21.04[5] Sample Employee Benefits CovenantAn alternative to transferring the employees of the venture partners to
the joint venture is for the relevant employees to be leased from each parent
entity to the joint venture. While on the surface this arrangement appears to
solve some of the problems relating to the provision of benefits, it compromises
the ability to provide the employees of the joint venture with uniform benefits
and compensation and, ultimately, compromises full integration of the employees
into the joint venture. In addition, assuming the parent entities provide
benefits to the joint venture employees through their plans, the venture will
not have much control over the benefits that its employees receive and the costs
of providing them.
The Internal Revenue Code contains specific provisions relating to leased
employees, which, as a general matter, require that leased employees be treated
as independent contractors of the entity receiving the services (i.e., the joint
venture) and be under the direction and control of the employer (i.e., the
parent entity). Other concerns, such as the allocation of liability between the
employing parent and the joint venture for acts and omissions of the leased
employees and the associated indemnification obligations, put pressure on the
construct of the employee leasing arrangements required by the Code. While an
employee leasing arrangement will likely not be consistent with the long-term
goals of a joint venture, such an arrangement is often the most practical and
efficient way to bridge benefits coverage, payroll services and other
administrative functions during a limited transition period at the beginning of
a joint venture's formation.
Sample Employee Benefits Covenant
Section 1.1 ABC Employee Benefits Matters.
(a) "ABC JV Employees" means:(1) all individuals employed by ABC or any other member of the ABC
Group who perform services primarily for the ABC JV Business who are actively at
work immediately before the Closing;
(2) all individuals employed by ABC or any other member of the ABC
Group who perform services primarily for the ABC JV Business who are absent from
work with the ABC JV Business on account of sickness, maternity leave or other
approved leave of absence or layoff immediately before the Closing and who
return to active employment within 91 days following the Closing Date, or who
have a right to return to active status or to be rehired under applicable law at
any time after the Closing Date; and
(3) all individuals employed by ABC or any other member of the ABC
Group who are not primarily employed in the ABC JV Business immediately before
the Closing but who, with the consent of XYZ and ABC, and subject to any
restrictions on solicitation and hiring of employees, are either designated by
ABC before the Closing to become employees of JV Company, as the case may be,
or, with consent of ABC, become employees of JV Company within ninety-one (91)
days after the Closing Date.
(b) ABC Final List. Schedule 1.1(b) sets forth a preliminary list of ABC
JV Employees who are to be offered employment with JV Company. As soon as
reasonably practicable prior to the Closing Date, the initial JV Company CEO and
the JV Company Chairman (or individuals designated by them) will agree on a
final list of ABC JV Employees, based on (1) Schedule 1.1(b) (with the
individuals listed thereon to be deemed to be accepted for transfer to the JV
Company CEO and the JV Company Chairman, unless the same shall thereafter
mutually agree to delete such individual, and except for those individuals who
are no longer employed by ABC or any Affiliate of ABC on the Closing Date), (2)
the new employees hired by the ABC JV Business in accordance with the applicable
interim operating covenants and departures of ABC JV Employees during the period
commencing on the date hereof and ending five (5) days prior to the Closing Date
and, (3) upon mutually agreed additions and deletions to such list (the "ABC
Final List").(c) Transfers of Employment; Employee Benefits.
(1) Transfers of Employment. JV Company shall continue the
employment effective from and after the Closing (or, in the case of any ABC JV
Employee specified in Section 1.1(a)(2) or (3), effective on the date such ABC
JV Employee returns to active status or is rehired), of each of the ABC JV
Employees included on the ABC Final List, in each case, with the same
compensation and substantially identical benefits (with the equity-based
benefits being received by such employees immediately prior to the Closing to be
provided as set forth in Section 1.3), in accordance with this Section 1.1, as
those provided to them by ABC or any other member of the ABC Group, as the case
may be, immediately before the Closing. The ABC JV Employees who accept
employment with JV Company are hereinafter referred to as the "ABC Transferred
Employees." An ABC JV Employee shall only become an ABC Transferred Employee at
such time as he or she is actually employed by JV Company and the effective date
of such employment shall hereinafter be referred to as the ABC JV Employee's
"Transfer Date." (2) Retention. ABC shall take commercially reasonable actions to
ensure that the ABC JV Employees on the ABC Final List are encouraged to accept
the transfer of employment to JV Company, including, if deemed necessary by ABC
and XYZ based on mutual agreement, the establishment, on behalf of JV Company,
of a retention program that will pay special retention incentives to certain ABC
key employees identified by ABC and XYZ based on mutual agreement (the "ABC Key
Employees"), the general terms of which shall be established by ABC and XYZ
based on mutual agreement prior to the Closing (the "ABC Retention Program").
The cost of payment of benefits under the ABC Retention Program shall be borne
by JV Company. After the date hereof, ABC shall distribute letters on behalf of
JV Company to the ABC Key Employees that communicate to such ABC Key Employees
the transfer of their employment to JV Company and that generally set forth the
benefits and incentives to be offered to such ABC Key Employees in connection
with the transfer of their employment positions from ABC to JV Company. (3) Establishment of Mirror Employee Benefit Plans. Generally, JV
Company shall establish as of the Closing certain employee benefit plans
(specifically not including the ABC DB Plan, the ABC Excess Pension Plan and the
ABC Post-Retirement Plans, each as defined below) that "mirror" (except as
specifically provided herein or where not possible and agreed to by ABC) the ABC
employee benefit plans listed in Exhibit 1.1(c)(3), as in effect immediately
prior to the Closing (the "ABC Employee Plans"), which shall be substantially
identical to the ABC Employee Plans. All plans maintained, sponsored or
contributed to by JV Company following the Closing (excluding the ABC DB Plan,
the ABC Excess Pension Plan and the ABC Post-Retirement Plans) shall hereinafter
be referred to as the "JV Company Plans." JV Company understands and agrees that
ABC is only able, and therefore required, to provide support and administrative
services with respect to the JV Company Plans if the terms and conditions of the
JV Company Plans are substantially identical (except as provided in the first
sentence hereof) to the corresponding ABC Employee Plans. The actual transfer of
plan assets and/or Liabilities, where applicable, from an ABC Employee Plan to a
JV Company Plan may not occur until after the Closing Date and/or the Transfer
Date (as set forth in further detail below), but when occurring, shall be
referred to herein as the "Plan Transfer Date."(4) Crediting of Service. For all purposes under the employee
benefit plans of JV Company and its Affiliates, as applicable, each ABC
Transferred Employee shall be credited with his or her years of service with ABC
and its Affiliates (and any service with predecessor employers) before his or
her Transfer Date, to the same extent as such ABC Transferred Employee was
entitled to credit for such service under any similar ABC Employee Plans, except
to the extent such credit would result in a duplication of benefits. In
addition, and without limiting the generality of the foregoing: (A) each ABC
Transferred Employee shall be eligible to participate, to the same extent as
such ABC Transferred Employee was eligible to participate in the comparable ABC
Employee Plans immediately prior to his or her Transfer Date, in the JV Company
Plans and (B) for purposes of each JV Company Plan providing medical, dental,
pharmaceutical, group life, disability, accidental death, dismemberment, vision
benefits or other welfare benefits to any ABC Transferred Employee, JV Company
shall use its reasonable best efforts to cause (i) all preexisting condition
exclusions under such JV Company Plan to be waived for such ABC Transferred
Employee and his or her covered dependents to the extent that such exclusion did
not operate to prohibit coverage of such persons under the analogous ABC
Employee Plan immediately prior to the Transfer Date and (ii) any eligible
expenses incurred by such ABC Transferred Employee and his or her covered
dependents during the portion of the plan year of the ABC Employee Plan that
ends on the Transfer Date to be taken into account under such JV Company Plan
for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket
requirements applicable to such ABC Transferred Employee and his or her covered
dependents for the applicable plan year, as if such amounts had been paid in
accordance with such JV Company Plan.
(d) Severance Benefits. As of the Closing, JV Company shall establish a
severance plan (the "JV Company Severance Plan") that "mirrors" the ABC
severance plan that was in effect for the ABC JV Employees immediately prior to
the Closing and shall be in the form attached hereto as Exhibit 1.1(d). In no
event shall the ABC severance plan provide benefits for any ABC JV Employee who
is offered an employment transfer in accordance with Section 1.1(c)(1) at an
office location within fifty (50) miles of such employee's current office
location and does not accept such transfer of employment with JV Company.
(e) Welfare Benefits.
(1) General. Each of ABC and its Affiliates shall be responsible for
providing ABC Transferred Employees and their eligible dependents with welfare
benefits with respect to Claims incurred before the applicable Transfer Date,
and JV Company shall be responsible for providing ABC Transferred Employees and
their eligible dependents with welfare benefits in accordance with Sections
1.1(c)(3) and (4) with respect to Claims incurred on or after the applicable
Transfer Date. For these purposes, a Claim for medical benefits shall be deemed
incurred on the date when the relevant medical service is rendered, a Claim for
long-term or short-term disability benefits shall be deemed incurred on the
first date when eligibility for such benefit occurs, and a Claim for death
benefits shall be deemed incurred on the date of death. ABC shall be responsible
for providing health continuation coverage as required by Sections 601 et seq.
of ERISA and Section 4980B of the Code to ABC Transferred Employees and their
eligible dependents, with respect to qualifying events that occur before each
such ABC Transferred Employee's Transfer Date, and JV Company, as applicable,
shall be responsible for providing such health continuation coverage to ABC
Transferred Employees and their eligible dependents for qualifying events
occurring after the applicable Transfer Date.
(2) Flexible Spending Accounts. As of the Closing, JV Company shall
establish for the benefit of ABC Transferred Employees health care and dependent
care expense reimbursement accounts and medical benefits and accidental death
and dismemberment contribution accounts (the "JV Company FSA Plan")
substantially identical to the ABC FSA Plan as provided in Section 1.1(c)(3).
With respect to the remainder of the calendar year in which the Closing Date
occurs, JV Company shall honor and execute under the JV Company FSA Plan the
payroll deduction elections as in effect for each ABC Transferred Employee under
the ABC FSA Plan as of the ABC Transferred Employee's Transfer Date and shall
pay Claims made by such ABC Transferred Employee up to the amount originally
elected by such ABC Transferred Employee under the ABC FSA Plan, less any
amounts reimbursed by ABC to such employee under the ABC FSA Plan and any
amounts actually withheld by ABC and not previously reimbursed by ABC to such
employee under the ABC FSA Plan, as communicated by ABC to JV Company. With
respect to the health care reimbursement portion of the ABC FSA Plan, ABC shall
pay Claims that were incurred prior to the Transfer Date and submitted by an ABC
Transferred Employee up to the amount originally elected by such ABC Transferred
Employee under the ABC FSA Plan, less any amounts previously reimbursed by ABC
to such employee under the ABC FSA Plan, subject to the timing and other
restrictions of the ABC FSA Plan. With respect to amounts actually withheld by
ABC and not previously reimbursed by ABC to an ABC Transferred Employee under
the ABC FSA Plan as of the Transfer Date, as reduced by any reimbursements made
under the preceding sentence, ABC Transferred Employees shall be eligible to
continue to submit to ABC claim reimbursement requests for expenses incurred
during the calendar year in which the Closing Date occurs until such amounts are
depleted, subject to the timing and other restrictions of the ABC FSA Plan.
Within a reasonable time period following the close of the calendar year in
which the Closing Date, either (i) JV Company shall reimburse ABC to the extent,
if any, the aggregate amounts reimbursed under the ABC FSA Plan for Claims
submitted by ABC Transferred Employees exceed the aggregate amounts collected
under the ABC FSA Plan through payroll deductions on behalf of such employees
before the Transfer Date or (ii) ABC shall reimburse JV Company to the extent,
if any, the aggregate amounts reimbursed under the JV Company FSA Plan for
Claims submitted by ABC Transferred Employees exceed the aggregate amounts
collected under the JV Company FSA Plan through payroll deductions on behalf of
such employees after the Transfer Date. In no event shall an ABC Transferred
Employee be entitled to an aggregate reimbursement from both the ABC FSA Plan
and JV Company FSA Plan in an amount that exceeds the original amount elected
under the ABC FSA Plan.
(3) Employee Educational Assistance Plan. To the extent an ABC
Transferred Employee successfully completes a course, the expenses for which are
reimbursable under the ABC Employee Educational Assistance Plan, prior to his or
her Transfer Date, ABC shall reimburse such ABC Transferred Employee for the
eligible expenses under the terms and conditions of the ABC Employee Educational
Assistance Plan. The eligible expenses for any courses successfully completed on
or after an ABC Transferred Employee's Transfer Date shall be reimbursed by JV
Company under the JV Company employee educational assistance plan (the "JV
Company Employee Educational Assistance Plan"), which shall be substantially
identical to the ABC Employee Educational Assistance Plan as provided in Section
1.1(c)(3).
(f) Qualified Plans.
(1) Defined Contribution Plans.(A) Effective as of the applicable Transfer Date, each ABC
Transferred Employee shall cease further participation in the ABC Savings Plan
and Trust (the "ABC 401(k) Plan"), provided that ABC shall make contributions to
the ABC 401(k) Plan with respect to each ABC Transferred Employee for periods of
service prior to the applicable Transfer Date (including matching contributions,
with respect to all salary deferrals made prior to such Transfer Date).(B) Effective as of the Closing, JV Company shall have
established a defined contribution plan (the "JV Company 401(k) Plan") and
related trust under Section 501(a) of the Code (the "JV Company 401(k) Trust")
that is substantially similar to the ABC 401(k) Plan to accept a transfer of
assets and corresponding Liabilities from the ABC 401(k) Plan and the related
trust of the ABC 401(k) Plan (the "ABC 401(k) Trust"), in accordance with this
Section 1.1(f)(1)(B). As soon as reasonably practicable after the Closing, and
following receipt by ABC of a copy of a favorable determination letter from the
IRS or JV Company's certification, which certification is reasonably acceptable
to ABC, that the JV Company 401(k) Plan satisfies Sections 401(a) and 401(k) of
the Code and the JV Company 401(k) Trust is tax exempt under Section 501(a) of
the Code, but in no event later than 180 consecutive calendar days after the
Closing Date, ABC shall direct the trustee of the ABC 401(k) Trust to transfer
to the trustee of the JV Company 401(k) Trust in a mandatory trust-to-trust
transfer the account balances in the ABC 401(k) Plan of all ABC Transferred
Employees. The date of such transfer shall be referred to herein as the "ABC
401(k) Plan Transfer Date." Such transfer shall be made in kind, based on the
investment elections of each ABC Transferred Employee as of the ABC 401(k) Plan
Transfer Date, including the ABC common stock fund (the "ABC Stock Fund") and
outstanding participant loans. The ABC 401(k) Plan shall be amended, if
necessary, to ensure that the transfer of accounts does not result in loans
outstanding as of the ABC 401(k) Plan Transfer Date becoming immediately due and
payable and also to provide that ABC Transferred Employees shall be able to
direct any matching contributions in the ABC 401(k) Plan, from the Closing Date
until the ABC 401(k) Plan Transfer Date, to funds other than the ABC Stock Fund.
The JV Company 401(k) Plan shall permit the ABC Transferred Employees to
maintain their investments in the ABC Stock Fund with respect to the portion of
the Transferred Accounts invested in such fund as of the ABC 401(k) Plan
Transfer Date. From and after the ABC 401(k) Plan Transfer Date, the ABC 401(k)
Plan shall have no further liability with respect to the benefits payable to the
ABC Transferred Employees accrued under, and the participation of the ABC
Transferred Employees in, the ABC 401(k) Plan prior to the applicable Transfer Date.
(2) Defined Benefit Pension Plans. Following the applicable Transfer
Date and until incurring a separation of service from JV Company, as applicable,
the ABC Transferred Employees who are participants in the ABC Defined Benefit
Pension Plan as in effect from time to time (the "ABC DB Plan") shall receive
credit for service and compensation with JV Company under the ABC DB Plan for
purposes of determining such ABC Transferred Employees' vesting and benefit
accruals under the ABC DB Plan. Notwithstanding anything contained herein to the
contrary, the service crediting under the ABC DB Plan as described in the
foregoing sentence shall be conditioned upon ABC's receipt of a favorable
determination letter from the IRS covering the continued qualification of the
ABC DB Plan (based on a submission as a "single-employer plan") upon the
adoption of the proposed amendments to the ABC DB Plan necessary to effectuate
such service and compensation crediting. After the Closing, the terms and
conditions of the ABC DB Plan with respect to ABC Transferred Employees shall be
the same as those in effect for such persons on the date hereof; provided that
such terms and conditions may be amended (i) in any manner with the consent of
the Board of Directors of JV Company, (ii) in a manner substantially identical
to amendments affecting substantially all ABC employees participating in the
applicable component of the applicable ABC DB Plan or (iii) to comply with
applicable law. Following the Closing, JV Company shall reimburse ABC for any
costs allocated by ABC to JV Company in connection with the ongoing
participation of the ABC Transferred Employees in the ABC DB Plan, with such
costs to be allocated by ABC on a basis consistent with that used to allocate
costs related to the ABC DB Plan to other business units of ABC.(g) Nonqualified Excess Retirement Plans.
(1) Excess Savings Plan. Effective as of the Closing, JV Company
shall establish an excess savings plan (the "JV Company Excess Savings Plan")
that supplements benefits accrued and to be accrued by certain eligible ABC
Transferred Employees under the ABC 401(k) Plan and the JV Company 401(k) Plan
and that mirrors the current excess savings plan of ABC (the "ABC Excess Savings
Plan"). The JV Company Excess Savings Plan shall assume the Liabilities for the
ABC Transferred Employees accrued under the ABC Excess Savings Plan as of the
Closing. The Liability under the ABC Excess Savings Plan to be transferred to
the JV Company Excess Savings Plan shall equal each ABC Transferred Employee's
account balance under the ABC Excess Savings Plan as of his or her Transfer
Date. Effective as of the Closing, JV Company shall have established a rabbi
trust to fund the Liabilities of the JV Company Excess Savings Plan. As soon as
reasonably practicable following the Closing, ABC shall direct the trustee of
the rabbi trust for the ABC Excess Savings Plan to transfer to the trustee of
the rabbi trust for the JV Company Excess Savings Plan assets with a value equal
to the account balances of the ABC Transferred Employees under the ABC Excess
Savings Plan for the period ending on the day prior to the applicable Transfer
Date. From and after the Plan Transfer Date, the ABC Excess Savings Plan shall
have no further liability with respect to the benefits payable to the ABC
Transferred Employees accrued under, and the participation of the ABC
Transferred Employees in, the ABC Excess Savings Plan.
(2) Excess Pension Plan. The ABC Transferred Employees who continue
to participate in the ABC DB Plan in accordance with Section 1.1(f)(2) following
their applicable Transfer Date shall continue to participate or be eligible to
participate upon satisfaction of the applicable eligibility requirements, as
applicable, in the ABC excess pension plan, which supplements the benefits under
the ABC DB Plan, as in effect from time to time (the "ABC Excess Pension Plan"),
and shall receive credit for service and compensation with JV Company, as
applicable, under the ABC Excess Pension Plan for purposes of eligibility,
vesting, benefit accruals and all other purposes under the ABC Excess Pension
Plan. Following the Closing, JV Company shall reimburse ABC for any costs
allocated by ABC to JV Company in connection with the ongoing participation of
the ABC Transferred Employees in the ABC Excess Pension Plan on and after the
Closing Date, with such costs to be allocated by ABC on a basis consistent with
that used to allocate costs related to the ABC Excess Pension Plan to other
business units of ABC.
(h) Retiree Life and Medical. Following the Transfer Date and until
incurring a separation of service from JV Company, as applicable, the ABC
Transferred Employees shall receive credit for service with JV Company, as
applicable, for purposes of determining such ABC Transferred Employee's
eligibility to receive post-retirement medical and life insurance benefits under
the ABC post-retirement medical and life insurance programs as in effect from
time to time (the "ABC Post-Retirement Plans"). Following the Closing, JV
Company shall reimburse ABC for any post-retirement medical and life insurance
costs allocated by ABC to JV Company in connection with the ongoing
participation of the ABC Transferred Employees in the ABC Post-Retirement Plans,
with such costs to be determined and allocated by ABC on a basis consistent with
that used to determine and allocate costs related to the ABC Post-Retirement
Plans to other business units of ABC. To the extent that ABC terminates or
otherwise modifies the ABC Post-Retirement Plans resulting in an actual or
constructive reversal of all or a portion of any surplus assets, ABC shall
allocate or refund by cash payment to JV Company its equitable share of such
surplus (after taking into account any taxes reasonably anticipated to be
incurred by ABC on account of such actual or constructive reversion, and any tax
deduction reasonably anticipated to be realized by ABC on account of such refund
or cash payment) reflecting JV Company's previous participation in such costs.(i) Paid Time Off. Effective as of each ABC Transferred Employee's
Transfer Date, JV Company shall assume all Liability for the accrued paid time
off ("PTO") obligations of each ABC Transferred Employee through the Transfer
Date. Effective as of the Transfer Date, each ABC Transferred Employee shall
have a PTO account balance with JV Company equal to such ABC Transferred
Employee's PTO account balance with ABC immediately prior to the Transfer Date. (j) Worker's Compensation. Effective as of the Closing, JV Company shall
assume liability for all Claims under workers' compensation laws that are
incurred on or after the Closing with respect to ABC Transferred Employees. For
purposes hereof, an injury, illness or other condition is considered to have
occurred as of the date agreed to by the injured ABC JV Employee and the
applicable plan administrator or as determined by the applicable state workers'
compensation board. (k) Plant Closing Laws. JV Company shall be responsible for providing any
notice required, pursuant to the United States Federal Worker Adjustment and
Retraining Act of 1988, any successor U.S. federal law, and any applicable plant
Closing notification law with respect to a layoff or plant Closing relating to
the JV Business that occurs after the Closing. ABC shall be responsible for
providing any such notice with respect to a layoff or plant Closing occurring
prior to or as a result of the Closing. ABC shall provide JV Company with such
information as JV Company may reasonably request in order to determine whether
any action taken by JV Company following the Closing, when combined with actions
taken by ABC prior to or on the Closing, would trigger the application of any
such laws. (l) Payroll Taxes. For purposes of payroll taxes with respect to ABC
Transferred Employees, ABC and JV Company shall treat the transfer of the ABC
Transferred Employees and related operations from ABC to JV Company, as
applicable, as a transaction described in Treasury Regulations Sections
31.3121(a)(1)-1(b)(2) and 31.3306(b)(1)-1(b)(2).
(m) Miscellaneous. ABC and its Affiliates agree to furnish JV Company with
such information concerning the ABC Transferred Employees and ABC Employee
Plans, and to take all such other reasonable action, as is necessary and
appropriate to effect the transactions contemplated by Section 1.1, in each
case, to the extent permitted under applicable law.
(n) Costs and Expenses.
(1) Except as otherwise expressly provided herein, ABC shall have
the primary obligation for timely design and pre-Closing establishment of the JV
Company Benefit Plans and shall be liable for all costs and expenses incurred
that are attributable to the design and pre-Closing establishment of the JV
Company Benefit Plans, as well as the splitting of the assets and Liabilities of
the ABC Employee Plans into the JV Company Benefit Plans. (2) ABC shall be responsible for any costs incurred by JV Company as
a result of (i) the resignation of any ABC JV Employee or the redundancy or
dismissal thereof prior to the Closing Date, or the commencement of procedures
in relation to, any redundancy or dismissal of, any ABC JV Employee prior to
Closing Date or transfer of any such employee prior to the Closing Date or (ii)
any act or omission by any member of the ABC Group (other than JV Company) with
respect to the ABC JV Employees.
Section 1.2 XYZ Employee Benefits Matters.(a) "XYZ JV Employees" means:(1) all individuals employed by XYZ or any other member of the XYZ
Group who perform services primarily for the XYZ JV Business who are actively at
work immediately before the Closing; (2) all individuals employed by XYZ or any other member of the XYZ
Group who perform services primarily for the XYZ JV Business who are absent from
work with the XYZ JV Business on account of sickness, maternity leave or other
approved leave of absence or layoff immediately before the Closing and who
return to active employment within ninety-one (91) days following the Closing
Date, or who have a right to return to active status or to be rehired under
applicable law at any time after the Closing Date; and (3) all individuals employed by XYZ or any other member of the XYZ
Group who are not primarily employed in the XYZ JV Business immediately before
the Closing but who, with the consent of XYZ and ABC, and subject to any
restrictions on solicitation and hiring of employees specified herein, are
either designated by XYZ before the Closing to become employees of JV Company,
as the case may be, or, with consent of T, become employees of JV Company within
ninety-one (91) days after the Closing Date.
(b) XYZ Final List. Schedule 1.1(b) sets forth a preliminary list of XYZ
JV Employees who are to be offered employment with JV Company. As soon as
reasonably practicable prior to the Closing Date, the initial JV Company CEO and
the JV Company Chairman (or individuals designated by them) will agree on a
final list of XYZ JV Employees, based on (1) Schedule 1.1(b) (with the
individuals listed thereon to be deemed to be accepted for transfer to the JV
Company CEO and the JV Company Chairman, unless the same shall thereafter
mutually agree to delete such individual, and except for those individuals who
are no longer employed by XYZ or any Affiliate of XYZ on the Closing Date), (2)
the new employees hired by the XYZ JV Business in accordance with the applicable
interim operating covenants and departures of XYZ JV Employees during the period
commencing on the date hereof and ending five (5) days prior to the Closing
Date, and (3) upon mutually agreed additions and deletions to such list (the
"XYZ Final List"). (c) Transfers of Employment; Employee Benefits.
(1) Transfers of Employment. JV Company shall continue the
employment effective from and after the Closing (or, in the case of any XYZ JV
Employee specified in Section 1.1(a)(2) or (3), effective on the date such XYZ
JV Employee returns to active status or is rehired), of each of the XYZ JV
Employees included on the XYZ Final List, in each case, with the same
compensation received by such employees immediately prior to the Closing and
with benefits pursuant to the JV Company Plans as in effect from time to time.
The XYZ JV Employees who accept employment with JV Company are hereinafter
referred to as the "XYZ Transferred Employees." An XYZ JV Employee shall only
become an XYZ Transferred Employee at such time as he or she is actually
employed by JV Company and the effective date of such employment shall
hereinafter be referred to as the XYZ JV Employee's "Transfer Date." (2) Retention. XYZ shall take commercially reasonable actions to
ensure that the XYZ JV Employees on the XYZ Final List are encouraged to accept
the transfer of employment to JV Company, including, if deemed necessary by ABC
and XYZ based on mutual agreement, the establishment, on behalf of JV Company,
of a retention program that will pay special retention incentives to certain XYZ
key employees identified by ABC and XYZ based on mutual agreement (the "XYZ Key
Employees"), the general terms of which shall be established by ABC and XYZ
based on mutual agreement prior to the Closing (the "XYZ Retention Program").
The cost of payment of benefits under the XYZ Retention Program shall be borne
by JV Company. After the date hereof, XYZ shall distribute letters on behalf of
JV Company to the XYZ Key Employees that communicate to such XYZ Key Employees
the transfer of their employment to JV Company and that generally set forth the
benefits and incentives to be offered to such XYZ Key Employees in connection
with the transfer of their employment positions from XYZ to JV Company.(3) Crediting of Service. For all purposes under the employee
benefit plans of JV Company and its Affiliates, as applicable, including the JV
Company Plans, each XYZ Transferred Employee shall be credited with his or her
years of service with XYZ and its Affiliates (and any service with predecessor
employers) before his or her Transfer Date, to the same extent as such XYZ
Transferred Employee was entitled to credit for such service under any similar
XYZ employee benefit plans ("XYZ Employee Plans"), except to the extent such
credit would result in a duplication of benefits. In addition, and without
limiting the generality of the foregoing: (A) each XYZ Transferred Employee
shall be eligible to participate, to the same extent as such XYZ Transferred
Employee was eligible to participate in the comparable XYZ Employee Plans
immediately prior to his or her Transfer Date, in the JV Company Plans and (B)
for purposes of each JV Company Plan providing medical, dental, pharmaceutical,
group life, disability, accidental death, dismemberment, vision benefits or
other welfare benefits to any XYZ Transferred Employee, JV Company shall use its
reasonable best efforts to cause (i) all preexisting condition exclusions under
such JV Company Plan to be waived for such XYZ Transferred Employee and his or
her covered dependents to the extent that such exclusion did not operate to
prohibit coverage of such persons under the analogous XYZ Employee Plan
immediately prior to the Transfer Date and (ii) any eligible expenses incurred
by such XYZ Transferred Employee and his or her covered dependents during the
portion of the plan year of the XYZ Employee Plan that ends on the Transfer Date
to be taken into account under such JV Company Plan for purposes of satisfying
all deductible, coinsurance and maximum out-of-pocket requirements applicable to
such XYZ Transferred Employee and his or her covered dependents for the
applicable plan year, as if such amounts had been paid in accordance with such
JV Company Plan.
(d) Severance Benefits. As of the Closing, the XYZ Transferred Employees
shall be eligible to participate in the JV Company Severance Plan with respect
to qualifying terminations following the Closing Date. In no event shall the XYZ
severance plan provide benefits for any XYZ JV Employee who is offered an
employment transfer in accordance with Section 1.2(c)(1) at an office location
within fifty (50) miles of such employee's current office location and does not
accept such transfer of employment with JV Company. (e) Welfare Benefits.
(1) General. Each of XYZ and its Affiliates shall be responsible for
providing XYZ Transferred Employees and their eligible dependents with welfare
benefits with respect to Claims incurred before the applicable Transfer Date,
and JV Company shall be responsible for providing XYZ Transferred Employees and
their eligible dependents with welfare benefits in accordance with Sections
1.1(c)(1) and (3) with respect to Claims incurred on or after the applicable
Transfer Date. For these purposes, a Claim for medical benefits shall be deemed
incurred on the date when the relevant medical service is rendered, a Claim for
long-term or short-term disability benefits shall be deemed incurred on the
first date when eligibility for such benefit occurs, and a Claim for death
benefits shall be deemed incurred on the date of death. XYZ shall be responsible
for providing health continuation coverage as required by Sections 601 et seq.
of ERISA and Section 4980B of the Code to XYZ Transferred Employees and their
eligible dependents, with respect to qualifying events that occur before each
such XYZ Transferred Employee's Transfer Date, and JV Company, as applicable,
shall be responsible for providing such health continuation coverage to XYZ
Transferred Employees and their eligible dependents for qualifying events
occurring after the applicable Transfer Date.(2) Flexible Spending Accounts. Following the Closing Date, JV
Company shall honor and execute under the JV Company FSA Plan the payroll
deduction elections as in effect for each XYZ Transferred Employee under the XYZ
FSA Plan as of the XYZ Transferred Employee's Transfer Date and shall pay Claims
made by such XYZ Transferred Employee up to the amount originally elected by
such XYZ Transferred Employee under the XYZ FSA Plan, less any amounts
reimbursed by XYZ to such employee under the XYZ FSA Plan and any amounts
actually withheld by XYZ and not previously reimbursed by ABC to such employee
under the XYZ FSA Plan, as communicated by XYZ to JV Company. With respect to
the health care reimbursement portion of the XYZ FSA Plan, XYZ shall pay Claims
that were incurred prior to the Transfer Date and submitted by an XYZ
Transferred Employee up to the amount originally elected by such XYZ Transferred
Employee under the XYZ FSA Plan, less any amounts previously reimbursed by XYZ
to such employee under the XYZ FSA Plan, subject to the timing and other
restrictions of the XYZ FSA Plan. With respect to amounts actually withheld by
XYZ and not previously reimbursed by XYZ to an XYZ Transferred Employee under
the XYZ FSA Plan as of the Transfer Date, as reduced by any reimbursements made
under the preceding sentence, XYZ Transferred Employees shall be eligible to
continue to submit to XYZ claim reimbursement requests for expenses incurred
during the calendar year in which the Closing Date occurs until such amounts are
depleted, subject to the timing and other restrictions of the XYZ FSA Plan.
Within a reasonable time period following the close of the calendar year in
which the Closing Date occurs, either (i) JV Company shall reimburse XYZ to the
extent, if any, the aggregate amounts reimbursed under the XYZ FSA Plan for
Claims submitted by XYZ Transferred Employees exceed the aggregate amounts
collected under the XYZ FSA Plan through payroll deductions on behalf of such
employees before the Transfer Date or (ii) XYZ shall reimburse JV Company to the
extent, if any, the aggregate amounts reimbursed under the JV Company FSA Plan
for Claims submitted by XYZ Transferred Employees exceed the aggregate amounts
collected under the JV Company FSA Plan through payroll deductions on behalf of
such employees after the Transfer Date. In no event shall an XYZ Transferred
Employee be entitled to an aggregate reimbursement from both the XYZ FSA Plan
and JV Company FSA Plan in an amount that exceeds the original amount elected
under the XYZ FSA Plan. (3) Employee Educational Assistance Plan. Effective as of the
Closing Date, the XYZ Transferred Employees shall be eligible to participate in
the JV Company Employee Educational Assistance Plan with respect to eligible
expenses for classes commencing following the Closing Date.
(f) Qualified Plans.(1) Defined Contribution Plans.(A) Effective as of the applicable Transfer Date, each XYZ
Transferred Employee shall cease further participation in the XYZ Savings Plan
and Trust (the "XYZ 401(k) Plan"), provided that XYZ shall make contributions to
the XYZ 401(k) Plan with respect to each XYZ Transferred Employee for periods of
service prior to the applicable Transfer Date (including matching contributions,
with respect to all salary deferrals made prior to such Transfer Date). (B) As soon as reasonably practicable after the Closing, and
following receipt by XYZ of a copy of a favorable determination letter from the
IRS or JV Company's certification, which certification is reasonably acceptable
to XYZ, that the JV Company 401(k) Plan satisfies Sections 401(a) and 401(k) of
the Code and the JV Company 401(k) Trust is tax exempt under Section 501(a) of
the Code, but in no event later than 180 consecutive calendar days after the
Closing Date, XYZ shall direct the trustee of the XYZ 401(k) Trust to transfer
to the trustee of the JV Company 401(k) Trust in a mandatory trust-to-trust
transfer the account balances in the XYZ 401(k) Plan of all XYZ Transferred
Employees. The date of such transfer shall be referred to herein as the "XYZ
401(k) Plan Transfer Date." Such transfer shall be made in kind, based on the
investment elections of each XYZ Transferred Employee as of the XYZ 401(k) Plan
Transfer Date, including the XYZ common stock fund (the "XYZ Stock Fund") and
outstanding participant loans. The XYZ 401(k) Plan shall be amended, if
necessary, to ensure that the transfer of accounts does not result in loans
outstanding as of the XYZ 401(k) Plan Transfer Date becoming immediately due and
payable and also to provide that XYZ Transferred Employees shall be able to
direct any matching contributions in the XYZ 401(k) Plan, from the Closing Date
until the XYZ 401(k) Plan Transfer Date, to funds other than the XYZ Stock Fund.
The JV Company 401(k) Plan shall permit the XYZ Transferred Employees to
maintain their investments in the Stock Fund with respect to the portion of the
XYZ Transferred Accounts invested in such fund as of the XYZ 401(k) Plan
Transfer Date. From and after the XYZ 401(k) Plan Transfer Date, the XYZ 401(k)
Plan shall have no further liability with respect to the benefits payable to the
XYZ Transferred Employees accrued under, and the participation of the XYZ
Transferred Employees in, the XYZ 401(k) Plan prior to the applicable Transfer Date.(C) ABC and XYZ shall develop a second qualified defined
contribution retirement plan, or shall add special enhanced features to the JV
Company 401(k) Plan (such enhancement or plan to be referred to herein as the
"JV Company DC Plan Enhancement"), for the benefit of the XYZ Transferred
Employees and any employees hired by JV Company after the Closing who were not
previously employed by ABC and who do not participate in the ABC DB Plan, which
will be adopted by the Board of Directors of JV Company, effective as of the
Closing Date or as soon as reasonably practicable thereafter. The JV Company
shall be liable for 100% of the costs associated with developing the JV Company
DC Plan Enhancement.
(g) Nonqualified Excess Savings Plan. Effective as of the applicable
Transfer Date, the XYZ Transferred Employees shall be eligible to participate in
the JV Company Excess Savings Plan. The JV Company Excess Savings Plan shall
assume the Liabilities for the XYZ Transferred Employees accrued under the ABC
Excess Savings Plan as of the Closing. The Liability under the XYZ Excess
Savings Plan to be transferred to the JV Company Excess Savings Plan shall equal
each XYZ Transferred Employee's account balance under the XYZ Excess Savings
Plan as of his or her Transfer Date. Effective as of the Closing, JV Company
shall have established a rabbi trust to fund the Liabilities of the JV Company
Excess Savings Plan. As soon as reasonably practicable following the Closing,
XYZ shall direct the trustee of the rabbi trust for the XYZ Excess Savings Plan
to transfer to the trustee of the rabbi trust for the JV Company Excess Savings
Plan assets with a value equal to the account balances of the XYZ Transferred
Employees under the XYZ Excess Savings Plan for the period ending on the day
prior to the applicable Transfer Date. From and after the Plan Transfer Date,
the XYZ Excess Savings Plan shall have no further liability with respect to the
benefits payable to the XYZ Transferred Employees accrued under, and the
participation of the XYZ Transferred Employees in, the XYZ Excess Savings Plan. (h) Paid Time Off. Effective as of each XYZ Transferred Employee's
Transfer Date, JV Company shall assume all Liabilities for the accrued PTO
obligations of each XYZ Transferred Employee through the Transfer Date.
Effective as of the Transfer Date, each XYZ Transferred Employee shall have a
PTO account balance with JV Company equal to such XYZ Transferred Employee's PTO
account balance with XYZ immediately prior to the Transfer Date.(i) Worker's Compensation. Effective as of the Closing, JV Company
shall assume liability for all Claims under workers' compensation laws that are
incurred on or after the Closing with respect to XYZ Transferred Employees. For
purposes hereof, an injury, illness or other condition is considered to have
occurred as of the date agreed to by the injured XYZ JV Employee and the
applicable plan administrator or as determined by the applicable state workers'
compensation board. (j) Plant Closing Laws. JV Company shall be responsible for
providing any notice required, pursuant to the United States Federal Worker
Adjustment and Retraining Act of 1988, any successor U.S. federal law, and any
applicable plant Closing notification law with respect to a layoff or plant
Closing relating to the JV Business that occurs after the Closing. XYZ shall be
responsible for providing any such notice with respect to a layoff or plant
Closing occurring prior to or as a result of the Closing. XYZ shall provide JV
Company with such information as JV Company may reasonably request in order to
determine whether any action taken by JV Company following the Closing, when
combined with actions taken by XYZ prior to or on the Closing, would trigger the
application of any such laws.
(k) Payroll Taxes. For purposes of payroll taxes with respect to XYZ
Transferred Employees, XYZ and JV Company shall treat the transfer of the XYZ
Transferred Employees and related operations from XYZ to JV Company, as
applicable, as a transaction described in Treasury Regulations Sections
31.3121(a)(1)-1(b)(2) and 31.3306(b)(1)-1(b)(2). (l) Miscellaneous. XYZ and its Affiliates agree to furnish JV
Company with such information concerning the XYZ Transferred Employees and XYZ
Employee Plans and to take all such other reasonable action, as is necessary and
appropriate to effect the transactions contemplated by Section 1.2, in each
case, to the extent permitted under applicable law. (m) Costs and Expenses.
(1) XYZ shall be liable for all costs and expenses incurred
that are attributable to the splitting of the assets and Liabilities of the XYZ
Employee Plans into the JV Company Benefit Plans.
(n) XYZ shall be responsible for any costs incurred by JV Company as
a result of (i) the resignation of any XYZ JV Employee or the redundancy or
dismissal thereof prior to the Closing Date, or the commencement of procedures
in relation to, any redundancy or dismissal of, any XYZ JV Employee prior to
Closing Date or transfer of any such employee prior to the Closing Date or (ii)
any act or omission of XYZ or any of its Affiliates (other than JV Company) with
respect to the XYZ JV Employees.
Section 1.3 JV Company Incentive Plans and Programs. Prior to the Closing Date,
ABC and XYZ shall develop an annual incentive bonus plan and a long-term
incentive compensation plan or program for the ABC and XYZ Transferred
Employees, which will be adopted by the Board of Directors of JV Company at its
first meeting, that relate to the performance of JV Company and that provide
annual and long-term incentive opportunities that are comparable in the
aggregate to the annual and long-term incentive opportunities in effect for ABC
JV Employees prior to the Closing Date, provided that such plans generally will
provide for cash settlement of awards as opposed to the issuance of equity.
Section 1.4 Reserved Amendment Rights. JV Company shall have the ability to
amend or terminate any of the JV Company Plans after the Closing Date, as it in
its sole discretion decides, recognizing that it is the future intention of JV
Company to provide benefits to ABC and XYZ Transferred Employees that are
generally comparable in the aggregate to those provided by ABC to its employees
from time to time. Notwithstanding anything contained herein to the contrary,
the ABC DB Plan, the ABC Excess Pension Plan and the ABC Post-Retirement Plans
shall in no event be considered JV Company Plans for purposes of this Section
1.4 or for any other purpose of this Agreement.
