Document:

exv10w3

 

Exhibit 10.3

EMPLOYMENT AGREEMENT

between

FANNIE MAE

and

J. TIMOTHY HOWARD

As Amended on June 30, 2004

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page

	ARTICLE 1
	 	DEFINITIONS	 	 	1	 
	Section 1.1.
	 	Agreement Term	 	 	1	 
	Section 1.2.
	 	Annual Incentive Plan	 	 	1	 
	Section 1.3.
	 	Award Period	 	 	1	 
	Section 1.4.
	 	Base Salary	 	 	1	 
	Section 1.5.
	 	Board	 	 	2	 
	Section 1.6.
	 	Cause	 	 	2	 
	Section 1.7.
	 	Compete	 	 	2	 
	Section 1.8.
	 	Corporation	 	 	2	 
	Section 1.9.
	 	Effective Date	 	 	2	 
	Section 1.10.
	 	Employee	 	 	2	 
	Section 1.11.
	 	Employment	 	 	2	 
	Section 1.12.
	 	Executive Pension Plan	 	 	3	 
	Section 1.13.
	 	Existing Agreement	 	 	3	 
	Section 1.14.
	 	Failure to Extend	 	 	3	 
	Section 1.15.
	 	Good Reason	 	 	3	 
	Section 1.16.
	 	OFHEO	 	 	3	 
	Section 1.17.
	 	Option	 	 	3	 
	Section 1.18.
	 	Performance Share Award	 	 	3	 
	Section 1.19.
	 	Qualifying Termination	 	 	4	 
	Section 1.20.
	 	Restricted Stock	 	 	4	 
	Section 1.21.
	 	Serious Illness or Disability	 	 	4	 
	Section 1.22.
	 	Stock Compensation Plan	 	 	4	 
	Section 1.23.
	 	Surviving Spouse	 	 	4	 
	Section 1.24.
	 	Termination of Employment	 	 	4	 
	ARTICLE 2
	 	PERIOD OF EMPLOYMENT AND DUTIES	 	 	4	 
	Section 2.1.
	 	Period of Employment	 	 	4	 
	Section 2.2.
	 	Duties	 	 	5	 
	ARTICLE 3
	 	COMPENSATION AND BENEFITS	 	 	5	 
	Section 3.1.
	 	Base Salary	 	 	5	 
	Section 3.2.
	 	Benefits	 	 	6	 
	ARTICLE 4
	 	TERMINATION OF EMPLOYMENT	 	 	9	 
	Section 4.1.
	 	Termination of Employment By the Corporation	 	 	9	 
	Section 4.2.
	 	Termination of Employment By Employee	 	 	11	 
	Section 4.3.
	 	Other Termination of Employment	 	 	12	 
	Section 4.4.
	 	Resignation as Member of the Board of Directors	 	 	12	 
	ARTICLE 5
	 	COMPENSATION AND BENEFITS FOLLOWING TERMINATION OF EMPLOYMENT	 	 	12	 

 

 

	 	 	 	 	 	 	 
	Section 5.1.
	 	Voluntary Termination Pursuant to Section 4.2(b)	 	 	12	 
	Section 5.2.
	 	Termination for Cause	 	 	12	 
	Section 5.3.
	 	Qualifying Termination (Other Than by Reason Of Death)	 	 	13	 
	Section 5.4.
	 	Termination of Employment By Reason of Death	 	 	16	 
	ARTICLE 6
	 	MISCELLANEOUS	 	 	17	 
	Section 6.1.
	 	Noncompetition	 	 	17	 
	Section 6.2.
	 	Payment of Certain Expenses	 	 	19	 
	Section 6.3.
	 	Assignment by Employee	 	 	19	 
	Section 6.4.
	 	No Funding Required	 	 	20	 
	Section 6.5.
	 	Disclosure of Information to the Corporation	 	 	20	 
	Section 6.6.
	 	Nondisclosure of Confidential Information	 	 	20	 
	Section 6.7.
	 	Waiver	 	 	20	 
	Section 6.8.
	 	Notice	 	 	21	 
	Section 6.9.
	 	Applicable Law	 	 	21	 
	Section 6.10.
	 	Taxes	 	 	21	 
	Section 6.11.
	 	Benefit	 	 	21	 
	Section 6.12.
	 	Entire Agreement	 	 	22	 
	Section 6.13.
	 	Arbitration	 	 	22	 
	Section 6.14.
	 	Severability	 	 	22	 
	Section 6.15.
	 	Regulatory Approval	 	 	23	 

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EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (this “Agreement”) is between FANNIE MAE (the
“Corporation”) and J. TIMOTHY HOWARD (“Employee”).

     WHEREAS, the Corporation and Employee are parties to an employment
agreement dated as of July 1, 2003, which terminates on June 30, 2004 (the
“Existing Agreement”);

     WHEREAS, under the termination provisions of the Existing Agreement, which
were approved by OFHEO, Employee is contractually entitled to certain
compensation and benefits if, among other circumstances, Employee’s employment
is not extended; and

     WHEREAS, Employee has successfully discharged his responsibilities under
the Existing Agreement and has earned certain vested amounts, as described in
his Existing Agreement, over the course of his employment;

     NOW, THEREFORE, the Corporation and Employee agree as follows:

ARTICLE 1

DEFINITIONS

     The following terms shall have the meanings set forth below:

     Section Section 1.1. Agreement Term means the period of time beginning on the
Effective Date and ending on June 30, 2007 or such later date as may be agreed
to pursuant to Section 2.1.

     Section 1.2. Annual Incentive Plan means the Federal National Mortgage
Association Annual Incentive Plan as from time to time amended and in effect,
or any successor plan.

     Section 1.3.
Award Period is defined in the Stock Compensation Plan.

     Section 1.4. Base Salary means the dollar amount of Employee’s annual base
compensation as determined by the Board.

 

 

     Section 1.5. Board means the Board of Directors of the Corporation, acting
without the participation of the Vice Chairmen of the Board of Directors.

     Section 1.6. Cause is defined in Section 4.1(b).

     Section 1.7. Compete means directly or indirectly to manage, operate,
control, participate in the ownership, management, operation or control of, be
connected as an officer, employee, partner, director, consultant or otherwise
with, or have any financial interest in, (i) any business if a substantial part
of such business involves originating, purchasing, selling, servicing or
otherwise dealing in the residential mortgage market (provided, that Employee
shall not be deemed, directly or indirectly, to Compete solely by virtue of
Employee’s employment by a business that engages in transactions in the
residential mortgage market so long as Employee himself does not participate
directly in the residential mortgage business), (ii) Freddie Mac, or (iii) any
part of the Federal Home Loan Bank System (including any one of the Federal
Home Loan Banks or the Federal Home Loan Banks Office of Finance). Employee
shall not be deemed to Compete solely by reason of ownership, for personal
investment purposes only, of less than 2% of the voting interests of any
business.

     Section 1.8. Corporation means Fannie Mae.

     Section 1.9. Effective Date means July 1, 2004, subject, however, to the
provisions of Section 6.15 (“Regulatory Approval”).

     Section 1.10. Employee means J. Timothy Howard.

     Section 1.11. Employment means Employee’s employment by the Corporation
under this Agreement.

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     Section 1.12. Executive Pension Plan means the Executive Pension Plan of
the Federal National Mortgage Association as from time to time amended and in
effect, or any successor plan.

     Section 1.13. Existing Agreement is defined in the preamble to this
Agreement.

     Section 1.14. Failure to Extend means notification of Employee by the
Corporation that it does not desire to extend the Agreement Term (or the term
of any successor agreement) or that it desires to do so only on terms in the
aggregate that are materially less favorable to Employee than those applicable
to Employee at the time of said notice. If the Corporation notifies Employee
that it desires to extend the Agreement Term (or the term of any successor
agreement) on terms that are in the aggregate substantially similar to or more
favorable than those applicable to Employee at the time of said notice, any
nonextension shall not be deemed to be a Failure to Extend.

     Section 1.15. Good Reason means (a) a material reduction by the
Corporation of Employee’s authority or a material change in Employee’s
functions, duties or responsibilities that in any material way would cause
Employee’s position to become less important, (b) a reduction in Employee’s
Base Salary, (c) a requirement by the Corporation that Employee relocate his
office outside of the Washington, D.C. area, or (d) a breach by the Corporation
of any material obligation of the Corporation under this Agreement, unless,
within 30 days of the written notice given by Employee and specifying a
circumstance constituting Good Reason, the Corporation eliminates such
circumstance.

     Section 1.16. OFHEO means the Office of Federal Housing Enterprise Oversight.

     Section 1.17. Option is defined in the Stock Compensation Plan.

     Section 1.18. Performance Share Award is defined in the Stock Compensation Plan.

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     Section 1.19. Qualifying Termination means Termination of Employment (i)
by the Corporation without Cause, (ii) by Employee for Good Reason, (iii) upon
expiration of the Agreement Term (or the term of any successor agreement) if
there has been a Failure to Extend, (iv) by reason of Employee’s acceptance of
an appointment to a senior position in the U.S. Federal Government, (v) by
reason of Serious Illness or Disability or (vi) by reason of Employee’s death.

     Section 1.20. Restricted Stock is defined in the Stock Compensation Plan.

     Section 1.21. Serious Illness or Disability means a serious physical or
mental illness or disability which, in the reasonable determination of the
Board, prevents Employee from performing his duties under this Agreement for a
period of at least six months in any twelve-month period.

     Section 1.22. Stock Compensation Plan means either or both, as the context
requires, of the Fannie Mae Stock Compensation Plan of 1993 and the Fannie Mae
Stock Compensation Plan of 2003, in each case as from time to time amended and
in effect, or any successor plan.

     Section 1.23. Surviving Spouse is defined in the Executive Pension Plan.

     Section 1.24. Termination of Employment means the cessation of Employment
for any reason.

ARTICLE 2

PERIOD OF EMPLOYMENT AND DUTIES

     Section 2.1. Period of Employment. The Corporation shall continue to
employ Employee, and Employee shall continue to serve, as Vice Chairman of the
Corporation’s Board of Directors and Chief Financial Officer of the
Corporation, upon the terms and conditions of this Agreement, for the period
July 1, 2004 through the last day of the Agreement Term unless

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there is an earlier Termination of Employment. The Agreement Term may be
extended by mutual written agreement of the parties entered into at any time
prior to the date the Agreement Term would otherwise expire.

     Section 2.2. Duties. Employee shall serve the Corporation under this
Agreement as Vice Chairman of the Corporation’s Board of Directors and as Chief
Financial Officer. Employee shall devote his full business time and attention
to the Corporation and shall faithfully and diligently perform such duties for
the Corporation as may be determined from time to time by the Chairman of the
Board of Directors, provided that such duties are reasonable and customary for
a corporate vice chairman and chief financial officer. Employee shall be
subject to the Corporation’s standards of conduct and similar policies and
procedures applicable generally to members of the Board of Directors or to the
Corporation’s executive officers, as the case may be. Employee may (a) serve
on corporate, civic or charitable boards or committees or (b) manage personal
investments, so long as such activities do not materially interfere with the
performance of his responsibilities under this Agreement and so long as such
activities comply with the aforementioned standards, policies and procedures of
the Corporation. During his Employment, Employee shall be nominated for
election to the Corporation’s Board of Directors and shall be identified as a
nominee recommended for election by the Board, at each annual meeting of the
stockholders of the Corporation.

ARTICLE 3

COMPENSATION AND BENEFITS

     Section 3.1. Base Salary. During Employee’s Employment, the Corporation
shall pay to Employee Base Salary of not less than his base salary at June 30,
2004. The Board shall from

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time to time review Employee’s Base Salary and may increase (but in no
event decrease) such Base Salary by such amounts as it deems proper.
Section 3.2. Benefits.

     (a) Executive Pension Plan. The parties acknowledge that the Corporation
has previously designated Employee as a participant in the Executive Pension
Plan. Employee’s “Pension Goal” under the Executive Pension Plan shall at all
times be equal to at least 50% of his “High-Three Total Compensation,” as those
terms are defined in the Executive Pension Plan. The Corporation may amend the
Executive Pension Plan from time to time; provided, however, that no such
amendment shall decrease Employee’s Pension Goal or the vested benefits to
which Employee or his Surviving Spouse, if any, would have been entitled under
such Plan, as modified in this Agreement, as in effect on the Effective Date
or, if benefits are improved, as of the date of such improvement.

     (b) Options. Employee shall be considered for grants of Options
consistent with the compensation philosophy of the Corporation set forth in the
charter of the Compensation Committee of the Board.

     (c) Annual Incentive Plan. Employee shall be considered for a potential
award under the Annual Incentive Plan for each year during Employment
consistent with the compensation philosophy of the Corporation set forth in the
charter of the Compensation Committee of the Board.

     (d) Performance Share Awards. Employee shall be considered for grants of
Performance Share Awards consistent with the compensation philosophy of the
Corporation set forth in the charter of the Compensation Committee of the
Board.

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     (e) Restricted Stock. Employee shall be considered for grants of
Restricted Stock consistent with the compensation philosophy of the Corporation
set forth in the charter of the Compensation Committee of the Board.

     (f) Life Insurance and Death Benefits. Employee shall receive life
insurance benefits consistent with the Corporation’s life insurance policies
and programs as from time to time in effect.

     (g) Other Benefits. The Corporation shall provide Employee with the
following additional benefits during Employment:

     (i) The Corporation shall pay or reimburse Employee for reasonable
expenses incurred by Employee in obtaining tax and investment assistance
and advice, up to $25,000 per calendar year.

     (ii) The Corporation shall pay or reimburse the legal expenses
incurred by Employee in connection with the negotiation of this
Agreement.

     (iii) The Corporation shall provide Employee with access to a car
and driver for transportation relating to the Corporation’s business
purposes.

     (iv) The Corporation shall pay or reimburse Employee for actual
expenses incurred by Employee for a complete annual physical examination
at a medical facility of his choice.

     (h) General Rights Under Benefit Plans.

     (i) Employee shall at all times during the Employment Term be
entitled to participate in all long- or short-term bonus, stock option,
restricted stock, and other executive compensation plans, and in all
perquisite programs and disability, retirement, stock purchase, thrift
and savings, health, medical, life insurance, expense reimbursement

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and similar plans of the Corporation which are from time to time in
effect and in which other senior officers of the Corporation generally
are entitled to participate. Except as otherwise provided in this
Agreement, Employee’s participation in such plans and programs shall be
in accordance with the provisions of such plans and programs applicable
from time to time, it being the intent of the parties hereto that nothing
in this Agreement shall decrease the rights and benefits of Employee
under any such plans and programs as may be in effect from time to time.
Employee’s rights as a participant under any compensation, benefit or
fringe benefit plan or arrangement of the Corporation that is from time
to time in effect and in which other senior officers of the Corporation
generally are entitled to participate shall be subject to this Agreement
and modified to the extent expressly provided herein, but except as so
modified shall be determined under the applicable provisions of such
plans and programs, including, without limitation, the provisions thereof
applicable to retirement; provided, that all such plans and programs and
this Agreement shall be construed and administered to avoid any
duplication of benefits under any such plan or program and this
Agreement.

     (ii) Except as specifically set forth in this Agreement, or as
specifically permitted by the terms of any such plan or program, no right
or benefit under any such plan or program shall become vested or
exercisable after Termination of Employment.

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ARTICLE 4

TERMINATION OF EMPLOYMENT

     Section 4.1. Termination of Employment By the Corporation.

     (a) Without Cause. The Corporation shall have the right to terminate
Employee’s Employment without Cause at any time for any reason in the
Corporation’s sole discretion by giving at least 90 days’ prior written notice
to Employee.

     (b) For Cause. The Corporation may terminate Employee’s Employment for
Cause. For purposes of this Agreement, termination for “Cause” shall have the
meaning set forth at Section 4.1(b)(i) below, and Employee’s Employment shall
not be treated as having been terminated for Cause unless such termination is
accomplished in accordance with Section 4.1(b)(ii) below.

     (i) For purposes of this Agreement, Employee shall be treated as
having been terminated for “Cause” only if Employee has (A) been
convicted of, or pleaded nolo contendere with respect to, a felony, or
(B) participated personally in an act of fraud in the discharge of his
duties under this Agreement that demonstrably discredits the Corporation
and that cannot be cured, or (C) continued for 30 days following written
notice from the Corporation to engage in activities that are not
contemplated or permitted by this Agreement and that involve a material
conflict of interest with Employee’s duties and responsibilities under
this Agreement, or (D) continued for 30 days following written notice
from the Corporation to fail substantially to perform the material duties
of his office (other than as a result of total or partial incapacity due
to physical or mental illness or disability), or (E) failed to cure,
within 30 days following written notice from the Corporation, any
material breach of the material terms of this Agreement or of any written
noncompetition, nondisclosure or nonsolicitation policy or agreement to
which

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Employee is at the time subject or by which he is at the time
bound. The Corporation’s
written notice to Employee referred to in (C), (D) and (E) above
will not be deemed to have been given unless it identifies with
particularity the asserted basis or bases for a for-Cause termination and
requests, with specific reference to this Section 4.1(b)(i), that it or
they be corrected or cured.

     (ii) The Corporation by written notice may terminate Employee’s
employment for Cause at any time following the occurrence of an event
described in Section 4.1(b)(i)(A) above. Within 10 days following the
occurrence of an act described in Section 4.1(b)(i)(B) above, or
following the end of the 30-day correction or cure period described in
any of Section 4.1(b)(i)(C), (D) or (E) above, if the basis or bases
asserted by the Board for a for-Cause termination thereunder have not
been corrected or cured, the Board shall give written notice to Employee
setting forth with particularity the asserted basis or bases for a
for-Cause termination and giving Employee a reasonable opportunity,
including reasonable access to information and documents, to appear with
counsel before the Board to contest the asserted basis or bases for such
termination. Employee shall not be treated as having been terminated for
Cause unless, following such opportunity to contest the basis or bases
for termination, the Board determines in writing by the affirmative vote
of a majority of its members that the asserted basis or bases for
termination exist under Section 4.1(b)(i)(B) through (E), as applicable,
above and that Employee is therefore terminated for Cause. During the
pendency of any process described in the immediately preceding sentence,
the Corporation may transfer some or all of Employee’s duties and
responsibilities to one or more other persons, but until Employee’s
employment is terminated in accordance with the preceding provisions of

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this Section 4.1(b)(ii) he shall continue during the Agreement Term to be
entitled to all
the remuneration and employee benefits to which he would otherwise
be entitled as an active employee under this Agreement. In any
proceeding before the Board described in this Section 4.1(b)(ii), where
Employee’s good faith in the performance of his duties is in question,
such good faith shall be presumed unless the preponderance of the
evidence indicates otherwise.

     (c) By Reason of Serious Illness or Disability. In the event of
Employee’s Serious Illness or Disability during Employment, the Corporation may
terminate Employee’s Employment by giving Employee at least 60 days’ advance
written notice specifying the date of termination. If, on or before the date
of termination specified in such notice, Employee recovers and is again able to
perform his duties hereunder, such notice shall be void, and Employee’s
Employment shall not be terminated thereby.

     Section 4.2. Termination of Employment By Employee.

     (a) For Good Reason, etc. Employee shall have the right to terminate his
Employment for Good Reason, unless the Corporation prior to such termination
shall have cured the asserted basis for the Good Reason claim, by giving not
less than 30 days’ prior written notice to the Corporation, which notice must
be given within six calendar months after the event giving rise to the Good
Reason. Employee shall also have the right to terminate his Employment at any
time by written notice to the Corporation in the circumstances described in
Section 1.19(iv).

     (b) Other Than For Good Reason. Employee shall have the right to
terminate his Employment at any time for any reason other than as described in
Section 4.2(a) above in his sole discretion by giving not less than 90 days’
prior written notice to the Corporation, which notice may not be given after
the Corporation has provided a written notice of termination to

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     Employee under
Section 4.1(b). Upon receipt of any such notice from Employee, the
Corporation shall have the option, exercisable by giving Employee written
notice within 30 days of such receipt, to designate any date (not earlier than
30 days after the date of Employee’s notice) as the date on which Employee’s
Employment shall cease. The effective date of the Termination of Employment
hereunder shall be the date so designated by the Corporation if earlier than
the date specified by Employee. In no event shall the Termination of
Employment by the Corporation without Cause, by Employee as described in
Section 4.2(a) or by reason of a Failure to Extend be deemed to be a
Termination of Employment by Employee pursuant to this Section 4.2(b).

     Section 4.3. Other Termination of Employment. Employee’s Employment shall
also terminate on Employee’s death.

     Section 4.4. Resignation as Member of the Board of Directors. A
Termination of Employment shall constitute, unless otherwise requested by the
Board, Employee’s resignation as a member of the Corporation’s Board of
Directors, effective on the date of the Termination of Employment.

ARTICLE 5

COMPENSATION AND BENEFITS FOLLOWING TERMINATION OF EMPLOYMENT

     Section 5.1. Voluntary Termination Pursuant to Section 4.2(b). If the
Termination of Employment is a voluntary termination pursuant to Section
4.2(b), Employee shall be entitled to payment of all accrued but unpaid Base
Salary amounts.

     Section 5.2. Termination for Cause. In the event of a Termination of
Employment for Cause, Employee shall be entitled to payment of all accrued but
unpaid Base Salary amounts.

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Any award made on or after the Effective Date
under the Annual Incentive Plan that is outstanding at the time of the
Termination of Employment, and all awards, if any, of Options,
Performance Share Awards, and/or Restricted Stock that were made on or
after the Effective Date and that are outstanding at the time of the
Termination of Employment shall be forfeited or canceled without payment.

     Section 5.3. Qualifying Termination (Other Than by Reason Of Death). If
there is a Qualifying Termination (other than by reason of Employee’s death),
Employee shall be entitled to prompt payment of all accrued but unpaid Base
Salary amounts and all amounts payable (but unpaid) under the Annual Incentive
Plan with respect to any year ended on or prior to the Qualifying Termination,
plus the following:

     (a) Continuation of Base Salary. Unless such Qualifying Termination shall
have been by reason of a Qualifying Termination described in Section 1.19(iv):

     (i) The Corporation shall pay to Employee in cash, on the normal
payroll schedule applicable to his Base Salary, cash compensation at an
annual rate equal to his Base Salary as in effect at the time of the
Qualifying Termination. Such cash compensation shall continue to be paid
until the later of the expiration of the Agreement Term or the first
anniversary of the date of the Qualifying Termination; provided, that if
the Qualifying Termination is by reason of a Failure to Extend, such cash
compensation shall continue to be paid following the date of the
Termination of Employment only until the first anniversary of the date of
notification by the Corporation constituting the Failure to Extend. The
Corporation may accelerate the payment of any portion or all of any
amount payable under this Section 5.3(a)(i).

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     (ii) Notwithstanding (i) above, if Employee obtains other employment
(including self-employment, but excluding service on boards of directors)
following his Termination of Employment hereunder, any income received by
Employee from such
employment shall reduce, on a dollar-for-dollar basis (but not below
zero), the Corporation’s obligation to pay cash compensation to Employee
pursuant to this Section 5.3(a). If the Corporation has already paid any
cash compensation under Section 5.3(a)(i) to which an offset would
otherwise have applied, Employee shall promptly reimburse the Corporation
the amount of such compensation. In the event of a Qualifying
Termination by reason of Serious Illness or Disability, if Employee
becomes entitled to and receives disability benefits under any disability
payment plan, including disability insurance, the amount of cash
compensation otherwise payable by the Corporation to Employee pursuant to
Section 5.3(a) shall be paid at a rate equal to the excess of (A) the
rate at which such cash compensation would otherwise be paid over (B) the
disability benefits for which Employee is eligible under such plan or
insurance to the extent those benefits are attributable to premium
payments made by the Corporation.

     (b) Annual Incentive Plan. Except in the case of a Qualifying Termination
by reason of a Failure to Extend and except as hereinafter provided, the
Corporation shall pay to Employee at the time of payment of awards to other
participants in the Annual Incentive Plan for the year in which the Qualifying
Termination occurs (even if Employee is not employed by the Corporation on the
last day of such year) a prorated amount equal to (i) the award that would have
been payable to Employee for such year had he remained in Employment, based on
actual results for such year, multiplied by (ii) a fraction, the numerator of
which is the number of days of Employment during such year and the denominator
of which is 365. In the case of a Qualifying

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Termination described in Section
1.19(iv), the Corporation shall promptly accelerate the payment of the prorated
Annual Incentive Plan payment described in this Section 5.3(b). In the case of
any other Qualifying Termination subject to this Section 5.3, the Corporation
in its
discretion may accelerate the payment of any portion or all of such
prorated Annual Incentive Plan payment. In any case where payment under this
Section 5.3(b) is accelerated, the amount determined under clause (i) above
shall be the award that the Board determines Employee would have received for
the year in which the Qualifying Termination occurs based on the Board’s
determination of the likelihood of the Corporation’s achievement of targets for
such year.

     (c) Performance Share Awards. Notwithstanding any provision of the Stock
Compensation Plan to the contrary, in the case of any Qualifying Termination,
the Corporation shall deliver to Employee all amounts payable (but unpaid)
under any Performance Share Award with respect to an Award Cycle that had ended
as of the date of the Termination of Employment plus, with respect to each
Performance Share Award then held by Employee as to which at least 18 months of
the related Award Period has elapsed as of the date of the Termination of
Employment, after the end of such Award Period, the product of (i) the award
that would have been payable to Employee for such Award Period had he remained
in Employment, based on actual results for such Award Period, and (ii) a
fraction, the numerator of which is the number of days of Employment in such
Award Period and the denominator of which is the total number of days in such
Award Period. In the case of a Qualifying Termination described in Section
1.19(iv), the Corporation shall promptly accelerate the payment of all prorated
Performance Share Award payments described in this Section 5.3(c). In the case
of any other Qualifying Termination subject to this Section 5.3, the
Corporation in its discretion may accelerate the payment of any portion or all
of any such payments. In any case where payment

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under this Section 5.3(c) is
accelerated, the amount determined under clause (i) above shall be the award
that the Board determines Employee would have received for the Award Period in
which the Qualifying Termination occurs based on the Board’s determination
of the likelihood of the Corporation’s achievement of targets for such Award
Period.

     (d) Restricted Stock. All Restricted Stock granted to Employee after July
1, 2003 shall continue to vest on the same basis as if Employee had remained
employed through June 30, 2007.

     (e) Medical and Dental Coverage. In the case of a Qualifying Termination
by reason of a termination by the Corporation without Cause or by Employee for
Good Reason, to the extent permitted under the Corporation’s medical and dental
plans the Corporation shall continue the medical and dental coverage elected by
Employee for Employee and Employee’s spouse and dependents (but in the case of
employee’s dependents only for so long as they remain dependents or until age
21 if later), without premium payments by Employee, until the end of the
Agreement Term. If, for any reason, it is not possible for Employee,
Employee’s spouse or the other eligible dependents of Employee to participate
in medical and dental coverage pursuant to the immediately preceding sentence,
the Corporation shall make arrangements to provide comparable coverage.

     Section 5.4. Termination of Employment By Reason of Death. If there is a
Termination of Employment by reason of Employee’s death, then in addition to
the payment to Employee’s estate of Employee’s accrued but unpaid Base Salary:

     (a) Annual Incentive Plan. The Corporation shall pay to Employee’s
designated beneficiary or, if none, to Employee’s estate, as soon as is
practicable after the date of Employee’s death, all amounts payable (but
unpaid) under the Annual Incentive Plan with

-16-

 

respect to any year ended on or
prior to death plus, for the year of death, a prorated amount equal to (i) the
award that the Board determines Employee (had he lived) would have received for
the year in which his death occurs based on the Board’s determination of the
likelihood of the Corporation’s achievement of targets for such year,
multiplied by (ii) a fraction, the numerator of which is the number of days of
Employment during such year prior to his death and the denominator of which is
365.

     (b) Performance Share Awards. The Corporation shall pay to Employee’s
designated beneficiary or, if none, to Employee’s estate, as soon as is
practicable after the date of Employee’s death, all amounts payable (but
unpaid) under any Performance Share Award with respect to an Award Cycle that
had ended on or prior to the date of death, plus an amount with respect to
Performance Share Awards made for each Award Period that had not ended prior to
the date of death and as to which at least 18 months had elapsed prior to the
date of death equal to the award that the Board determines Employee (had he
lived) would have received for the Award Period in which his death occurs based
on the Board’s determination of the likelihood of the Corporation’s achievement
of targets for such Award Period, multiplied by a fraction, the numerator of
which is the number of days in the Award Period that had elapsed prior to
Employee’s death and the denominator of which is the total number of days in
the Award Period.

     (c) Restricted Stock. All Restricted Stock granted to Employee after July
1, 2003 shall continue to vest on the same basis as if Employee had remained
employed through June 30, 2007.

ARTICLE 6

MISCELLANEOUS

     Section 6.1. Noncompetition.

-17-

 

     (a) Following Termination of Employment for any reason other than for
Cause or by reason of a voluntary termination by Employee pursuant to Section
4.2(b), during the period
from the date of the Termination of Employment to the later of the last
day of the Agreement Term or the first anniversary of the date of the
Termination of Employment Employee shall not, directly or indirectly, (i)
Compete in the United States, (ii) solicit any officer or employee of the
Corporation or any of its affiliates to engage in any conduct prohibited hereby
for Employee or to terminate any existing relationship with the Corporation or
such affiliate or (iii) assist any other person to engage in any activity in
any manner prohibited hereby to Employee. Following Termination of Employment
for Cause or by reason of a voluntary termination by Employee pursuant to
Section 4.2(b), Employee shall not, directly or indirectly, engage in any of
the activities described in (i), (ii) or (iii) of the immediately preceding
sentence during the one-year period following the date of the Termination of
Employment. In any case where Employee is contemplating an activity described
in Section 6.1(a)(i) above, other than an activity described in Section 1.7(ii)
or (iii) or an activity described in Section 1.7(i) as it relates to the
secondary mortgage market, the Board, upon the request of Employee for a
waiver, shall determine in good faith whether Employee’s engaging in the
proposed activity would prejudice the interests of the Corporation and shall
not unreasonably withhold its consent to such request for a waiver if it
determines that the proposed activity would not prejudice the interests of the
Corporation.

     (b) The need to protect the Corporation against Employee’s competition, as
well as the nature and scope of such protection, has been carefully considered
by the parties hereto in light of the uniqueness of Employee’s talent and his
importance to the Corporation. Accordingly, Employee agrees that, in addition
to any other relief to which the Corporation may be entitled, the Corporation
shall be entitled to seek and obtain injunctive relief (without the requirement
of a

-18-

 

bond) from a court of competent jurisdiction for the purpose of
restraining Employee from any actual or threatened breach of the covenant
contained in Section 6.1(a).

     (c) If for any reason a final decision of any court determines that the
restrictions under this Section 6.1 are not reasonable or that the
consideration therefore is inadequate, such restrictions shall be interpreted,
modified or rewritten by such court to include as much of the duration, scope
and geographic area identified in this Section 6.1 as will render such
restrictions valid and enforceable.

     Section 6.2. Payment of Certain Expenses. As promptly as permitted by law
the Corporation shall pay or advance to Employee all legal fees and expenses
that Employee may reasonably incur as a result of any contest or arbitration
requested by the Corporation, Employee or others of the validity or
enforceability of, or liability under, any provision of this Agreement
(including any contest initiated by Employee concerning the amount of any
payment due pursuant to this Agreement), plus in each case interest at the
applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal
Revenue Code of 1986, as amended, on any payment of legal fees and expenses
that is delayed by more than 10 days following delivery by Employee to the
Corporation of a proper request for payment. If as to any such contest or
arbitration Employee does not prevail, and only in such case, within 10 days
following written demand from the Corporation Employee shall repay any advance
made by the Corporation pursuant to the immediately preceding sentence with
respect to such contest or arbitration, with interest at the applicable federal
rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of
1986, as amended, from the date of the Corporation’s payment.

     Section 6.3. Assignment by Employee. Except as otherwise expressly
provided herein or in the Corporation’s benefit plans, the obligations, rights
and benefits of Employee hereunder

-19-

 

are personal to him, and no such obligation,
right or benefit shall be subject to voluntary or involuntary alienation,
assignment, delegation or transfer.

     Section 6.4. No Funding Required. Nothing in this Agreement shall be
construed as requiring the Corporation to establish a trust or otherwise to
fund any payments to be made under this Agreement, but the Corporation in its
discretion may establish such nonqualified trusts or other arrangements as it
determines to be appropriate to assist it in meeting its obligations under this
Agreement.

     Section 6.5. Disclosure of Information to the Corporation. In the event
Section 5.3 becomes applicable, Employee or, in the event of Employee’s
incapacity or death, his personal representative shall make available to the
Corporation on a confidential basis such records, documents and other
information reasonably necessary to enable the Corporation to verify the amount
of income available to offset the payments otherwise due Employee.

     Section 6.6. Nondisclosure of Confidential Information. Employee
acknowledges that he is bound by the terms of an Agreement on Ideas, Inventions
and Confidential Information dated March 16, 2001. Nothing in this Agreement
shall be construed as limiting Employee’s obligations under the aforesaid
Agreement on Ideas, Inventions and Confidential Information or any successor
thereto, which shall be treated for all purposes also as obligations of
Employee under this Agreement. This Agreement in no way limits the ability of
Employee to provide information covered by this Agreement to a government
entity in order to assist the government entity in the fulfillment of its
duties.

     Section 6.7. Waiver. The failure of either party hereto to insist upon
strict compliance by the other party with any term, covenant or condition of
this Agreement shall not be deemed a waiver of such term, covenant or
condition, nor shall any waiver or relinquishment or failure to

-20-

 

insist upon
strict compliance of any right or power hereunder at any one time or more times
be deemed a waiver or relinquishment of such right or power at any other time
or times.

     Section 6.8. Notice. Any notice required or desired to be given pursuant
to this Agreement shall be sufficient if transmitted in writing by hand
delivery or sent by prepaid courier or by registered or certified mail, postage
prepaid, (i) if notice is to the Corporation, to the Corporation’s address
hereinafter set forth, or (ii) if notice is to Employee, to Employee’s address
in the metropolitan District of Columbia area contained in the records of the
Corporation, or, in either such case, to such other address of a party as such
party may designate in writing and transmit to the other party in such manner.
Any such notice shall be deemed given, if transmitted by hand delivery, one
business day after deposit with a prepaid courier service or, if sent by
registered or certified mail, three business days after deposit in the United
States mail.

     Section 6.9. Applicable Law. This Agreement shall be governed by the laws
of the District of Columbia without regard to any otherwise applicable conflict
of laws principles.

     Section 6.10. Taxes. The Corporation shall deduct from all amounts
payable under this Agreement all federal, state, local and other taxes required
by law to be withheld with respect to such amounts.

     Section 6.11. Benefit. Except as otherwise expressly provided herein,
this Agreement shall inure to the benefit of and be binding upon the
Corporation, its successors and assigns, and upon Employee, his spouse, heirs,
executors and administrators. The Corporation shall require any successor
(whether direct or indirect, by purchase, merger, reorganization,
consolidation, acquisition of property or stock, liquidation or otherwise) to
all or a substantial portion of its assets, by agreement in form and substance
reasonably satisfactory to Employee, expressly to

-21-

 

assume and agree to perform
this Agreement in the same manner and to the same extent that the Corporation
would be required to perform this Agreement if no such succession had taken
place. Regardless of whether such an agreement is executed, this Agreement shall
be binding upon any successor of the Corporation, and such successor shall be
deemed the “Corporation” for purposes of this Agreement.

     Section 6.12. Entire Agreement. This Agreement contains the entire
understanding and agreement between the parties relating to the terms of
Employee’s employment by the Corporation and, except as otherwise provided in
Section 6.15, supersedes all prior written or oral agreements between them,
other than the Agreement on Ideas, Inventions and Confidential Information
dated March 16, 2001 and an Indemnification Agreement between the Corporation
and Employee. This Agreement cannot be amended, modified or supplemented in
any respect except by an agreement in writing signed by both parties hereto.

     Section 6.13. Arbitration. Any controversy or claim arising out of or
relating to this Agreement or the breach of this Agreement shall be settled by
arbitration in the District of Columbia in accordance with the laws of the
District of Columbia. The arbitration shall be conducted in accordance with
the applicable rules of the American Arbitration Association. The costs and
expenses of the arbitrator(s) shall be borne by the Corporation. Except as
otherwise provided in Section 6.2, each party shall pay his or its own legal
costs and other expenses (other than the costs and expenses of the
arbitrator(s)) relating to an arbitration. The award of the arbitrator(s)
shall be binding upon the parties. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction.

     Section 6.14. Severability. Except as otherwise provided in Section 6.15,
it is the intent and understanding of each party hereto that, if any term,
restriction, covenant or promise herein

-22-

 

is found to be invalid or otherwise
unenforceable, then such term, restriction, covenant or promise shall not
thereby be invalid or unenforceable but shall be deemed modified to the extent
necessary to make it enforceable and, if it cannot be so modified, shall
be deemed amended to delete therefrom such provision or portion found to be
invalid or unenforceable, such modification or amendment in any event to apply
only with respect to the operation of this Agreement in the particular
jurisdiction in which such finding is made.

     Section 6.15. Regulatory Approval.

     The parties hereto acknowledge and agree that pursuant to Section 309(d)
of the Federal National Mortgage Association Charter Act, as amended by the
Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (as so
amended, the “Act”), 12 U.S.C. 1723a(d), no provision of this Agreement
relating to Employee’s benefits upon termination of employment shall be
effective unless and until such provision has been reviewed and approved by the
Director (the “Director”) of the Office of Federal Housing Enterprise Oversight
(“OFHEO”). If, following OFHEO’s review and approval of such provisions, any
benefit plans of the Corporation affecting final termination benefits under
this Agreement are altered, such alteration will require OFHEO’s review and
approval at the time of termination of the Employee’s employment with the
Corporation and prior to the payment of any such benefits. Upon determining
that Employee’s Employment is terminating or has terminated, the Corporation
shall timely seek OFHEO’s review and approval of any alteration referred to in
the immediately preceding sentence.

     The parties therefore agree as follows:

-23-

 

     (a) The Corporation shall promptly hereafter submit this Agreement to the
Director for his review and approval of those terms hereof relating to benefits
upon termination of employment and shall seek diligently to obtain such
approval;

     (b) This Agreement shall take effect as of the Effective Date if the
Director’s approval of terms hereof relating to benefits upon termination of
employment is given by January 1, 2005.

-24-exv10w5

 

EXHIBIT 10.5

EXECUTIVE AGREEMENT

     THIS EXECUTIVE AGREEMENT (this “Agreement”) is made effective as of the
__th day of ______ 200_, by and between webMethods, Inc., a Delaware
corporation (the “Company”), and [_________] (the “Executive”).

WHEREAS, the Executive is presently employed by the Company;

     WHEREAS, the Board of Directors of the Company (the “Board”) recognizes
that the Executive’s contribution to the growth and success of the Company has
been and continues to be substantial;

     WHEREAS, the Board desires to provide for certain arrangements in the
event that the Executive’s employment with the Company is terminated under
certain circumstances; and

     WHEREAS, the Company and the Executive desire to enter into this Agreement
on the terms and conditions set forth below.

     NOW, THEREFORE, in consideration of the promises and the respective
covenants and agreements of the parties herein contained, and of the continued
employment of the Executive by the Company, the parties hereto, intending to be
legally bound, do hereby agree as follows:

     1. Definitions. For purposes of this Agreement:

          (a) “Cause” shall mean the Executive’s (i) theft, fraud, material
dishonesty or gross negligence in the conduct of the Company’s business, (ii)
continuing neglect of the Executive’s duties and responsibilities that has a
material adverse effect on the Company (which neglect is not cured within
fifteen (15) days after receipt of written notice by the Executive specifying
the particulars of such neglect), or (iii) conviction of a felony (not
involving an automobile). For purposes of this Agreement, any purported
termination of the Executive’s employment shall be presumed to be other than
for Cause, unless the notice of termination includes a copy of a resolution
duly adopted by the Board which finds Cause to exist and specifies the
particulars thereof in detail.

          (b) “Good Reason” shall mean (i) a decrease in the Executive’s base
salary, (ii) a reduction or change in the Executive’s authorities, duties or
job responsibilities, or (iii) a geographic relocation of the Executive without
the Executive’s consent more than thirty (30) miles from the current location
of the Executive’s office as of the date hereof.

          (c) A “Change in Control” shall be deemed to have occurred if (A) any
person (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing fifty percent (50%) or
more of the combined voting power of the Company’s then outstanding securities,
(B) during any period of two (2) consecutive years during the term of this
Agreement, individuals who at the beginning of such period constitute the Board
cease for any reason to

 

 

constitute at least a majority thereof, unless the election of each director
who was not a director at the beginning of such period has been approved in
advance by directors representing at least two-thirds of the directors then in
office who were directors at the beginning of the period, (C) the shareholders
of the Company approve a merger or consolidation involving the Company that
would result in a change of ownership of a majority of the outstanding shares
of capital stock of the Company, or (D) the shareholders of the Company approve
a plan of liquidation or dissolution of the Company or the sale or disposition
by the Company of all or substantially all the Company’s assets.

          (d) The “Date of Termination” with respect to any purported termination of
the Executive’s employment means the date specified as such in the Notice of
Termination. In the case of termination of the Executive’s employment (i) by
the Company for Cause or (ii) by the Executive for any reason, the Date of
Termination shall be a date not less than seven (7) days from the date the
Notice of Termination is given. In the case of termination of the Executive’s
employment by the Company without Cause, the Date of Termination shall be a
date not less than thirty (30) days from the date the Notice of Termination is
given.

          (e) “Notice of Termination” means a written notice of termination of
employment by the terminating party, which notice shall specify a Date of
Termination and the particular facts and circumstances of such termination,
including the existence of Cause or Good Reason.

     2. Termination of Employment.

          (a) The Executive’s employment may be terminated at any time by the
Company, with or without Cause, by delivery of a Notice of Termination to the
Executive. The Executive’s employment may be terminated at any time by the
Executive, with or without Good Reason, by delivery of a Notice of Termination
to the Company.

          (b) In the event the Company terminates the Executive’s employment without
Cause, or in the event the Executive terminates the Executive’s employment for
Good Reason, then the Company shall pay the Executive’s base salary through the
date of such termination and shall continue to pay to the Executive the
Executive’s base salary, plus all benefits provided to the Executive
immediately prior to the date of the Notice of Termination until the first
anniversary of the Date of Termination; provided, however, that the Company’s
obligations under this Section 2(b) shall cease upon the Executive’s
commencement of full-time employment with another employer.

          (c) If there is a Change in Control of the Company or there has been a
public announcement of a Change in Control of the Company (provided, however,
that consummation of the Change in Control of the Company shall be a condition
precedent to the effectiveness of this provision) and at any time within one
(1) year after the consummation of a Change in Control (i) the Company
terminates the Executive’s employment without Cause, or (ii) the Executive
terminates the Executive’s employment for Good Reason, then (x) the Company
shall pay the Executive’s base salary through the Date of Termination, (y)
shall pay to the Executive, in a lump sum in cash within ten (10) business days
after the Date of Termination, an amount equal to [one (1)] [one and one half
(1 1/2)] times the sum of (A) the Executive’s base salary in

- 2 -

 

effect immediately prior to the occurrence of the circumstance giving rise to
the Notice of Termination given in respect thereof and (B) the maximum bonus or
incentive compensation amount for which the Executive is eligible to be awarded
pursuant to any bonus or incentive compensation plan, calculated based upon the
bonus period in which the Date of Termination and annualized to the extent that
such bonus period does not reflect a twelve (12) month period and (C) for [a
twelve (12)] [an eighteen (18)] month period after the Date of Termination, the
Company shall administer and pay for the Executive’s life, disability, accident
and health insurance benefits substantially similar to those which Executive is
receiving immediately prior to the Notice of Termination.

          (d) In the event of the death of the Executive, this Agreement shall
terminate, and shall be of no further force or effect; provided, however, that
notwithstanding the foregoing, the death of the Executive shall not in any way
affect any payment obligations of the Company pursuant to Section 2(b) or
Section 2(c) hereof which exist at the time of such death.

     3. Successors; Binding Agreement. This Agreement and all rights of the
Executive hereunder 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
should die while any amounts would still be payable to the Executive hereunder
if the Executive had 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 be no such
designee, to the Executive’s estate.

     4. Notice. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered by hand delivery or via
reputable overnight delivery service, or (unless otherwise specified) mailed by
United States registered mail, return receipt requested, postage prepaid,
addressed, if to the Executive, to the Executive’s home address as it appears
on the records of the Company, and if to the Company, to the Company’s
executive headquarters, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notices
of change of address shall be effective only upon receipt.

     5. Prior Agreement. All prior agreements between the Company and the
Executive with respect to the subject matter hereof (except for stock option
agreements), including without limitation the Executive Agreement, dated as of
[___], by and between the Company and the Executive, are hereby superseded
and terminated effective as of the date hereof and shall be without further
force or effect. This Agreement is intended to be, and shall be, a complete
integration of all prior agreements and discussions between the Company and the
Executive with respect to the subject matter hereof (except as set forth in
stock option agreements between the Company and the Executive).

     6. Employment of Executive. Nothing in this Agreement shall be construed
as constituting a commitment, guarantee, agreement or understanding of any kind
or nature that the Company shall continue to employ the Executive, nor shall
this Agreement affect in any way the right of the Company to terminate the
employment of the Executive at any time and for any reason. By the Executive’s
execution of this Agreement, the Executive acknowledges and agrees that the
Executive’s employment is “at will.” No change of the Executive’s duties as an

- 3 -

 

employee of the Company shall result in, or be deemed to be, a
modification of any of the terms of this Agreement.

     7. Gross-Up for Excess Parachute Payments. In the event of a Change of
Control, or other event constituting a change in the ownership or effective
control of the Company or ownership of a substantial portion of the assets of
the Company described in Section 280G(b)(2)(A)(i) of the United States Internal
Revenue Code of 1986, as amended (the “Code”), the Company, at its sole
expense, shall cause its independent auditors promptly to review all payments,
accelerations, distributions and benefits that have been made to or provided
to, and are to be made, or may be made, to or provided to, the Executive under
this Agreement, and any other agreement or plan benefiting the Executive
(collectively the “Original Payments”), to determine the applicability of
Section 4999 of the Code to the Executive in connection with such event (other
than under this Section 7). If the Company’s independent auditors determine
that the Original Payments are subject to excise taxes under Section 4999 of
the Code (the “Excise Tax”), then an additional amount shall be paid to the
Executive (the “Gross-Up Amount”) such that the net proceeds of the Gross-Up
Amount to the Executive, after deduction of the Excise Tax (including interest
and penalties) and any federal, state and local income taxes and employment
taxes (including interest and penalties) upon the Gross-Up Amount, shall be
equal to the Excise Tax on the Original Payments. The Company’s independent
auditors will perform the calculations in conformity with the foregoing
provisions and will provide the Executive with a copy of their calculations.
The intent of the parties is that the Company shall be solely responsible for,
and shall pay, any Excise Tax on the Original Payment(s) and Gross-Up Amount
and any income and employment taxes (including, without limitation, penalties
and interest) imposed on any Gross-Up Amount payable hereunder. If no
determination by the Company’s independent auditors is made prior to the time
the Executive is required to file a tax return reflecting Excise Taxes on any
portion of the Original Payment(s), the Executive will be entitled to receive a
Gross-Up Amount calculated on the basis of the Excise Tax that the Executive
reports in such tax return, within thirty (30) days after the filing of such
tax return. The Executive agrees that, for the purposes of the foregoing
sentence, the Executive is not required to file a tax return until the
Executive has obtained the maximum number and length of filing extensions
available, and Executive shall have provided a copy of the relevant portions of
such tax return to the Company not less than ten (10) days prior to filing such
tax return. If any tax authority finally determines that a greater Excise Tax
should be imposed upon the Original Payments or the Gross-Up Amount than is
determined by the Company’s independent auditors or reflected in the
Executive’s tax returns, the Executive shall be entitled to receive the an
additional Gross-Up Amount calculated on the basis of the additional amount of
Excise Tax determined to be payable by such tax authority (including related
penalties and interest) from the Company within thirty (30) days after such
determination. The Executive shall cooperate with the Company as it may
reasonably requested to permit the Company (at its sole expense) to contest the
determination of such taxing authority to minimize the amount payable under
this Section 7. If any tax authority finally determines the Excise Tax payable
by the Executive to be less than the amount taken into account hereunder in
calculating the Gross-Up Amount, the Executive shall repay to the Company,
within thirty (30) days after the Executive’s receipt of a tax refund resulting
from that determination, to the extent of such refund, the portion of the
Gross-Up Amount attributable to such reduction (including the refunded portion
of Gross-Up Amount attributable to the Excise Tax and federal, state and local
income and employment taxes

- 4 -

 

imposed on the Gross-Up Amount being repaid, less any additional income
tax resulting from receipt of such refund).

     8. Counsel Fees. The Company also shall pay to the Executive
reimbursement for all legal fees and expenses incurred by the Executive in
disputing in good faith any issue hereunder relating to the termination of the
Executive’s employment, in seeking in good faith to obtain or enforce any
benefit or right provided by this Agreement or in connection with review of
determinations made under Section 7, and any tax audit or proceeding to the
extent attributable to the potential application of section 4999 of the Code to
any payment or benefit provided by the Company to the Executive. Such
reimbursement payments shall be made within five (5) days after delivery of the
Executive’s written requests for payment accompanied with such evidence of fees
and expenses incurred as the Company reasonably may require.

     9. No Mitigation. The Company agrees that, if the Executive’s employment
is terminated during the term of this Agreement, the Executive is not required
to seek other employment or to attempt in any way to reduce any amounts payable
to the Executive by the Company. Further, the amount of any payment provided
hereunder shall not be reduced by any compensation earned by the Executive.

     10. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and duly authorized officer of the Company.
No waiver by either party hereto at any time of any breach by the other hereto
of, or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the Commonwealth of Virginia, without regard to provisions thereof relating to
choice of law or conflicts of law. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement may be
executed by facsimile signatures.

     11. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.

[Signatures appear on following page.]

- 5 -

 

     IN WITNESS WHEREOF, the parties have executed this Executive Agreement on
the date and year first above written.

	 	 	 	 	 
	 	 	
WEBMETHODS, INC., a Delaware corporation
	 	 
	 	 	 	 	 
	 	 	
By:	 	 
	 	 	

Name:	 	 
	 	 	

Title:	 	 
	 	 	

    	 	 
	 	 	 	 	 
	 	 	
EXECUTIVE:	 	 
	 	 	 	 	 
	 	 	
 

[NAME]

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