be awarded restricted stock units covering 150,000 shares of the common stock (“Common Stock”) of United Online, Inc. (the “Initial RSU Award”).  The Initial RSU Award will be granted under the United Online, Inc. 2010 Incentive Compensation Plan (the “Plan”) and will be subject to the standard terms and conditions set forth in the Plan and the standard form restricted stock unit agreement for employee awards under such Plan, including dividend-equivalent rights with respect to the shares covered by the Initial RSU Award.  The Initial RSU Award will vest, and the underlying shares will be issued, in a series of successive equal annual installments over the Employee’s period of continued employment with the Company or any majority or greater owned subsidiary of United Online, Inc. in accordance with following service-vesting schedule:

 

(i)   Twenty-five percent (25%) of the total number of shares of Common Stock subject to the Initial RSU Award will vest and become issuable on each of the first two one-year anniversaries of the Grant Date (February 15, 2012 and February 15, 2013), provided Employee continues in the employ of the Company or any majority or greater owned subsidiary of United Online, Inc. through each such annual vesting date.

 

(ii)           The remaining fifty percent (50%) of the total number of shares of Common Stock subject to the Initial RSU Award will vest and become issuable upon Employee’s continuation in the employ of the Company or any majority or greater owned subsidiary of United Online, Inc. through the third one-year anniversary of the Grant Date (February 15, 2014).

 

(b)           If Employee’s employment is terminated by the Company “without cause” or by Employee for “good reason” (as each term is defined below) during the Term, then upon Employee’s satisfaction of the Release Condition set forth in Section 7(b) below,  any and all equity awards Employee holds on the date of such termination (other than any equity award granted after the Effective Date that expressly provides to the contrary) will vest on an accelerated basis as to that number of additional shares in which Employee would have otherwise been vested at the time of such termination had Employee completed an additional twelve (12) months of employment with the Company and had each applicable equity award been structured so as to vest in successive equal monthly installments over the vesting schedule for that award.  In

 

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no event will the number of additional shares which vest on such an accelerated basis with respect to any particular equity award exceed the number of shares unvested under that award immediately prior to the date of such termination.  Except as otherwise expressly provided in the agreement evidencing a particular restricted stock unit or other equity award or to the extent another issuance date may be required to comply with any applicable requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), the shares of Common Stock underlying the equity awards that vest on an accelerated basis in accordance with this Section 4(b) will be issued to Employee within the sixty (60)-day period following the date of Employee’s “separation from service” (as defined below) as a result of Employee’s termination “without cause” (as defined below) or Employee’s resignation for “good reason” (as defined below), provided the Release required of Employee pursuant to Section 7(b) has become effective and enforceable in accordance with its terms following the expiration of the applicable revocation period in effect for that Release.  However, should such sixty (60)-day period span two taxable years, the issuance shall be effected during the portion of that period that occurs in the second taxable year.

 

(c)           If Employee’s employment is terminated by the Company “without cause” or by Employee for “good reason” (as each term is defined below) at any time during the Term and within the period commencing with the execution by United Online, Inc. of a definitive agreement for a Change in Control (as defined below) and ending with the earlier of (i) the termination of that agreement without the consummation of such Change in Control or (ii) the expiration of the twenty-four (24)-month period measured from the date such Change in Control occurs, then upon Employee’s satisfaction of the Release Condition set forth in Section 7(b) below,  any and all equity awards Employee holds on the date of such termination will fully vest on an accelerated basis with respect to all non-vested shares of Common Stock at the time subject to those awards, except to the extent otherwise provided in the equity award agreement for any equity award granted after the Effective Date of this Agreement.  Except as otherwise expressly provided in the agreement evidencing a particular restricted stock unit or other equity award or to the extent another issuance date may be required in order to comply with any applicable requirements of Section 409A of the Code, the shares of Common Stock (or any replacement securities) underlying the equity awards that fully vest on an accelerated basis in accordance with this Section 4(c), or the proceeds of any cash retention program established in replacement of those shares pursuant to the terms of the applicable award agreement, will be issued or distributed to Employee within the sixty (60)-day period following the date of Employee’s “separation from service” (as defined below) as a result of Employee’s termination “without cause” (as defined below) or Employee’s resignation for “good reason” (as defined below), provided the Release required of Employee pursuant to Section 7(b) has become effective and enforceable in accordance with its terms following the expiration of the applicable revocation period in effect for that Release.  However, should such sixty (60)-day period span two taxable years, the issuance shall be effected during the portion of that period that occurs in the second taxable year.

 

(d)           Upon Employee’s “separation from service” (as defined below) as a result of Employee’s death or Disability (as defined below), any and all equity awards Employee holds on the date of such separation from service will vest on an accelerated basis as to that number of additional shares in which Employee would have otherwise been vested on the date of such separation from service had Employee completed an additional twelve (12) months of employment with the Company and had each applicable equity award been structured so as to vest in successive equal monthly installments over the vesting schedule for that award.  Except as otherwise expressly provided in the agreement evidencing a particular restricted stock unit or other equity award or to the extent another issuance date may be required in order to comply with any applicable requirements of Section 409A of the Code, the shares of Common Stock underlying the equity

 

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awards that vest on an accelerated basis in accordance with this Section 4(d) will be issued on the date of such separation from service or as soon as administratively practicable thereafter, but in no event later than the later of (i) the end of the calendar year in which such separation from service occurs or (ii) the 15th day of the third calendar month following the date of such separation from service. For purposes of this Agreement, “Disability” means Employee’s inability to engage in any substantial activity necessary to perform Employee’s duties and responsibilities hereunder by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than twelve (12) months.

 

(e)           The vesting acceleration provisions of this Section 4 and Section 7 will apply to all equity awards made after the Effective Date of this Agreement except to the extent specifically stated in the applicable award agreement or in a resolution of the Board of Directors covering those future awards.  The shares subject to each equity award that vests pursuant to the vesting acceleration provisions of this Section 4 shall be issued in accordance with the applicable issuance date provisions of this Section 4, except to the extent the agreement evidencing such award provides otherwise or to the extent another issuance date may be required in order to comply with any applicable requirements of Section 409A of the Code.

 

5.             Policies; Procedures; Proprietary Information and Inventions Agreement.  As an employee of the Company, Employee will be expected to abide by all of the Company’s policies and procedures, including (without limitation) the terms of Employee’s Proprietary Information and Inventions Agreement with the Company (which is incorporated herein by reference), the Insider Trading Policy, the Code of Ethics and the Employee Handbook.

 

6.             At Will Employment.  Notwithstanding anything to the contrary contained herein, Employee’s employment with the Company is “at will” and will not be for any specified term, meaning that either Employee or the Company will be entitled to terminate Employee’s employment at any time and for any reason, with or without cause or advance notice.  Any contrary representations that may have been made to Employee are hereby superseded by the terms set forth in this Agreement.  This is the full and complete agreement between Employee and the Company on this subject.  Although Employee’s job duties, title, compensation and benefits, as well as the Company’s personnel policies and procedures, may change from time to time, the “at will” nature of Employee’s employment may only be changed in an express written agreement signed by Employee and the Chief Executive Officer of the Company and approved by the Board of Directors.

 

7.             Separation from Service.

 

(a)           Termination by Employee.  If Employee terminates his employment with the Company for any reason other than as a result of his death or Disability or his resignation for “good reason” (as defined below), then all the obligations of the Company set forth in this Agreement will cease, other than the obligation to pay Employee, on his employment termination date, any earned but unpaid compensation for services rendered through that termination date and any accrued but unused vacation days as of that termination date (collectively, the “Accrued Obligations”).  If Employee terminates his employment with the Company for “good reason” (as defined below) during the Term, then in addition to Employee’s right to receive the Accrued Obligations, Employee will, upon Employee’s satisfaction of the Release Condition set forth in Section 7(b) below, become entitled to the Separation Payment (as defined below) and the Additional Payments (as defined below), to the same extent as if Employee’s employment had been terminated by the Company “without cause” (as defined below) during the Term, and Employee will also be entitled, in accordance with the applicable provisions of Section 4 above, to the accelerated vesting of any equity awards Employee holds at the time of such termination.  Following Employee’s

 

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termination of his employment with the Company under this Section 7(a), Employee will continue to be obligated to comply with the terms of Employee’s Proprietary Information and Inventions Agreement and the restrictive covenants set forth in Section 9 below.

 

(b)           Termination by the Company.  If Employee’s employment is terminated by the Company “without cause” (as defined below) during the Term, then in addition to Employee’s right to receive the Accrued Obligations, Employee will, upon Employee’s satisfaction of the Release Condition set forth below in this Section 7(b), become entitled to a cash separation payment (the “Separation Payment”) in an aggregate amount equal to two (2) times the base salary at the annual rate in effect for Employee at the time.  In addition, contingent upon Employee’s satisfaction of the Release Condition, Employee will be eligible for the following additional separation payments (the “Additional Payments”):

 

(I)            Employee will be eligible for an additional separation payment in an amount equal to a pro-rated bonus for the fiscal year in which such involuntary termination occurs.  Such pro-rated bonus will be determined by multiplying (A) the actual bonus (if any) Employee would have earned for that fiscal year, based on the level at which the applicable performance goals for such fiscal year are in fact attained, had Employee continued in the Company’s employ through the date that bonus award becomes due and payable by (B) a fraction the numerator of which is the number of whole months (rounded to the next highest whole month) Employee remained in the Company’s employ during that fiscal year and the denominator of which is twelve (12), with such pro-rated bonus (if any) to be paid at the same time and in same form that the bonus payment for such fiscal year would have been made following the completion of that fiscal year had Employee remained in the Company’s employ through the payment date.  However, if such involuntary termination occurs in the same fiscal year of the Company in which a Change in Control occurs, then such pro-rated bonus will instead be determined by (1) multiplying (A) Employee’s target bonus for that fiscal year by (B) a fraction the numerator of which is the number of whole months (rounded to the next highest whole month) Employee remained in the Company’s employ during that fiscal year and the denominator of which is twelve (12) and (2) reducing such amount by any bonus earned by Employee for the same fiscal year under Section 3 of this Agreement, with such pro-rated bonus to be paid (in the same form in which the bonus payment for such fiscal year would have been paid had Employee remained in the Company’s employ through the payment date) as follows:

 

(i)            if such Change in Control occurs on or before the date of such involuntary termination, then such payment shall be made on the date on which the first monthly installment of the Separation Payment (or, in the case of a termination following a Qualifying Change in Control (as defined below), the lump sum Separation Payment) is paid; or

 

(ii)           if such Change in Control occurs after the date of such involuntary termination, then such payment shall be made on the later of (x) the third (3rd) business day following the effective date of such Change in Control or (y) the sixtieth (60th) day following the date of Employee’s separation from service (as defined below) or, if such sixtieth (60th) day is not otherwise a business day, then the immediately preceding business day.

 

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(II)           In addition, if the date of such involuntary termination occurs after the end of a fiscal year of the Company but prior to the date in the subsequent fiscal year on which Employee’s bonus for that fiscal year would have otherwise become due and payable on the basis of the applicable performance goals attained for that year had Employee continued in employment with the Company, then the Company will pay Employee an additional separation payment equal to the bonus that Employee would have received on the basis of the attained performance goals had Employee remained employed by, and in good standing with, the Company through the payment date for such bonus, with that amount to be paid in a lump sum (in the same form in which such bonus payment would have been paid had Employee remained in the Company’s employ through the payment date) on the later of (i) the date on which the first monthly installment of the Separation Payment (or, in the case of a termination following a Qualifying Change in Control, the lump sum Separation Payment) is paid to Employee as set forth below in this Section 7(b) or (ii) the date such bonus would have been paid to Employee pursuant to Section 3 of this Agreement had Employee continued in the Company’s employ through such payment date.

 

(III)         In no event shall any such Additional Payment be made later than the last day of the applicable period necessary to qualify such Additional Payment for the short-term deferral exception under Code Section 409A.

 

Payment of the Separation Payment and the Additional Payments (if any) and the accelerated vesting of Employee’s equity awards under Section 4 will each be contingent upon the satisfaction of the following requirements (collectively the “Release Condition”): (i) Employee must execute and deliver to the Company, within twenty-one (21) days (or forty-five (45) days to the extent such longer period is required under applicable law) after the effective date of Employee’s termination of employment, a comprehensive agreement releasing the Company and its officers, directors, employees, stockholders, subsidiaries, affiliates, representatives and other related parties from all claims that Employee may have with respect to such parties relating to Employee’s employment with the Company and the termination of that employment relationship and containing such other and additional terms as the Company deems satisfactory (the “Release”) and (ii) such Release must become effective and enforceable after the expiration of any applicable revocation period under federal or state law.

 

Except as provided in the following paragraph, the Separation Payment to which Employee becomes entitled under this Section 7(b) or under Section 7(a) above will be payable in a series of twelve (12) successive equal monthly installments, beginning on the first regular payday for the Company’s salaried employees, within the sixty (60)-day period following the date of Employee’s “separation from service” (as defined below) as a result of Employee’s termination “without cause” (as defined below) or Employee’s resignation for “good reason” (as defined below), on which Employee’s executed Release is effective and enforceable in accordance with its terms following the expiration of the applicable revocation period in effect for that Release.  However, should such sixty (60)-day period span two taxable years, the first such monthly installment shall be paid during the portion of that period that occurs in the second taxable year.  The remaining monthly installments shall be paid on successive monthly anniversaries of the initial monthly installment hereunder.  For purposes of Section 409A of the Code, Employee’s right to receive such Separation Payment shall be deemed a right to receive a series of separate individual payments and not a right to single payment.

 

If Employee’s employment is terminated by the Company “without cause” (as defined below) or if Employee terminates his employment with the Company for “good reason” (as defined below) during the Term and within the twenty-four (24) month period beginning on the effective date of a Qualifying Change in Control (as defined below), the Separation Payment to which Employee becomes entitled

 

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under this Section 7(b) or under Section 7(a) above upon Employee’s satisfaction of the Release Condition will be payable in a single lump-sum payment on the first regular payday for the Company’s salaried employees, within the sixty (60)-day period following the date of Employee’s “separation from service” (as defined below) as a result of Employee’s termination “without cause” (as defined below) or Employee’s resignation for “good reason” (as defined below), on which Employee’s executed Release is effective and enforceable in accordance with its terms following the expiration of the applicable revocation period in effect for that Release.  However, should such sixty (60)-day period span two taxable years, then such payment shall be made during the portion of that period that occurs in the second taxable year.  Any Separation Payment to which Employee becomes entitled hereunder in connection with a termination following a Change in Control other than a Qualifying Change in Control will be paid in installments as set forth in the immediately preceding paragraph of this Section 7(b).  For purposes of this Agreement, a “Change in Control” shall have the meaning assigned to such term in the United Online, Inc. 2010 Incentive Compensation Plan (or successor thereto), and a “Qualifying Change in Control” shall mean the date on which there occurs a “Change in Control” (as defined above) that also qualifies as: (i) a change in the ownership of United Online, Inc., as determined in accordance with Section 1.409A-3(i)((5)(v) of the Treasury Regulations, (ii) a change in the effective control of United Online, Inc., as determined in accordance with Section 1.409A-3(i)((5)(vi) of the Treasury Regulations, or (iii) a change in the ownership of a substantial portion of the assets of United Online, Inc., as determined in accordance with Section 1.409A-3(i)((5)(vii) of the Treasury Regulations.

 

If Employee’s employment is terminated by the Company “without cause” (as defined below), the Company will have no further obligation to Employee pursuant to this Agreement other than the Accrued Obligations, the vesting of Employee’s outstanding equity awards in accordance with the applicable vesting acceleration provisions of Section 4 above and the obligations of the Company pursuant to this Section 7(b).

 

If Employee’s employment is terminated by the Company “with cause” (as defined below), the Company will have no further obligation to Employee under the terms of this Agreement, other than the Accrued Obligations.

 

Notwithstanding the termination of Employee’s employment by the Company “with cause” or “without cause,” or by Employee for “good reason” or without “good reason”, Employee will continue to be obligated to comply with the terms of the Proprietary Information and Inventions Agreement and will be subject to the restricted covenants set forth in Section 9, whether or not Employee becomes entitled to any severance or separation payments or benefits pursuant to Section 4 or Section 7 of this Agreement.

 

If any payment or benefit received or to be received by Employee (including any payment or benefit received pursuant to this Agreement or otherwise) would be (in whole or part) subject to the excise tax imposed by Section 4999 of the Code, or any successor provision thereto, or any similar tax imposed by state or local law, or any interest or penalties with respect to such excise tax (such tax or taxes, together with any such interest and penalties, are hereafter collectively referred to as the “Excise Tax”), then the cash payments provided to Employee under this Agreement shall first be reduced, with each such payment to be reduced pro-rata but without any change in the payment date and with the monthly installments of the Separation Payment (or the lump sum Separation Payment in the event of a Qualifying Change in Control) to be the first such cash payments so reduced, and then, if necessary, the accelerated vesting of Employee’s equity awards pursuant to the provisions of this Agreement shall be reduced in the same chronological order in which those awards were made, but only to the extent necessary to assure that Employee receives only the greater of (i)  the amount of those payments and benefits which would not constitute a parachute payment under Code Section 280G or (ii)  the amount which yields Employee the greatest after-tax amount of benefits after taking into account any Excise Tax imposed on the payments and benefits provided Employee hereunder (or on any other payments or

 

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benefits to which Employee may become entitled in connection with any change in control or ownership of the Company or the subsequent termination of Employee’s employment with the Company).

 

(c)           Termination by Death or Disability.  If Employee incurs a “separation from service” (as defined below) as a result of his death or Disability, the Company will be obligated to pay the Accrued Obligations to Employee, Employee’s estate or beneficiaries (as the case may be) on the date of such separation from service or as soon as administratively practicable thereafter, but in no event later than sixty (60) days after the date of such separation from service.  In the event of such separation from service due to Employee’s death or Disability, Employee or Employee’s estate or beneficiaries, as the case may be, will also be entitled to the accelerated vesting of Employee’s equity awards as set forth in Section 4(d) above.  The provisions of this Section 7(c) will not affect or change the rights or benefits to which Employee is otherwise entitled under the Company’s employee benefit plans or otherwise.

 

(d)           Definitions.

 

For purposes of this Agreement, the following definitions will be in effect:

 

“good reason” means:

 

(i)        a material reduction in Employee’s base salary without Employee’s prior written consent;

(ii)       a material reduction in Employee’s authority, duties or responsibilities, without Employee’s prior written consent;

(iii)      a material change in the geographic location at which Employee must perform services (the parties acknowledge that Employee is currently required to perform services at 333 Elliott Avenue West, Suite 500, Seattle, Washington 98119) without Employee’s prior written consent; or

(iv)      any material un-waived breach by the Company of the terms of this Agreement; provided however, that with respect to any of the clause (i) — (iv) events above, Employee will not be deemed to have resigned for good reason unless (A) Employee provides written notice to the Company of the existence of the good reason event within ninety (90) days after its initial occurrence, (B) the Company is provided with thirty (30) days after receipt of such notice in which to cure such good reason event and (C) Employee effectively terminates Employee’s employment within one hundred eighty (180) days following the occurrence of the non-cured clause (i) — (iv) event.

 

“with cause” means Employee’s termination of employment by the Company for any of the following reasons:

 

(i)        if Employee is convicted of, or enters a plea of nolo contendere to, a felony or a misdemeanor involving any act of moral turpitude;

(ii)       if Employee commits an act of actual fraud, embezzlement, theft or similar dishonesty against the Company or any of its subsidiaries or affiliates;

(iii)      if Employee commits any willful misconduct or gross negligence resulting in material harm to the Company or any of its subsidiaries or affiliates; or

(iv)      if Employee fails, after receipt of detailed written notice and after receiving a period of at least thirty (30) days following such notice to cure such failure, to use his reasonable good faith efforts to follow the reasonable and lawful direction of the Board and to perform his obligations hereunder.

 

“without cause” means any reason not within the scope of the definition of the term “with cause.”

 

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“separation from service” means Employee’s cessation of employee status with the Company by reason of Employee’s death, resignation, dismissal or other termination event and shall be deemed to occur at such time as the level of bona fide services Employee is to render as such an employee (or as a non-employee consultant) permanently decreases to a level that is not more than twenty percent (20%) of the average level of services Employee rendered as an employee during the immediately preceding thirty-six (36) months (or such shorter period of time in which Employee has actually been in employee status with the Company). Any such determination of Employee’s separation from service shall, however, be made in accordance with the applicable standards of the Treasury Regulations issued under Section 409A of the Code.

 

(e)           Code Section 409A Deferral Period.  Notwithstanding any provision in this Agreement to the contrary (other than Section 7(f) below), no payment or distribution under this Agreement which constitutes an item of deferred compensation under Section 409A of the Code and becomes payable by reason of Employee’s termination of employment with the Company will be made to Employee until Employee incurs a separation from service (as such term is defined above and determined in accordance with Treasury Regulations issued under Section 409A of the Code) in connection with such termination of employment.  For purposes of this Agreement, each amount to be paid or benefit to be provided Employee shall be treated as a separate identified payment or benefit for purposes of Section 409A of the Code.  In addition, no payment or benefit which constitutes an item of deferred compensation under Section 409A of the Code and becomes payable by reason of Employee’s separation from service will be made to Employee prior to the earlier of (i) the first day of the seventh (7th) month measured from the date of such separation from service or (ii) the date of Employee’s death, if Employee is deemed at the time of such separation from service to be a “specified employee” (as determined pursuant to Code Section 409A and the Treasury Regulations thereunder) and such delayed commencement is otherwise required in order to avoid a prohibited distribution under Code Section 409A(a)(2).  Upon the expiration of the applicable deferral period, all payments and benefits deferred pursuant to this Section 7(e) (whether they would have otherwise been payable in a single sum or in installments in the absence of such deferral) shall be paid or provided to Employee in a lump sum on the first day of the seventh (7th) month after the date of Employee’s separation from service or, if earlier, the first day of the month immediately following the date the Company receives proof of Employee’s death. Any remaining payments or benefits due under this Agreement will be paid in accordance with the normal payment dates specified herein.

 

(f)            Provisions Applicable to “Specified Employee”.  Notwithstanding Section 7(e) above, the following provisions shall also be applicable to Employee if Employee is a “specified employee” at the time of Employee’s separation of service:

 

(i)            Any payments or benefits which become due and payable to Employee during the period beginning with the date of Employee’s separation from service and ending on March 15 of the following calendar year and otherwise qualify for the short-term deferral exception to Code Section 409A shall not be subject to the holdback provisions of Section 7(e) and shall accordingly be paid as and when they become due and payable under this Agreement in accordance with such short-term deferral exception to Code Section 409A.

 

(ii)           The remaining portion of the payments and benefits to which Employee becomes entitled under this Agreement, to the extent they do not in the aggregate exceed the dollar limit described below and are otherwise scheduled to be paid no later than the last day of the second calendar year following the calendar year in which Employee’s separation from service occurs, shall not be subject to the holdback provisions of Section 7(e) and shall be paid to Employee as they become due and payable under this Agreement.  For purposes of this subparagraph (ii), the applicable dollar limitation will be equal to two times the lesser of (i) Employee’s annualized compensation (based on Employee’s annual rate of pay for the calendar year preceding the

 

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calendar year of Employee’s separation from service, adjusted to reflect any increase during that calendar year which was expected to continue indefinitely had such separation from service not occurred) or (ii) the compensation limit under Section 401(a)(17) of the Code as in effect in the year of such separation from service.  To the extent the portion of the severance payments and benefits to which Employee would otherwise be entitled under this Agreement during the deferral period under Section 7(e) exceeds the foregoing dollar limitation, such excess shall be paid in a lump sum upon the expiration of that deferral period, in accordance with the deferred payment provisions of Section 7(e), and the remaining severance payments and benefits (if any) shall be paid in accordance with the normal payment dates specified for them herein.

 

8.             Withholding Taxes.  All forms of compensation payable pursuant to the terms this Agreement, whether payable in cash, shares of Common Stock or other property, are subject to reduction to reflect the applicable withholding and payroll taxes.

 

9.             Restrictive Covenants.  Until one (1) year after Employee’s employment with the Company ends, regardless of the reason it ends, Employee will not, directly or indirectly, anywhere in the world:

 

(a)           solicit or recruit for employment, any person or persons who are employed by Company (which, for purposes of this Section 9, is deemed to include the Company’s parent and all subsidiaries and affiliates thereof), or who were so employed at any time within a period of twelve (12) months immediately prior to the date Employee’s employment terminated, or otherwise interfere with the relationship between any such person and the Company; nor will Employee assist anyone else in recruiting any such employee to work for another company or business or discuss with any such person his or her leaving the employ of the Company or engaging in a business activity in competition with the Company;

 

(b)           design, develop, manufacture, market or sell any product or service which is in competition with the products or services of the Company including, but not limited to, online nostalgic content, online social networking and any other products or services then offered by the Company; or

 

(c)           own any interest in, control, be employed by or associated with or render advisory, consulting or other services (including, but not limited to, services in research) to (i) any person or entity that engages in the design, development, manufacture, marketing or sale of a product or service which is in competition with the products or services of the Company including, but not limited to, online nostalgic content, online social networking and any other products or services then offered by the Company, or (ii) any subsidiary, subdivision, division or joint venture of any such person or entity; provided, however, that nothing in this Agreement will prohibit Employee from owning less than one percent (1%) of the equity interests of any publicly held entity.

 

10.           Deferred Compensation Programs.  Any compensation deferred by Employee pursuant to one or more non-qualified deferred compensation plans or arrangements of the Company subject to Section 409A of the Code and not otherwise expressly addressed by the terms of this Agreement, shall be paid at such time and in such form of payment as set forth in each applicable plan or arrangement governing the payment of any such deferred amounts.

 

11.           Clawback.  Any amounts paid or payable to Employee pursuant to this Agreement or the Company’s equity or compensation plans shall be subject to recovery or clawback to the extent required by any applicable law or any applicable securities exchange listing standards.

 

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12.           Entire Agreement/Construction of Terms.

 

(a)           This Agreement, together with the Proprietary Information and Inventions Agreement between Employee and the Company, any Company handbooks and policies in effect from time to time and the applicable stock plans and agreements evidencing the equity awards made to Employee from time to time during Employee’s period of employment, contains all of the terms of Employee’s employment with the Company and supersedes any prior understandings or agreements, whether oral or written, between Employee and the Company.

 

(b)           If any provision of this Agreement is held by an arbitrator or a court of competent jurisdiction to conflict with any federal, state or local law, or to be otherwise invalid or unenforceable, such provision shall be construed or modified in a manner so as to maximize its enforceability while giving the greatest effect as possible to the intent of the parties.  To the extent any provision cannot be construed or modified to be enforceable, such provision will be deemed to be eliminated from this Agreement and of no force or effect, and the remainder of this Agreement will otherwise remain in full force and effect and be construed as if such portion had not been included in this Agreement.

 

(c)           This Agreement is not assignable by Employee.  This Agreement may be assigned by the Company to its subsidiaries or affiliates or to successors in interest to the Company or its lines of business.

 

(d)           The severance payments and benefits under this Agreement are intended, where possible, to comply with the “short term deferral exception” and the “involuntary separation pay exception” to Code Section 409A. Accordingly, the provisions of this Agreement applicable to the Separation Payment and the accelerated vesting of Employee’s equity awards and the issuance of shares of Common Stock thereunder and the determination of Employee’s separation from service due to termination of Employee’s employment without cause or Employee’s resignation for good reason shall be applied, construed and administered so that those payments and benefits qualify for one or both of those exceptions, to the maximum extent allowable.  However, to the extent any payment or benefit to which Employee becomes entitled under this Agreement is deemed to constitute an item of deferred compensation subject to the requirements of Code Section 409A, the provisions of this Agreement applicable to that payment or benefit shall be applied, construed and administered so that such payment or benefit is made or provided in compliance with the applicable requirements of Code Section 409A.  In addition, should there arise any ambiguity as to whether any other provisions of this Agreement would contravene one or more applicable requirements or limitations of Code Section 409A and the Treasury Regulations thereunder, such provisions shall be interpreted, administered and applied in a manner that complies with the applicable requirements of Code Section 409A and the Treasury Regulations thereunder.

 

13.           Amendment and Governing Law.  This Agreement may not be amended or modified except by an express written agreement signed by Employee and the Chief Executive Officer of the Company and approved by the Board of Directors.  The terms of this Agreement and the resolution of any disputes will be governed by Washington law, and venue for any disputes will be in Seattle, Washington.

 

14.           Surviving Provisions.  Following any termination or expiration of this Agreement, Sections 5, 6, 7(e), 7(f), 8, 9, 10, 11, 12, 13 and 14 will survive, and, if Employee’s employment with the Company continues thereafter, Employee’s employment with the Company will continue to be “at will”.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date stated in the opening paragraph.

 

 

	
 
    	
/s/ Harold Alan Zeitz
    
	
 
    	
Harold Alan Zeitz
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Date signed: January 13, 2011
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
CLASSMATES ONLINE, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Mark R. Goldston
    
	
 
    	
 
    	
Mark R. Goldston
    
	
 
    	
 
    	
Chairman and Chief Executive Officer
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Date signed: January 14, 2011
    

 

12Exhibit 10.4

 

Executive Change-in-Control Severance Agreement for [Employee]

 

Walter Energy, Inc.

 

Adopted:                     , 2010

 

 

	
Contents
    	
 
    
	
 
    	
 
    
	
Article 1. Definitions
    	
1
    
	
 
    	
 
    
	
Article 2. Severance Benefits
    	
5
    
	
 
    	
 
    
	
Article 3. Form and Timing of Severance Benefits
    	
9
    
	
 
    	
 
    
	
Article 4. Noncompetition and Confidentiality
    	
10
    
	
 
    	
 
    
	
Article 5. Claw-Back
    	
12
    
	
 
    	
 
    
	
Article 6. The Company’s Payment Obligation
    	
12
    
	
 
    	
 
    
	
Article 7. Legal Remedies
    	
12
    
	
 
    	
 
    
	
Article 8. Successors
    	
13
    
	
 
    	
 
    
	
Article 9. Miscellaneous
    	
13
    
	
 
    	
 
    

 

 

Walter Energy, Inc. 
 Executive Change-in-Control Severance Agreement

 

THIS EXECUTIVE CHANGE-IN-CONTROL SEVERANCE AGREEMENT is made, entered into, and is effective this [ ] day of [     ], 2010 (hereinafter referred to as the “Effective Date”), by and between Walter Energy, Inc. (the “Company”), a Delaware corporation, and [employee] (the “Executive”).

 

WHEREAS, the Executive is currently employed by the Company and possesses considerable experience and knowledge of the business and affairs of the Company concerning its policies, methods, personnel, and operations; and

 

WHEREAS, the Company is desirous of assuring insofar as possible, that it will continue to have the benefit of the Executive’s services; and the Executive is desirous of having such assurances; and

 

WHEREAS, the Company recognizes that circumstances may arise in which a Change in Control of the Company occurs, through acquisition or otherwise, thereby causing uncertainty of employment without regard to the Executive’s competence or past contributions. Such uncertainty may result in the loss of the valuable services of the Executive to the detriment of the Company and its shareholders; and

 

WHEREAS, both the Company and the Executive are desirous that any proposal for a Change in Control or acquisition will be considered by the Executive objectively and with reference only to the business interests of the Company and its shareholders; and

 

WHEREAS, the Executive will be in a better position to consider the Company’s best interests if the Executive is afforded reasonable security, as provided in this Agreement, against altered conditions of employment which could result from any such Change in Control or acquisition.

 

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements of the parties set forth in this Agreement, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:

 

Article 1. Definitions

 

Wherever used in this Agreement, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized:

 

(a)         “Agreement” means this Executive Change-in-Control Severance Agreement.

 

(b)         “Base Salary” means, at any time, the then regular annual rate of pay which the Executive is receiving as annual salary, excluding amounts: (i) received under short-term or long-term incentive or other bonus plans, regardless of whether or not the amounts are deferred, or (ii) designated by the Company as payment toward reimbursement of expenses.

 

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(c)         “Board” means the Board of Directors of the Company.

 

(d)         “Cause” shall be determined solely by the Committee in the exercise of good faith and reasonable judgment, and shall mean the occurrence of any one or more of the following:

 

(i)         The Executive’s willful and continued failure to substantially perform his duties with the Company and/or one or more of its subsidiaries (other than any such failure resulting from the Executive’s Disability), after a written demand for substantial performance is delivered to the Executive that specifically identifies the manner in which the Committee believes that the Executive has not substantially performed his duties, and the Executive has failed to remedy the situation within fifteen (15) business days of such written notice from the Company or a subsidiary; or

 

(ii)          The Executive’s conviction of a felony; or

 

(iii)          The Executive’s willful engaging in conduct that is demonstrably and materially injurious to the Company and/or one or more of its subsidiaries, monetarily or otherwise. However, no act or failure to act on the Executive’s part shall be deemed “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the action or omission was in the best interests of the Company and/or one or more of its subsidiaries.

 

(e)         “Change in Control” of the Company shall mean the occurrence of any one (1) or more of the following events:

 

(i)         A change in the effective control of the Company, which occurs only on either of the following dates:

 

(A)                  The date any Person or more than one Person acting as a group (other than the Company or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, and any trustee or other fiduciary holding securities under an employee benefit plan of the Company or such proportionately owned corporation), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons) ownership of stock of the Company representing more than thirty percent (30%) of the total voting power of the stock of the Company; or

 

(B)                   The date a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board before the date of the appointment or election;

 

provided that, in any event, the transaction must constitute a “change in the effective control” of the Company within the meaning of Section

 

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409A(a)(2)(A)(v) of the Code and Treasury Regulations Section 1.409A-3(i)(5)(vi).

 

(ii)          The date any Person or more than one Person acting as a group acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons) all or substantially all of the Company’s assets; provided that the transaction must constitute a “change in the ownership of a substantial portion of the assets” of the Company within the meaning of Section 409A(a)(2)(A)(v) of the Code and Treasury Regulations Section 1.409A-3(i)(5)(vii).

 

Notwithstanding the foregoing, in no event shall a Change in Control of the Company be deemed to have occurred if the Company undergoes a strategic realignment of its businesses (such as a split-up or spin-off transaction), with or without a shareholder vote.

 

(f)          “Code” means the Internal Revenue Code of 1986, as amended.

 

(g)         “Committee” means the Compensation Committee of the Board of Directors of the Company, or, if no Compensation Committee exists, then the full Board of Directors of the Company, or a committee of Board members, as appointed by the full Board to administer this Agreement.

 

(h)         “Company” means Walter Energy, Inc., a Delaware corporation, or any successor thereto as provided in Article 8 herein.

 

(i)          “Constructive Termination” means the Executive’s voluntary Separation from Service for Good Reason; provided that a voluntary Separation from Service shall be a Constructive Termination only if (i) Executive provides written notice of the facts or circumstances constituting a Good Reason condition to the Company within 30 days after the initial existence of the Good Reason condition, (y) the Company does not remedy the Good Reason condition within 30 days after it receives such notice, and (z) the voluntary Separation from Service occurs within 90 days after the initial existence of the Good Reason condition. The foregoing definition of Constructive Termination is intended to qualify for the safe harbor under Treasury Regulations Section 1.409A-1(n)(2)(ii) for treating a voluntary separation from service as an involuntary separation from service.

 

(j)          “Disability” or “Disabled” shall have the meaning ascribed to such term in the Executive’s governing long-term disability plan, or if no such plan exists, at the discretion of the Board.

 

(k)         “Effective Date” means the date this Agreement is approved by the Board, or such other date as the Board shall designate in its resolution approving this Agreement, and as specified in the opening sentence of this Agreement.

 

(l)          “Effective Date of Termination” means the date on which a Qualifying Termination occurs, as provided in Section 2.2 herein, which triggers the payment of Severance Benefits hereunder.

 

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(m)        “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

(n)         “Good Reason” means the occurrence of any of the following conditions after a Change in Control of the Company (in each case arising without the Executive’s consent):

 

(i)         A material diminution of the Executive’s authority, duties or responsibilities from those in effect as of ninety (90) calendar days prior to the Change in Control;

 

(ii)          The Company requiring the Executive to be based at a location in excess of fifty (50) miles from the location of the Executive’s principal job location or office immediately prior to the Change in Control; except for required travel on the Company’s business to an extent substantially consistent with the Executive’s then present business travel obligations;

 

(iii)          A material reduction by the Company of the Executive’s Base Salary in effect on the Effective Date hereof, or as the same shall be increased from time to time; or

 

(iv)          A material breach of this Agreement by the Company, including Section 8.1.

 

Unless the Executive becomes Disabled, the Executive’s right to terminate employment for Good Reason shall not be affected by the Executive’s incapacity due to physical or mental illness. The Executive’s continued employment shall not, by itself, constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason herein.

 

(o)         “Involuntary Termination” means the Executive’s involuntary Separation from Service within the meaning of Treasury Regulations Section 1.409A-1(n)(1).

 

(p)         “Normal Retirement Age” means the earliest normal retirement age available under the established rules of the Company’s tax-qualified retirement plans in which the Executive is eligible to participate.

 

(q)         “Notice of Termination” shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.

 

(r)          “Person” shall have the meaning ascribed to such term in the Code and Treasury Regulations.

 

(s)         “Qualifying Termination” means a Separation from Service described in Section 2.2 herein, the occurrence of which triggers the payment of Severance Benefits hereunder.

 

(t)          “Separation from Service” means the Executive’s “separation from service” from Executive’s employer within the meaning of Section 409A(a)(2)(A)(i) of the Code and the default rules of Treasury Regulations Section 1.409A-1(h). For this purpose, Executive’s “employer” is the Company  and every entity or other person which

 

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collectively with the Company  constitutes a single “service recipient” (as that term is defined in Treasury Regulations Sections 1.409A-1(g)) as the result of the application of the rules of Treasury Regulations Sections 1.409A-1(h)(3); provided that an 80% standard (in lieu of the default 50% standard) shall be used for purposes of determining the service recipient / employer for this purpose.

 

(u)         “Specified Employee” means a “specified employee” of the service recipient that includes the Company (as determined under Treasury Regulations Sections 1.409A-1(g))  within the meaning of Section 409A(a)(2)(B)(i) of the Code and Treasury Regulations Section 1.409A-1(i), as determined in accordance with the procedures adopted by such service recipient that are then in effect, or, if no such procedures are then in effect, in accordance with the default procedures set forth in Treasury Regulations Section 1.409A-1(i).

 

(v)         “Severance Benefits” mean the payment of severance compensation as provided in Section 2.3 herein.

 

Article 2. Severance Benefits

 

2.1        Right to Severance Benefits. The Executive shall be entitled to receive from the Company Severance Benefits as described in Section 2.3 herein, if there has been a Change in Control of the Company and if, within twenty-four (24) calendar months thereafter, the Executive experiences a Separation from Service for any reason specified in Section 2.2 herein as being a Qualifying Termination.

 

The Executive shall not be entitled to receive Severance Benefits if he experiences an Involuntary Termination for Cause, a Separation from Service by reason of his death or Disability, a voluntary Separation from Service after attaining his Normal Retirement Age, or a voluntary Separation from Service that is not a Constructive Termination.

 

2.2        Qualifying Termination. The occurrence of any one of the following events within twenty-four (24) calendar months after a Change in Control of the Company shall trigger the payment of Severance Benefits to the Executive under this Agreement:

 

(a)         An Involuntary Termination without Cause; or

 

(b)         A Constructive Termination.

 

For purposes of this Agreement, a Qualifying Termination shall not include a Separation from Service by reason of the Executive’s death or Disability, a voluntary Separation from Service after attaining his Normal Retirement Age, a voluntary Separation from Service that is not a Constructive Termination, or an Involuntary Termination for Cause.

 

2.3        Description of Severance Benefits. In the event the Executive becomes entitled to receive Severance Benefits, as provided in Sections 2.1 and 2.2 herein, the Company shall pay or provide, as the case may be, to the Executive the following Severance Benefits:

 

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(a)         A lump-sum amount equal to the Executive’s accrued but unpaid Base Salary, accrued but unused vacation pay and unreimbursed business expenses (in accordance with the standard reimbursement policy applicable to the Executive then in effect) earned by and owed to the Executive through and including the Effective Date of Termination.

 

(b)         A lump-sum amount equal to one and one-half (1.5) multiplied by the sum of the following: (i) the higher of: (A) the Executive’s annual rate of Base Salary in effect upon the Effective Date of Termination, or (B) the Executive’s annual rate of Base Salary in effect on the date of the Change in Control; and (ii) the average of the actual annual bonus earned (whether or not deferred) by the Executive under the annual bonus plan (excluding any special bonus payments) in which the Executive participated in the three (3) years preceding the year in which the Executive’s Effective Date of Termination occurs. If the Executive has less than three (3) years of annual bonus participation preceding the year in which the Executive’s Effective Date of Termination occurs, then the Executive’s annual target bonus established under the annual bonus plan in which the Executive is then participating for the bonus plan year in which the Executive’s Effective Date of Termination occurs shall be used for each year that the Executive did not participate in the annual bonus plan, up to a maximum of three (3) years, to calculate the three (3) year average bonus payment.

 

(c)         A lump-sum amount equal to one-half (.5) multiplied by the sum of the following: (i) the higher of: (A) the Executive’s annual rate of Base Salary in effect upon the Effective Date of Termination, or (B) the Executive’s annual rate of Base Salary in effect on the date of the Change in Control; and (ii) the average of the actual annual bonus earned (whether or not deferred) by the Executive under the annual bonus plan (excluding any special bonus payments) in which the Executive participated in the three (3) years preceding the year in which the Executive’s Effective Date of Termination occurs. If the Executive has less than three (3) years of annual bonus participation preceding the year in which the Executive’s Effective Date of Termination occurs, then the Executive’s annual target bonus established under the annual bonus plan in which the Executive is then participating for the bonus plan year in which the Executive’s Effective Date of Termination occurs shall be used for each year that the Executive did not participate in the annual bonus plan, up to a maximum of three (3) years, to calculate the three (3) year average bonus payment. Such amount shall be in consideration for the Executive entering into a noncompete agreement as described in Article 4 herein.

 

(d)         Upon the occurrence of a Change in Control, to the extent permitted by Section 409A of the Code, an immediate full vesting and lapse of all restrictions on any and all outstanding equity based long term incentives, including but not limited to stock options and restricted stock unit awards held by the Executive. This provision shall override any conflicting language contained in the Executive’s respective Award Agreements.

 

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(e)         The Executive shall continue to be entitled to receive payments or benefits under any annual bonus plan and/or long-term incentive plans, whether cash-based or equity-based, or retirement plans and insurance plans in which Executive is a participant, if any, in each case in accordance with the terms and conditions of such plans. The Committee shall authorize a pro-rata bonus under the Executive Incentive Plan (or successor annual bonus plan) (“EIP”) earned as of the Effective Date of Termination, based on actual year to date performance, as determined at the Committee’s discretion. Such pro-rata bonus shall be paid during the year following the year that includes the Effective Date of Termination in accordance with the terms of the EIP.

 

(f)          Continuation for twenty-four (24) months of the Executive’s medical insurance and life insurance coverage. These benefits shall be provided by the Company to the Executive beginning immediately upon the Effective Date of Termination. Such benefits shall be provided to the Executive at the same coverage level and cost to the Executive as in effect immediately prior to the Executive’s Effective Date of Termination.

 

To the extent required by law, the Executive shall qualify for full COBRA health benefit continuation coverage beginning upon the expiration of the aforementioned twenty-four (24) month period.

 

Notwithstanding the above, these medical and life insurance benefits shall be discontinued prior to the end of the stated continuation period in the event the Executive receives substantially similar benefits from a subsequent employer, as determined solely by the Committee in good faith. For purposes of enforcing this offset provision, the Executive shall be deemed to have a duty to keep the Company informed as to the terms and conditions of any subsequent employment and the corresponding benefits earned from such employment, and shall provide, or cause to provide, to the Company in writing correct, complete, and timely information concerning the same.

 

(g)         For a period of up to twenty-four (24) months following a Qualifying Termination, the Executive shall be entitled, at the expense of the Company, to receive standard outplacement services from a nationally recognized outplacement firm of the Executive’s selection. However, the Company’s total obligation shall not exceed thirty-five percent (35%) of the Executive’s final annual rate of Base Salary with the Company, and such Company obligation shall end prior to the end of the twenty-four (24) month period upon the Executive becoming employed by a subsequent employer.

 

2.4        Termination for Total and Permanent Disability. Following a Change in Control, if the Executive experiences a Separation from Service due to Disability, the Executive’s benefits shall be determined in accordance with the Company’s retirement, insurance, and other applicable plans and programs then in effect.

 

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2.5        Termination for Retirement or Death. Following a Change in Control, if the Executive experiences a Separation from Service by reason of a voluntary Separation from Service after attaining his Normal Retirement Age, or by reason of his death, the Executive’s benefits shall be determined in accordance with the Company’s retirement, survivor’s benefits, insurance, and other applicable programs then in effect.

 

2.6        Termination for Cause or by the Executive Other Than for Good Reason. Following a Change in Control, if the Executive experiences (i) an Involuntary Termination for Cause, or (ii) a voluntary Separation from Service that is not a Constructive Termination, the Company shall pay the Executive his accrued but unpaid Base Salary at the rate then in effect and accrued but unused vacation pay. Further, the Executive shall continue to be entitled to receive payments or benefits under any annual bonus plan and/or long-term incentive plans, whether cash-based or equity-based, or retirement plans and insurance plans in which Executive is a participant, if any, in each case in accordance with the terms and conditions of such plans.

 

2.7        Notice of Termination. Any Involuntary Termination by the Company for Cause or voluntary Separation from Service by the Executive for Good Reason shall be communicated by Notice of Termination to the other party.

 

2.8        Limitation on Severance Benefits.

 

(a)         Notwithstanding any other provision of this Agreement, in the event that any payment or benefit received or to be received by the Executive in connection with a Change in Control or Executive’s employment termination (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control or any person affiliated with the Company or such person) (all such payments and benefits being hereinafter called “Total Payments”) would be an “excess parachute payment” pursuant to Section 280G of the Code or any successor or substitute provision of the Code, with the effect that Executive would be liable for the payment of the excise tax described in Section 4999 of the Code or any successor or substitute provision of the Code, or any interest or penalties are incurred by Executive with respect to such Total Payments (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then, after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement, the cash payments provided in Section 2.3 herein shall first be reduced, and the non-cash payments and benefits shall thereafter be reduced, to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax.  Notwithstanding the foregoing, no payments or benefits under this Agreement will be reduced unless: (i) the net amount of the Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments) is greater than (ii) the excess of (A) the net amount of such Total Payments, without reduction (but after subtracting the net amount of federal, state and local income taxes on such Total Payments), over (B) the amount of Excise Tax to which the Executive would be subject in respect of such unreduced Total Payments.

 

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(b)                           Subject to the provisions of Section 2.8(c) below, all determinations required to be made under this Section 2.8, and the assumptions to be utilized in arriving at such determinations shall be made by the public accounting firm that serves the Company’s auditors (the “Accounting Firm”), which shall provide detailed supporting calculations both to the Company and Executive within 15 business days of the receipt of notice from the Company or Executive that there have been Total Payments, or such earlier time as is requested by the Company.  In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, Executive shall designate another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder).  All fees and expenses of the Accounting Firm shall be borne solely by the Company.  If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with a written opinion that failure to report the Excise Tax on Executive’s applicable federal income tax return would not result in the imposition of a negligence or similar penalty.  Any determination by the Accounting Firm shall be binding upon the Company and Executive, except as provided in Section 2.8(c) below.

 

(c)                            As a result of an uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that the Internal Revenue Service (“IRS”) or other agency may claim that an Excise Tax, or a greater Excise Tax, is due, and thus the Company should have made a lesser amount of Total Payment than that determined pursuant to Section 2.8(a) above.  Executive shall notify the Company in writing of any claim by the IRS or other agency that, if successful, would require Executive to pay an Excise Tax or an additional Excise Tax.  If the IRS or other agency makes a claim that, if successful, could require Executive to pay an Excise Tax or an additional Excise Tax, the Company shall reduce or further reduce Executive’s payments and benefits in accordance with this Section 2.8 to the amount necessary to eliminate such Excise Tax or additional Excise Tax.  Any reduction will be made by the end of the second calendar year following the Change in Control.

 

Article 3. Form and Timing of Severance Benefits

 

3.1        Form and Timing of Severance Benefits.

 

(a)                            The amount described in Section 2.3(a) herein and, except as provided in Section 3.1(b) herein, the amounts described in Sections 2.3(b) and 2.3(c) herein shall be paid in cash to the Executive in a single lump sum within ten (10) calendar days following the Effective Date of Termination.

 

(b)                           Notwithstanding anything to the contrary in this agreement, if Executive is a Specified Employee on the Effective Date of Termination, to the extent that Executive is entitled to receive any benefit or payment under this Agreement that constitutes deferred compensation within the meaning of Section 409A of the Code before the date that is six (6) months after the Effective Date of Termination, such benefits or payments shall not be provided or paid to Executive on the date

 

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otherwise required to be provided or paid. Instead, all such amounts shall be accumulated and paid in a single lump sum to Executive on the first business day after the date that is six (6) months after the Effective Date of Termination (or, if earlier, within fifteen (15) days following Executive’s date of death). If Executive is required to pay for a benefit that is otherwise required to be provided by the Company under this Agreement by reason of this Section 3.1(b), Executive shall be entitled to reimbursement for such payments on the first business day after the date that is six (6) months after the Effective Date of Termination (or, if earlier, within fifteen (15) days following Executive’s date of death). All benefits or payments otherwise required to be provided or paid on or after the date that is six (6) months after the Effective Date of Termination shall not be affected by this Section 3.1(b) and shall be provided or paid in accordance with the payment schedule applicable to such benefit or payment under this Agreement.  Prior to the imposition of the six month delay as set forth in this Section 3.1(b), it is intended that (i) each installment under this Agreement be regarded as a separate “payment” for purposes of Section 409A of the Code, and (ii) all benefits or payments provided under this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code provided under Treasury Regulations Sections 1.409A-1(b)(4) (short-term deferral) or 1.409A-1(b)(9) (certain separation pay plans). This Section 3.1(b) is intended to comply with the requirements of Section 409A(a)(2)(B)(i) of the Code.

 

3.2        Withholding of Taxes. The Company shall withhold from any amounts payable under this Agreement all federal, state, city, or other taxes as legally shall be required.

 

3.3        Reimbursement and In-Kind Benefits. To the extent this Agreement provides for reimbursements of expenses incurred by Executive or in-kind benefits the provision of which are not exempt from the requirements of Section 409A of the Code, the following terms apply with respect to such reimbursements or benefits: (1) the reimbursement of expenses or provision of in-kind benefits will be made or provided only during the period of time specifically provided herein; (2) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year will not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year; (3) all reimbursements will be made upon Executive’s request in accordance with the Company’s normal policies but no later than the last day of the calendar year immediately following the calendar year in which the expense was incurred; and (4) the right to the reimbursement or the in-kind benefit will not be subject to liquidation or exchange for another benefit.

 

Article 4. Noncompetition and Confidentiality

 

In the event the Executive becomes entitled to receive Severance Benefits as provided in Section 2.3 herein, the following shall apply:

 

(a)          Noncompetition. During the term of employment and for a period of twelve (12) months after the Effective Date of Termination, the Executive shall not: (i) directly or indirectly act in concert or conspire with any person employed by the Company in order to engage in or prepare to engage in or to have a financial or other interest in any business or any activity which he knows (or reasonably should have known) to be directly competitive

 

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with the business of the Company as then being carried on; or (ii) serve as an employee, agent, partner, shareholder, director or consultant for, or in any other capacity participate, engage, or have a financial or other interest in any business or any activity which he knows (or reasonably should have known) to be directly competitive with the business of the Company as then being carried on (provided, however, that notwithstanding anything to the contrary contained in this Agreement, the Executive may own up to two percent (2%) of the outstanding shares of the capital stock of a company whose securities are registered under Section 12 of the Securities Exchange Act of 1934).

 

(b)                           Confidentiality. The Company has advised the Executive and the Executive acknowledges that it is the policy of the Company to maintain as secret and confidential all Protected Information (as defined below), and that Protected Information has been and will be developed at substantial cost and effort to the Company. All Protected Information shall remain confidential permanently and no Executive shall at any time, directly or indirectly, divulge, furnish, or make accessible to any person, firm, corporation, association, or other entity (otherwise than as may be required in the regular course of the Executive’s employment with the Company), nor use in any manner, either during the term of employment or after termination, at any time, for any reason, any Protected Information, or cause any such information of the Company to enter the public domain.

 

For purposes of this Agreement, “Protected Information” means trade secrets, confidential and proprietary business information of the Company, and any other information of the Company, including, but not limited to, customer lists (including potential customers), sources of supply, processes, plans, materials, pricing information, internal memoranda, marketing plans, internal policies, and products and services which may be developed from time to time by the Company and its agents or employees, including the Executive; provided, however, that information that is in the public domain (other than as a result of a breach of this Agreement), approved for release by the Company or lawfully obtained from third parties who are not bound by a confidentiality agreement with the Company, is not Protected Information.

 

(c)                            Nonsolicitation. During the term of employment and for a period of twelve (12) months after the Effective Date of Termination, the Executive shall not employ or retain or solicit for employment or arrange to have any other person, firm, or other entity employ or retain or solicit for employment or otherwise participate in the employment or retention of any person who is an employee or consultant of the Company.

 

(d)                           Cooperation. Executive agrees to cooperate with the Company and its attorneys in connection with any and all lawsuits, claims, investigations, or similar proceedings that have been or could be asserted at any time arising out of or related in any way to Executive’s employment by the Company or any of its subsidiaries.

 

(e)                            Nondisparagement. At all times, the Executive agrees not to disparage the Company or otherwise make comments harmful to the Company’s reputation.

 

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Article 5. Claw-Back

 

5.1        Claw-Backs.  If any of the Company’s financial statements are required to be restated due to errors, omissions, fraud, or misconduct, the Committee may, in its sole discretion but acting in good faith, direct that the Company recover all or a portion of the Severance Benefits under this Agreement from the Executive with respect to any fiscal year in which the Company’s financial statements are restated to reflect adverse results from those previously released financial statements, as a consequence of errors, omissions, fraud, or misconduct.  For purposes of this Section 5.1, errors, omissions, fraud, or misconduct may include and is not limited to circumstances where the Company has been required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement, as enforced by the Securities and Exchange Commission, and the Committee has determined in its sole discretion that the Executive had knowledge of the material noncompliance or the circumstances that gave rise to such noncompliance and failed to take reasonable steps to bring it to the attention of the appropriate individuals within the Company, or the Executive personally and knowingly engaged in practices which materially contributed to the circumstances that enabled a material noncompliance to occur.

 

Article 6. The Company’s Payment Obligation

 

6.1        Payment Obligations Absolute. The Company’s obligation to make the payments and the arrangements provided for herein shall be absolute and unconditional, and shall not be affected by any circumstances including, without limitation, any offset, counterclaim, recoupment, defense, or other right which the Company may have against the Executive or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company shall be final, and the Company shall not seek to recover all or any part of such payment from the Executive or from whomsoever may be entitled thereto, for any reasons whatsoever.

 

The Executive shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Agreement, and the obtaining of any such other employment shall in no event effect any reduction of the Company’s obligations to make the payments and arrangements required to be made under this Agreement, except to the extent provided in Sections 2.3(f) and 2.3(g) herein.

 

6.2        Contractual Rights to Benefits. This Agreement establishes and vests in the Executive a contractual right to the benefits to which he is entitled hereunder. However, nothing herein contained shall require or be deemed to require, or prohibit or be deemed to prohibit, the Company to segregate, earmark, or otherwise set aside any funds or other assets, in trust or otherwise, to provide for any payments to be made or required hereunder.

 

Article 7. Legal Remedies

 

7.1        Dispute Resolution. The Executive shall have the right and option to elect to have any good faith dispute or controversy arising under or in connection with this Agreement settled by litigation or arbitration. If arbitration is selected, such proceeding shall be conducted by final and binding arbitration before a panel of three (3) arbitrators in accordance with the laws then in effect and under the administration of the American Arbitration Association.

 

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7.2        Payment of Legal Fees. In the event that it shall be necessary or desirable for the Executive to retain legal counsel and/or to incur other costs and expenses in connection with the enforcement of any or all of his rights under this Agreement, the Company shall pay (or the Executive shall be entitled to recover from the Company) the Executive’s attorneys’ fees, costs, and expenses in connection with the enforcement of his rights including the enforcement of any arbitration award. This shall include, without limitation, court costs and attorneys’ fees incurred by the Executive as a result of any claim, action, or proceeding, including any such action against the Company arising out of, or challenging the validity or enforceability of, this Agreement or any provision hereof.

 

Article 8. Successors

 

8.1        Successors to the Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, reorganization, consolidation, acquisition of property or stock, liquidation, or otherwise) of all or a significant portion of the assets of the Company by agreement, in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. Regardless of whether such agreement is executed, this Agreement shall be binding upon any successor in accordance with the operation of law and such successor shall be deemed the “Company” for purposes of this Agreement.

 

8.2        Assignment by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If the Executive dies while any amount would still be payable to him hereunder had he continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee, or other designee, or if there is no such designee, to the Executive’s estate.

 

Article 9. Miscellaneous

 

9.1        Employment Status. This Agreement is not, and nothing herein shall be deemed to create, an employment contract between the Executive and the Company or any of its subsidiaries. The Executive acknowledges that the rights of the Company remain wholly intact to change or reduce at any time and from time to time his compensation, title, responsibilities, location, and all other aspects of the employment relationship, or to discharge him prior to a Change in Control (subject to such discharge possibly being considered a Qualifying Termination pursuant to Section 2.2).

 

9.2        Entire Agreement. This Agreement contains the entire understanding of the Company and the Executive with respect to the subject matter hereof.

 

9.3        Notices. All notices, requests, demands, and other communications hereunder shall be sufficient if in writing and shall be deemed to have been duly given if delivered by hand or if sent by registered or certified mail to the Executive at the last address he has filed in writing with the Company or, in the case of the Company, at its principal offices.

 

9.4        Execution in Counterparts. This Agreement may be executed by the parties hereto in counterparts, each of which shall be deemed to be original, but all such counterparts shall constitute one and the same instrument, and all signatures need not appear on any one counterpart.

 

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9.5        Conflicting Agreements. The Executive hereby represents and warrants to the Company that his entering into this Agreement, and the obligations and duties undertaken by him hereunder, will not conflict with, constitute a breach of, or otherwise violate the terms of, any other employment or other agreement to which he is a party, except to the extent any such conflict, breach, or violation under any such agreement has been disclosed to the Board in writing in advance of the signing of this Agreement.

 

9.6        Severability. In the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included. Further, the captions of this Agreement are not part of the provisions hereof and shall have no force and effect.

 

Notwithstanding any other provisions of this Agreement to the contrary, the Company shall have no obligation to make any payment to the Executive hereunder to the extent, but only to the extent, that such payment is prohibited by the terms of any final order of a federal or state court or regulatory agency of competent jurisdiction; provided, however, that such an order shall not affect, impair, or invalidate any provision of this Agreement not expressly subject to such order.

 

9.7        Modification. No provision of this Agreement may be modified, waived, or discharged unless such modification, waiver, or discharge is agreed to in writing and signed by the Executive and by a member of the Board, as applicable, or by the respective parties’ legal representatives or successors.

 

9.8        Applicable Law. To the extent not preempted by the laws of the United States, the laws of Delaware shall be the controlling law in all matters relating to this Agreement without giving effect to principles of conflicts of laws.

 

[signature page follows]

 

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IN WITNESS WHEREOF, the parties have executed this Agreement on this          day of                                 , 2010.

 

	
ATTEST
    	
 
    	
Walter   Energy, Inc.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
Corporate Secretary
    	
 
    	
Title:
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
[Employee]
    
						

 

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