Summary
Automatic Data Processing, Inc. (ADP) filed an 8-K on November 15, 2006, detailing a material definitive agreement. This agreement is a letter amendment with S. Michael Martone, who is set to become the Chief Operating Officer (COO) following a previously announced spin-off of the Brokerage Services Group business. The agreement primarily outlines the terms of Mr. Martone's compensation and benefits in the event of a "change in control" at ADP.
Key Highlights
- 1ADP entered into a letter agreement with S. Michael Martone, the incoming COO, on November 15, 2006.
- 2The agreement addresses compensation and benefits for Mr. Martone if his employment is terminated without cause or if he resigns for "good reason" within a specified period after a "change in control" of ADP.
- 3Severance payments range from 200% of his total annual compensation if termination occurs within two years after a change in control, decreasing to 150% in the third year and 100% thereafter.
- 4Stock options will fully vest, and restricted stock with restrictions lapsing within three years will have those restrictions automatically removed upon the specified termination events post-change in control.
- 5The agreement defines "change in control" to include the acquisition of 25% or more of ADP's common stock or approval of a reorganization, merger, or consolidation where prior stockholders no longer hold a majority of voting power.
- 6"Good reason" for resignation is defined as actions leading to a diminution of Mr. Martone's position, authority, duties, responsibilities, or a reduction in compensation or benefits.
- 7The agreement includes a "gross-up" provision to ensure Mr. Martone is in the same after-tax position if any severance payments trigger excise taxes under the Internal Revenue Code.
Frequently Asked Questions
The primary purpose of this 8-K filing is to disclose a material definitive agreement between Automatic Data Processing, Inc. (ADP) and S. Michael Martone, who is slated to become the company's Chief Operating Officer. The agreement details specific compensation and benefits for Mr. Martone in the event of a change in control at ADP.
A 'change in control' is defined as either any person, entity, or group acquiring beneficial ownership of 25% or more of ADP's outstanding common stock, or the stockholders approving a reorganization, merger, or consolidation where the pre-transaction stockholders do not retain more than 50% of the combined voting power of the resulting entity.
If Mr. Martone's employment as COO is terminated without cause or he resigns for 'good reason' within two years after a change in control, he will receive a payment equal to 200% of his total annual compensation. This percentage decreases to 150% if the termination occurs in the third year and 100% thereafter. Additionally, his stock options will fully vest, and certain restricted stock will have restrictions removed.
Yes, the agreement includes a provision that if any payments related to a change in control trigger excise taxes under Section 4999 of the Internal Revenue Code, ADP will make an additional payment to Mr. Martone to ensure he is in the same after-tax position as if no excise tax had been imposed.