-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, efUICR6LUxj0ig09hva04Od3RiAKv0VU1HbCGmX1nJrmGbRhu7HfiI70DAVlCW7Z poJj1liv/ZNXVv5Ftx+EYw== 0000109758-95-000006.txt : 19950616 0000109758-95-000006.hdr.sgml : 19950616 ACCESSION NUMBER: 0000109758-95-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950322 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CERIDIAN CORP CENTRAL INDEX KEY: 0000109758 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER & OFFICE EQUIPMENT [3570] IRS NUMBER: 520278528 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-01969 FILM NUMBER: 95522348 BUSINESS ADDRESS: STREET 1: 8100 34TH AVE S CITY: MINNEAPOLIS STATE: MN ZIP: 55425 BUSINESS PHONE: 6128538100 FORMER COMPANY: FORMER CONFORMED NAME: CONTROL DATA CORP /DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: COMMERCIAL CREDIT CO DATE OF NAME CHANGE: 19680910 10-K 1 10-K 12/31/94 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1994 Commission File Number 1-1969 CERIDIAN CORPORATION (Exact name of Registrant as specified in its charter) Delaware 52-0278528 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8100 34th Avenue South Minneapolis, Minnesota 55425 (Address of principal executive offices) Telephone No.: (612) 853-8100 Securities Registered Pursuant to Section 12(b) of the Act: Title of each class: Name of each exchange on which registered: Common Stock, par value $.50 New York Stock Exchange, Inc.; The Chicago Stock Exchange; and Pacific Stock Exchange Depositary Shares, each representing a One One-Hundredth Interest in a Share of 5/% Cumulative Convertible Exchangeable Preferred Stock, Par Value $100........................ New York Stock Exchange, Inc. 5/% Cumulative Convertible Exchangeable Preferred Stock, Par Value $100........................ None 5/% Convertible Subordinated Debentures Due 2008................... None Has the Registrant (1) filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) been subject to such filing requirements for the past 90 days. Yes (X) No ( ). Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) The aggregate market value of the voting stock held by non-affiliates of the Registrant as of February 28, 1995 was $1,418,184,842. The shares of Common Stock outstanding as of February 28, 1995 were 45,534,311. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1994 Annual Report to Stockholders of Registrant: Parts I & II Portions of the Proxy Statement for Annual Meeting of Stockholders, May 10, 1995: Parts III and IV 1 CERIDIAN CORPORATION PART I Item 1. Business. Ceridian Corporation ("Ceridian" or the "Company"), known as Control Data Corporation until June 1992, has been significantly reshaped through divesting or discontinuing various business units and by narrowing and reorienting the focus of certain of its continuing operations. As a result of these reshaping efforts, the Company is comprised of two business segments, Information Services and Defense Electronics. Information Services Segment The Information Services segment, which consists of Ceridian Employer Services ("Employer Services") and Arbitron, provides technology-based services on a repetitive or subscription basis as well as applications software. The Information Services businesses collect, manage and analyze data on behalf of customers, report information resulting from that process to customers, and provide customers with related software applications and services. The products and services provided by the Information Services businesses address specified information management needs of other businesses to help them to improve their productivity and competitive position. The technology-based products and services of the Information Services businesses are typically provided through long-term customer relationships that result in a high level of recurring revenue. Information regarding Information Services' revenue, operating profit or loss and identifiable assets for the years 1992-1994 is in Note G, Segment Data, on page 48 of the Company's 1994 Annual Report to Stockholders, which is incorporated herein by reference. Employer Services. Employer Services offers a broad range of products and services designed to help employers more effectively manage their work forces and the information that is integral to human resource processes. These products and services include payroll processing, payroll tax filing and training services; payroll, human resources management and benefits administration software; and employee assistance programs. Employer Services' revenue for the years 1992, 1993 and 1994 was $209.9 million, $232.6 million and $303.3 million, respectively. Markets. The employer services market covers a comprehensive range of information management services and software and employer/employee assistance services. These products and services include transaction- oriented information management services such as payroll, tax filing and benefits administration services; management support software and services such as human resource information, skills management, time and attendance and applicant tracking systems; employee-focused services such as employee assistance programs; and other services such as compensation and benefits consulting. The market for these products and services is expected to continue to grow as companies continue to outsource administrative services, seek to further automate internal processes, and avail themselves of external expertise to foster high performance workplaces. The factors driving the movement toward outsourcing include the increasing scope and complexity of legislation regulating businesses and their employees, the 2 rising costs of providing payroll and other employer services in-house and the introduction of new types of employer services. Traditionally, the employer services market consisted of payroll processing, payroll tax filing and other services that were transaction- based, generally routinized and technology-oriented. Although these types of services continue to account for a significant portion of the employer services market and demand for them continues to grow, the employer services market is expanding into other value-added services that address other aspects of the employment relationship, such as human resource management, benefits administration, compensation, staffing, training development and employee relations. For example, employers seek to combine records for payroll and these value-added services to create a single database of employee information for on-line inquiry, updating and reporting in areas important to human resource administration and management. Employer Services believes that the ability to provide a number of these other services and to integrate payroll and human resource information databases can be an important factor in customer retention because it provides customers with a stronger connection to their payroll service provider and offers a means to distinguish their service from others provided in the market. Accordingly, it is increasingly important for companies in the employer services market, particularly for those targeting medium and large employers, to offer a wide range of services that are designed to address a broad spectrum of employer services needs. The Company segments the employer services market by classifying employers into three categories: small (fewer than 75 employees), medium (75 to 5,000 employees) and large (over 5,000 employees). Small employers in the payroll services market are relatively price sensitive, tend to focus more narrowly on payroll services and payroll tax filing and have low costs in switching from one provider to another. Medium and large employers generally require more complex, customized payroll services, have a greater need for additional services and integrated databases and have higher costs in switching from one provider to another. Services. During 1994, payroll processing and payroll tax filing services accounted for 82% of Employer Services' total revenue. Payroll processing consists primarily of preparing and furnishing employee payroll checks, direct deposit advices and supporting journals, summaries and other reports. Payroll tax filing services consist primarily of processing federal, state and local withholding taxes on behalf of employers based on payroll information provided, and remitting those taxes along with necessary reports to the appropriate taxing authorities. These payroll- related services are typically priced on a fee-per-item-processed basis, and quarterly revenue consequently fluctuates with the volume of items processed. Revenue from payroll tax filing services also includes investment income Employer Services receives from tax filing deposits temporarily held pending remittance on behalf of customers to taxing authorities. Over half of Employer Services' 1994 payroll tax filing revenue was attributable to such investment income. As a result, quarterly revenue and profitability will vary as a result of changes in interest rates and in the amount of tax filing deposits held by Employer Services. Because the volume of payroll items processed increases in the first and fourth quarters of each year in connection with employers' year-end 3 reporting requirements, and because the amount of tax filing deposits also tends to be greatest in the first quarter, Employer Services' revenue and profitability tend to be greater in those quarters. Payroll processing is currently conducted by Employer Services at 31 district offices located throughout the United States, all of which are linked in a nationwide network. Employer Services' payroll system allows customers to input their own payroll data via personal computers, transmit the data on-line to Employer Services for processing, retrieve reports and data files from Employer Services and print reports and, in certain instances, payroll checks or direct deposit advices on site. Customers can also input payroll data by telephone or batch transmittal, with payroll checks and related reports prepared by Employer Services at one of its district processing centers. Employer Services' payroll system also interfaces with both customer and third-party transaction processing systems to facilitate services such as direct deposit of payroll checks. Through its MiniData Services, Inc. subsidiary, the Company provides payroll services to customers in the mid-Atlantic states with fewer than 100 employees. Because Employer Services' existing payroll processing system incorporates older technology, particularly the payroll processing software utilized, the system requires a significant amount of manual intervention and is relatively labor intensive to install, maintain and customize. As a result, the Company decided in 1993 to upgrade that software in order to achieve a payroll processing system that would be more highly automated, easier and less costly to install and maintain and would provide greater flexibility to customers in terms of product and service options. Toward that end, the Company acquired Tesseract Corporation ("Tesseract") in June 1994. Tesseract, which provides proprietary payroll processing software to very large companies that process their payrolls internally, has provided the Company with a proven payroll processing software application that contains the features desired by the Company and is being adapted to run in Employer Services' multi-customer data center environment. The Company is capitalizing certain costs of this software adaptation effort. In connection with the decision to enhance its payroll processing software, Employer Services also determined in late 1993 to seek additional operational efficiencies by discontinuing payroll data processing in its district offices and consolidating such processing in centralized facilities. Toward that end, the Company entered into a technology services agreement with Integrated Systems Solutions Corporation ("ISSC"), a wholly-owned subsidiary of International Business Machines Corporation in January 1995. Under that agreement, the term of which extends through December 31, 2004, ISSC will provide the centralized payroll data processing services required by Employer Services in connection with the program to consolidate payroll data processing from the district offices into centralized facilities. The other aspects of Employer Services' payroll processing activities, such as the printing of checks and reports, will continue to occur in its district offices. Employer Services believes that the technology services agreement with ISSC represents the most expeditious, cost-effective and technologically sound and secure means for it to effect the consolidation of its payroll data 4 processing. The timing of this consolidation will principally be determined by the timing of the Company's introduction of its enhanced payroll processing software. The Company expects that beta testing of this software with selected new and existing customers will begin in mid-1995, that all new customers and additional existing customers will begin utilizing the this software in the first quarter 1996, and that the transition of the remainder of the existing customer base to the enhanced software will begin in mid-1996 and continue for approximately eighteen months. Also in the fourth quarter 1993, Employer Services decided to consolidate most aspects of telephonic customer support from its district offices into a single national telephone customer support center. By creating a national telephone support center, Employer Services believes that it can improve customer service by creating a single point of contact for most customer inquiries involving payroll processing or tax filing, while at the same time eliminating inefficiencies inherent in the current system involving multiple points of contact. Completion of the phased transition of customers to the national center is expected to be completed by the end of the first quarter 1995. Employer Services will, however, retain the capability in the district offices to address certain customer support needs. Employer Services' payroll tax filing services are provided by its Systems Tax Service ("STS") division located in Fountain Valley, California. STS was acquired by the Company in October 1993 to provide the Company with a more highly automated payroll tax filing system, and 1994 payroll tax filing processing for all of Employer Services' tax filing customers was conducted on STS' system. The STS acquisition also expanded Employer Services' tax filing customer base beyond employers who utilize Employer Services' payroll processing service to include local and regional payroll processors who utilize STS' tax filing service for their customers. Further increasing the tax filing customer base was the December 1994 acquisition of the assets of Payroll Tax Management, Inc., a payroll tax filing processor which had fiscal 1994 revenue of $3.8 million. As noted earlier, compensation for providing tax filing services is a combination of fee generated revenue and investment income from tax payments held pending remittance to taxing authorities. During 1994, the Company established a tax filing trust to hold these funds to more clearly evidence the fiduciary capacity in which such funds are held. Employer Services' human resource information service provides application software to customers that enables them to combine their payroll and human resource information databases and can serve as a "front-end" to Employer Services' payroll processing system. This enables the customer to create a single database of employee information for on-line inquiry, updating and reporting in areas important to human resource administration and management. Employer Services has developed and expects to offer during 1995 an integrated human resource/payroll information management software to run in a Windows* environment in conjunction with its enhanced payroll processing software. Employer * "Windows" is a trademark of Microsoft Corporation. 5 Services also provides related human resources information management consulting services. Employer Services' employee assistance service provides confidential, around-the-clock assessment and referral services to customers' employees to help them address legal and financial problems, substance abuse, child care, eldercare and other personal problems. Employer Services maintains a network of professional counselors who are available to work with employees to solve problems and to provide referrals to specialists if such referrals are warranted by the circumstances. Employer Services expanded its presence in the employee assistance field during 1994 by acquiring the customer base of Human Effectiveness, Inc., which generated approximately $1 million of revenue in 1994. The acquisition of Tesseract and User Technology Services, Inc. ("UserTech") during 1994 have enabled Employer Services to further expand its range of products and services. In addition to providing the Company with the payroll processing software that will be the core of Employer Services' enhanced payroll processing system, the Tesseract acquisition provided payroll processing, human resources management and benefits administration software offerings for large customers with complex information management needs that prefer to handle such tasks in-house. Although Tesseract's product offerings have historically been mainframe- based, it is developing client/server versions of these offerings. UserTech, which was acquired in October 1994 and had fiscal 1994 revenue of $4.4 million, provides training, communications and other services to facilitate customers' effective utilization of information management systems. Employer Services expects that the enhancement of its payroll processing system software and the development of a new generation of human resources information software, including applications in Windows and client/server environments, will require a relatively high level of investment in technology (a portion of which will be capitalized) and may entail certain risks, such as possible delays in the development process, that can often occur in software development projects. In addition, the transition of customers from payroll processing on the existing system in district offices to centralized processing on the enhanced system is expected to be a complicated undertaking that must be carefully managed to maintain acceptable levels of customer satisfaction during the transition process. This process is also expected to entail a relatively high level of incremental costs, such as costs to temporarily provide duplicate processing of payrolls at district offices and the centralized facilities, associated with a conversion plan intended to insure that customers will incur no interruption of or decline in service during the transition period. The portion of these incremental costs relating to the discontinuance of processing in the district offices is covered by existing restructuring reserves. Sales and Marketing. Employer Services markets its products and services through a direct sales force operating through about three dozen offices located throughout the U.S. A modest decrease in the size of Employer Services' sales force during 1994 reflected increased concentration of sales and marketing efforts on medium and large employers. 6 Employer Services also has established marketing relationships with banks, accounting firms and insurance companies, pursuant to which Employer Services offers its services to the business clients of these entities. Employer Services has also entered into a marketing agreement with ISSC under which ISSC will remarket Employer Services' payroll and tax filing services and Tesseract software and services where payroll software and services are required as part of a larger information technology outsourcing project, and Employer Services will jointly market with ISSC its information technology services where a customer requires information technology outsourcing beyond Employer Services' payroll services. Employer Services markets its payroll processing and tax filing services by identifying customers that use or are contemplating using a third party service provider. Although Employer Services' most significant source of customer leads for such services are referrals from existing customers and from the numerous banks and accounting firms with which it has relationships, it also identifies potential customers through newspaper articles, periodicals, trade publications and, to a limited extent, direct mailings. Customer leads for Employer Services' other products and services are generally obtained through referrals, trade shows and direct sales efforts. Employer Services currently has somewhat more than 30,000 contracts with approximately 25,000 different customers from a wide range of industries and markets, with no single customer representing more than 1% of Employer Services' 1994 revenue. Employer Services believes that further increasing the effectiveness of its sales and marketing efforts will be an important factor in achieving its profitability and growth objectives. Toward that end, Employer Services is increasingly orienting sales and marketing efforts toward medium and large employers, which tend to purchase a greater variety of services, require more flexibility and customization in services offerings and have higher costs associated with changing providers. At the same time, the previously described efforts to upgrade technology and expand product and service offerings should also increase sales effectiveness by shortening the length of the sales/installation cycle and by building greater variety and flexibility into service offerings. Employer Services' goal is to identify the overall human resource information management needs arising out of the employment relationship, and address those needs through a broad range of integrated customer-driven solutions, such as outsourcing services, software applications and consulting services. The Company believes that broadening and integrating its product and service offerings should also play an important role in attracting and retaining customers by differentiating Employer Services from other service providers and by providing customers with a stronger connection to Employer Services. Competition. The employer services industry is characterized by intense competition in the small, medium and large employer segments of the market. Competitors in this market include national, regional and local third party providers, banks, in-house payroll processors, software companies and consulting firms. A substantial portion of the overall payroll processing and tax filing market is supported in-house with the remainder supported by third party providers. Automatic Data Processing, Inc. ("ADP") is the dominant third 7 party provider in this market, with Employer Services and Paychex, Inc. ("Paychex") comprising the other two large, national providers. ADP serves all segments of this market, while Paychex focuses on the small employer segment of the market. The remainder of the third party payroll market is highly fragmented and is represented by smaller regional and local competitors. Consolidation within this industry continues as the larger national providers acquire smaller regional and local providers and as banks sell their payroll service operations. In addition, software companies, including Tesseract, market application software to customers that allows these customers to support their payroll services in-house. The market for the non-payroll portion of the employer services industry is evolving and is not dominated by any one competitor. Currently, the principal competitive factors in the employer services market are price, quality and service. Employer Services believes that it is able to compete effectively in the overall employer services market with respect to all of these competitive factors. In addition, Employer Services believes that offering a broad range of information management products and services applicable to the employment relationship will become an increasingly important competitive factor, particularly with respect to medium and large employers. Employer Services' ability to continue to compete effectively in the employer services market will depend in large measure on its ability to implement and effectively use new technology, offer additional products and services, and increase its market penetration. Employer Services intends to seek additional strategic acquisition and partnering opportunities that would better enable it to achieve these objectives. Arbitron. Arbitron is the leading provider of radio audience measurement information in terms of revenue and market share, and also provides electronic media and marketing information to radio and television broadcasters, cable operators, advertising agencies and advertisers. Arbitron's proprietary data regarding radio audience size and demographics is provided to customers through multi-year license agreements. In addition, through acquisitions, joint ventures and the introduction of new products, Arbitron has obtained access to or developed services that provide data regarding product purchasing decisions. Arbitron's revenue for the years 1992, 1993 and 1994 was $178.3 million, $172.2 million and $121.3 million, respectively. The greatest portion of the revenue decrease from 1993 to 1994 was due to the discontinuance of Arbitron's syndicated television and cable ratings service, effective at the end of 1993. Through this service, Arbitron had provided local market television and cable audience measurement information gathered electronically and through written diaries. This service provided approximately 26% of Arbitron's 1993 revenue. Markets. Because of the significant amounts spent by advertisers on radio advertising, radio broadcasters, advertising agencies and advertisers all have a strong interest in information regarding the size and composition of audiences for radio broadcasts. Nevertheless, the market for audience measurement of radio broadcasts, from which Arbitron currently 8 derives most of its revenue, has grown slowly in recent years due in large measure to consolidation within the radio broadcast industry and competition from other forms of media. However, as advertisers increasingly seek to tailor advertising strategies to target specific demographic groups through specific media, and as audiences become more fragmented with increased programming choices, the audience information needs of radio broadcasters, advertising agencies and advertisers become more complex. Increasingly, more detailed information regarding the demographics and buying behavior of audiences is required, as well as more sophisticated means to analyze such information. The Company believes these trends represent growth opportunities for Arbitron. These trends are not confined to the radio broadcast industry, but also affect other media. As the importance of reaching niche audiences with targeted marketing strategies increases, broadcasters, publishers, advertising agencies and advertisers increasingly require that information regarding exposure to advertising be provided on an individualized rather than a household basis and that such information be coupled with information regarding shopping patterns and purchaser behavior. The need for such qualitative information may create opportunities for innovative approaches to satisfy these information needs, particularly as technological advances increase the alternatives available to advertisers for reaching potential customers, including the possibilities of interactive communication. Services. Arbitron estimates audience size and demographics in the U.S. for local radio stations, and reports this and related data to its customers. This information is used by radio stations to price and sell advertising time and by advertising agencies and large corporate advertisers in purchasing advertising time. Arbitron uses listener diaries to gather radio listener data from sample households in the 261 local markets for which it currently provides radio ratings. Respondents mail the diaries to Arbitron's processing center in Columbia, Maryland, where Arbitron compiles periodic audience measurement estimates. The Company believes that the proprietary database which Arbitron has developed and maintains through its position as the leading provider of radio audience measurement data in the U.S. is a very valuable asset. Arbitron also provides software applications that give customers flexible and unlimited access to Arbitron's database, and enable them to more effectively analyze and understand that information and develop sales strategies for maximum effectiveness. Arbitron is also developing applications that will enable customers to link information provided by Arbitron's database with information from other databases (such as product purchase behavior) so as to enable customers to further refine sales strategies and compete more effectively for advertising dollars. Additional efforts to enhance Arbitron's radio audience measurement service include projects to increase the sample size and response rate of Arbitron's radio surveys as cost- effective means of enhancing the reliability of its audience estimates. The radio audience measurement service represented slightly less than 90% of Arbitron's revenue during 1994. Arbitron is also exploring opportunities to expand its information service offerings to the radio industry in the areas of marketing and promotion systems and systems to provide perceptual data for programmers. 9 In that regard, in December 1994, the Company acquired the assets of MediaMaps International (now known as Media Marketing Technologies), which provides Arbitron with a proprietary marketing analysis system that creates block group-coded data bases of radio listeners and provides segmentation analyses and map displays of key listener segments. Arbitron believes it will become increasingly important to address the more comprehensive information needs of the broadcast and cable industries by providing customers with services and technology that link audience measurement data with product purchasing data to enable customers to make more productive marketing decisions. Arbitron took several actions toward that end during 1994. In December 1994, the Company exchanged its interest in the Competitive Media Reporting ("CMR") joint venture with VNU Business Information Services, Inc. ("VNU") for an interest in the business of VNU's Scarborough Research Corporation subsidiary, which produces the "Scarborough Report" that provides qualitative information regarding product/service usage and media usage in 58 major U.S. markets. The Scarborough Report measures products purchased based on a sample of consumers in the relevant markets. Under the terms of this arrangement, Arbitron will have the exclusive right to market the Scarborough Report to radio broadcasters and cable systems. The CMR joint venture had provided Arbitron with access to services which, among other things, monitored commercials and tracked advertising expenditures. Also during 1994, Arbitron introduced in eleven smaller markets its LocalMotion service, which is a locally oriented, qualitative audience research service. The service, which utilizes diaries and telephone surveys, provides a profile of the broadcast audience in terms of local media, retail and consumer preferences so that local radio and television broadcasters and cable systems will have information that helps them develop targeted sales and programming strategies. Arbitron intends to further develop its capabilities and technologies through acquisitions, alliances and licensing arrangements that will enable it to provide the comprehensive information management services that broadcasters, cable systems, telecommunications companies, advertising agencies and advertisers will require to market their products and services more effectively. Arbitron obtained a minority equity interest in the second quarter 1994 in ADcom Information Services, Inc., which is developing hardware and software technology to provide cost-effective, electronic audience measurement systems to the cable industry. Arbitron is also involved in a cooperative effort to develop a passive, personalized electronic measurement device to record broadcast listening or viewing. Sales and Marketing. Arbitron provides its radio audience measurement and related services to almost 2,500 radio stations and about 2,200 advertising agencies nationwide. Contracts with customers vary in length from one to seven years, and no single customer represented more than 4% of Arbitron's 1994 revenue. Arbitron markets its products and services through a direct sales force operating through offices in six cities around the U.S. Competition. Arbitron competes with providers of other forms of research used by broadcasters, cable systems, advertising agencies and advertisers. The principal competition for Arbitron's radio audience 10 measurement service consists of a company utilizing a different methodology that is seeking to establish itself. Defense Electronics Segment - Computing Devices International The Defense Electronics segment, consisting of Computing Devices International ("Computing Devices"), develops, manufactures and markets electronic systems, subsystems and components, and provides systems integration and other services, primarily to government defense agencies. In addition, its Business Information Services division runs custom data processing applications for customers (primarily the U.S. government) and delivers them via a timesharing network. Computing Devices' revenue for the years 1992, 1993 and 1994 was $412.4 million, $461.3 million and $486.3 million, respectively. Information regarding Computing Devices' operating profit and identifiable assets for the years 1992-1994 is in Note G, Segment Data, on page 48 of the Company's 1994 Annual Report to Stockholders, which is incorporated herein by reference. Markets. The defense contracting market has undergone dramatic change in recent years. With changing geo-political conditions and government budgetary constraints, defense spending has declined and the number of companies serving the defense industry has decreased. At the same time, the defense market focus has shifted from strategic defense (nuclear) to tactical defense (non-nuclear), as the threat of military conflicts shifts toward regional and ethnic conflicts. The reduction in overall defense spending and the shift in focus toward tactical defense needs, coupled with advances in commercially- available technologies, is also shifting the focus of defense spending. Computing Devices believes that customers will increasingly emphasize, and that therefore the most attractive business opportunities in the defense contracting market will exist in, areas such as (i) weapons sophistication, electronics, surveillance and intelligence; (ii) extending the service life of existing military equipment by upgrading, enhancing and retrofitting such equipment, including the insertion of new technology, in order to reduce the costs (including substantial training costs) associated with the development and production of new equipment; and (iii) incorporating lower cost commercial off-the-shelf technology and components into military equipment. Products and Services. Computing Devices' products and services feature its capabilities in signal processing, digital image manipulation, "ruggedized" subsystems for harsh environments and real-time software systems. These products and services are produced primarily through its operations in the U.S. and Canada, with only a small portion produced in the United Kingdom ("U.K."). A majority of Computing Devices' revenue is attributable to products and services relating to avionics systems, including the AN/AYK-14 standard Navy airborne mission computer systems; communications systems, including the Iris contract described below; and intelligence and surveillance systems, including advanced parallel processing, reconnaissance systems and imaging software. In December 1994, Computing Devices complemented its imaging capabilities through the acquisition of Paragon Imaging, Inc., a provider of imaging software to 11 U.S. defense department intelligence agencies and service commands, which emphasizes commercial off-the-shelf technology and had fiscal 1994 revenue of $4.2 million. The remainder of Computing Devices' revenue is primarily attributable to products and services relating to shipboard subsystems, anti-submarine warfare subsystems, ground subsystems, space processing, display subsystems and tactical reconnaissance systems. Computing Devices employs technology developed through internal research and development, contract research and development and customer funded development programs. During 1991, Computing Devices secured, through its Canadian subsidiary, a contract to modernize the tactical command, control and communications system used by the Canadian armed forces in defense and peacekeeping situations. This system, called Iris, incorporates a broad range of technologies, including satellite, fiber optic and microwave communication. During 1994 and 1993, Computing Devices recorded revenue from this contract of $154 million and $105 million, respectively, representing about 32% and 23%, respectively, of Computing Devices' revenue in those years. This contract has a remaining term of approximately six years and estimated total remaining revenue of $751 million over the life of the contract. Although Computing Devices' Canadian subsidiary is the prime contractor under this contract, a significant portion of the contract has been subcontracted to other communications technology companies. Computing Devices is also seeking to expand the scope of its product offerings and the markets its serves, including the application of existing products and technologies to business opportunities in other worldwide defense markets and in civilian and civil government markets. In so doing, Computing Devices may, from time to time, establish cooperative arrangements with other entities where their expertise or familiarity with other markets, products or technologies would prove beneficial. For example, Computing Devices, Sextant Avionique and Northwest Airlines have collaborated on the development of an on-board maintenance terminal to facilitate information management in connection with the maintenance of commercial airliners. In January 1995, the Company also obtained a minority equity investment in Key Idea Development, LLC, which is developing a lightweight, voice-activated wearable computer. In connection therewith, the Company obtained an exclusive license to develop military applications for this computer. Sales and Marketing. Computing Devices markets its products and services through a direct sales force operating in the U.S., Canada, the U.K., France and Malaysia. Sales of products and services are made principally through competitive proposals in response to requests for bids from government agencies and prime contractors. In addition, Computing Devices has independent sales agents who represent Computing Devices' products and services in a number of European and Asian markets. Competition. Computing Devices faces intense competition with respect to all of its products and services. Competition has increased in recent years, largely reflecting factors such as reduced defense spending, consolidation among defense contractors, increasing vertical integration (and a corresponding decrease in subcontracting) on the part of larger defense contractors, and procurement reform efforts (such as an increasing emphasis on the use of commercial off-the-shelf technology). Although many 12 of Computing Devices' competitors are companies (or divisions or subsidiaries of companies) that are larger and have substantially greater financial resources, Computing Devices believes that smaller companies within the defense contracting industry may at times be able to adjust more quickly to changes in the defense contracting environment. The principal competitive factors include price, compliance with technical specifications, service and ability to perform in accordance with the established schedule. Due to the diversity and specialized nature of the products and services provided and the governmental security restrictions applicable to certain of Computing Devices' activities, it is difficult to generalize as to Computing Devices' market position in certain segments of its business. Computing Devices does believe, however, that it is able to compete effectively in each of its market segments with respect to these competitive factors. In particular, Computing Devices believes that its high rate of schedule adherence is one of its principal competitive advantages. The demonstrated ability to complete a project within the required time schedule is an important factor to governments and prime contractors in selecting companies for new projects. Computing Devices currently has preferred supplier status with two prime contractors. In light of market conditions such as decreases in defense spending, increasing price sensitivity from government customers, and over-capacity and consolidation among defense contractors, Computing Devices believes that the ability to become a low cost provider of products and services will be an increasingly important competitive factor. Government Contracts. Approximately 46% and 50%, respectively, of Computing Devices' revenue for 1994 and 1993 was derived from contracts with the U.S. Government or with prime contractors to the U.S. Government, and approximately 36% and 30%, respectively, of Computing Devices' revenue for 1994 and for 1993 was derived from contracts with the Canadian Government or with prime contractors to the Canadian Government. Companies which do business with governments are subject to certain unique business risks. Among these are dependence on annual government appropriations, changing procurement policies and regulations, complexity of design and possible cost overruns. In addition, government efforts to detect and eliminate irregularities in defense procurement programs have increased the complexity and cost of doing business for government contractors. Moreover, any government contractor determined to be in noncompliance with applicable laws and regulations may be subject to penalties and debarment or suspension from receiving additional U.S. Government contracts. Any government contract may also be terminated by the government at any time it believes that such termination would be in its best interests. In such event, Computing Devices would generally be entitled to receive payments for its allowable costs and, in general, a proportionate share of its fee or profit for the work actually performed. Approximately 81% of Computing Devices' 1994 revenue came from government contracts that were fixed price contracts, including the Iris contract. Under this type of contract, the price paid to Computing Devices is not subject to adjustment by reason of the costs incurred by the Company in the performance of the contract, except for costs incurred due to contract changes ordered by the government. Thus, under fixed price 13 contracts, the Company bears the risk of cost overruns, which may result from factors such as the need to bid on programs in advance of design completion, unforseen technological difficulties, design complexity and uncertain cost factors, particularly in connection with multi-year contracts. Multi-year fixed price contracts in Canada and the U.K. do, however, normally allow for price revision based on government price indices. Computing Devices is usually entitled to invoice governments monthly on fixed price and cost reimbursable contracts. Computing Devices does not normally acquire inventory in advance of contract award, and does not maintain significant stocks of finished products for sale. Moreover, Computing Devices obtains advance funding from customers in connection with certain of its contracts. The amount of progress payments and customer advances and the amount of the holdback from such payments and advances affect the amount of working capital necessary for Computing Devices to finance work-in-process costs in the performance of these contracts. Governments typically do not recognize interest or other costs associated with the use of capital and, therefore, the timing of payments may affect Computing Devices' profitability either positively or negatively. Computing Devices also performs work under cost reimbursable and incentive type contracts. Cost reimbursable contracts provide for reimbursement of costs incurred, to the extent such costs are allowable under applicable government regulations, plus a fee. Under incentive type contracts, the amount of profit or fee realized varies with the attainment of incentive goals such as costs incurred, delivery schedule, quality and other criteria. Fixed price contracts normally carry a higher profit rate than cost reimbursable and incentive type contracts to compensate for higher business risk. In addition, laws and regulations applicable to government contracting provide that certain types of costs may not be included in either the directly-billed cost or the indirect overheads for which the government is responsible. Many of these so-called "unallowable" costs include ordinary costs of doing business in a commercial context. These costs must be borne out of the pretax profit of the corporation and, thus, tend to reduce margins on government work. Recognition of profits is based upon estimates of final performance, which may change as contracts progress. Work may be performed prior to formal authorization or adjustment of contract price for increased work scope, change orders and other funding adjustments. Because of the complexity of government contracts and applicable regulations, contract disputes may occur. The resolution of such disputes may affect the profitability of Computing Devices in performing these contracts. The Company believes that adequate provision has been made in its financial statements for these and other normal uncertainties incident to its Computing Devices business. International Sales. International sales of Computing Devices' products and services totaled approximately $258 million and $216 million, respectively, or 53% and 47%, respectively, of Computing Devices' total revenue in 1994 and in 1993. About 90% of these products and services were produced by the Company's Canadian or U.K. subsidiaries for customers in those countries. Because most of Computing Devices' sales involve 14 technologically advanced products, services and expertise, export control regulations can limit the type of products and services that may be offered and the countries and governments to which sales may be made. Computing Devices' international sales are subject to risks inherent in foreign commerce, including currency fluctuations and devaluations, changes in foreign governments and their policies, differences in foreign laws and difficulties in negotiating and litigating with foreign governments. Computing Devices believes that the location of its international operations tends to minimize certain of these risks, and that it has mitigated other of these risks by obtaining letters of credit and advance payments, by contractual protections on currency fluctuations and by denominating contracts in U.S. dollars where possible. Divestitures The Company sold its TeleMoney Services business in May 1994. TeleMoney provided network-based transaction services, credit and debit card authorization and check verification. In February 1994, the Company disposed of the remaining Business and Technology Center it owned, as well as its remaining interest in five Business and Technology Center partnerships. Additional Information Patents. The Company owns or is licensed under a number of patents which relate to its products and are of importance to its business. However, the Company believes that none of its businesses is materially dependent upon any particular patent or license, or any particular group of patents or licenses. Instead, the Company believes that its success and growth are far more dependent, among other things, on the quality of its services and products and its reputation with its customers. Backlog. The Company's backlog is attributable to the Defense Electronics segment, since no backlog amount is determinable for revenue from the Company's Information Services businesses. Backlog does not include those portions of government contracts for which funding has not yet been approved, but does include the remaining value of the Iris contract. As of December 31, 1994, the backlog of the Company's orders was $1,209 million, of which $751 million relates to the Iris contract and $458 million relates to other contracts and programs. At December 31, 1993, the comparable total backlog was $1,213 million, of which Iris represented $862 million and other contracts and programs represented $351 million. The portion of the backlog at the end of 1994 expected to be reflected in 1995 revenue is $362 million (30%), of which Iris represents $147 million and other contracts and programs represent $215 million. The portion of the total backlog under government prime contracts and subcontracts was 95% at December 31, 1994 and 97% at December 31, 1993, while the portion of government contract backlog under fixed-price contracts was 95% at December 31, 1994 and 1993. In each case, these percentages include the Iris contract, which is a fixed-price contract with the Canadian government. 15 Research and Development. The table below sets forth the amount of the Company's research and development expenses for the periods indicated. Year ended December 31, 1994 1993 1992 (Dollars in millions) Research and development $35.4 $33.4 $30.5 Percent of revenues 3.9% 3.8% 3.7% Customer sponsored research and development $78.2 $77.4 $59.6 The Company's research and development efforts, including those sponsored cooperatively by the Company and other participants, are generally described earlier in this Item in the descriptions of the Company's business segments. The amounts shown above as customer sponsored research and development primarily represent government funded product development efforts. Geographic Segment Data. For financial information regarding the Company's U.S. and international operations, see Note G, Segment Data, on page 49 of the Company's 1994 Annual Report to Stockholders, which is incorporated herein by reference. Employees. As of December 31, 1994, the Company employed approximately 7,500 people on a full- or part-time basis. 16 Item 2. Properties. At February 28, 1995, the Company's principal production and office facilities were located in the metropolitan areas of Minneapolis, Minnesota; Atlanta, Georgia; Columbia, Maryland; New York, New York; Fountain Valley and San Francisco, California; St. Louis, Missouri; Ottawa and Calgary, Canada; and Hastings, England. The following table summarizes the usage and location of the Company's facilities as of February 28, 1995. FACILITIES (In thousands of square feet)
Type of Property U.S. Non-U.S. Worldwide Interest 341 428 769 Owned Leased 3,276 205 3,481 Total Square 3,617 633 4,250 Feet Utilization Manufacturing & Warehousing 294 449 743 Office, Computer Center & Other 1,753 184 1,937 Vacant/Idle 422 -- 422 Leased or Subleased to Others 1,148 -- 1,148 Total Square Feet 3,617 633 4,250
The 4.3 million square feet of aggregate space is essentially unchanged from February 28, 1994. Space subject to assigned leases is not included in the table above, and the Company remains secondarily liable under all such leases. These assigned leases involve 1.7 million square feet of space and future rental obligations totaling $41.4 million. The principal elements of these amounts are 0.5 million square feet and $7.6 million related to the spinoff of Control Data Systems, Inc. and 1.1 million square feet and $33.5 million related to the 1989 sale of Imprimis Technology Incorporated to Seagate Technology, Inc. The Company does not anticipate any material nonperformance by the assignees of these leases. 17 Except for one building utilized by Computing Devices' Canadian subsidiary (which is subject to a mortgage securing $6.1 million in debt obligations), no facilities owned by the Company are subject to any major encumbrances. The Company believes that all of the facilities it currently utilizes in its continuing operations are adequate for their intended purposes and are adequately maintained. Utilization of those facilities varies among the Company's operations. Generally, most of the facilities relating to the Company's information services segment are reasonably necessary for current and anticipated output levels of those businesses, although Arbitron has vacant space as a result of the consolidation of its processing activities following the discontinuance of its syndicated television ratings service, and some excess space is expected to develop in Employer Services' district offices as customer telephone support and payroll data processing are consolidated. Both Arbitron and Employer Services have established restructuring reserves for the expected cost of such facilities in excess of continuing requirements. There is also excess production capacity in the Defense Electronics segment. Efforts are ongoing to identify operations and facilities that can be consolidated and to dispose of excess or idle space. Item 3. Legal Proceedings. Information regarding legal proceedings involving the Company and its subsidiaries is contained in Note O, Legal Matters, on page 56 of the Company's 1994 Annual Report to Stockholders, which is incorporated herein by reference. Item 4. Submission of Matters to a Vote of Security Holders. None. 18 Executive Officers of the Registrant The executive officers of Ceridian as of March 1, 1995, are as follows: Executive Name (Age) Position Officer Since Lawrence Perlman Chairman, President and 1980 (56) Chief Executive Officer John R. Eickhoff Vice President and 1989 (54) Chief Financial Officer Loren D. Gross (49) Vice President and 1993 Corporate Controller Linda J. Jadwin (51) Vice President, Corporate 1990 Communications Glenn W. Jeffrey Executive Vice President 1990 (48) James D. Miller (46) Vice President, Strategic 1993 Initiatives Stephen B. Morris Vice President and 1992 (51) President, Arbitron Steven J. Olson (54) Vice President and General 1994 Counsel Patrick C. Sommers Vice President and 1992 (47) President, Ceridian Employer Services Ronald L. Turner Vice President and 1993 (48) President, Computing Devices International The executive officers of the Company are elected by the Board of Directors and serve at the pleasure of the Board of Directors and the Chief Executive Officer. They are customarily elected each year at the first meeting of the Board of Directors immediately following the annual meeting of stockholders. Lawrence Perlman has been President and Chief Executive Officer of the Company since January 1990, and was appointed Chairman in November 1992. Mr. Perlman was President and Chief Operating Officer of the Company from December 1988 to January 1990. He is a director of Inter-Regional Financial Group, Inc.; Seagate Technology, Inc.; The Valspar Corporation; Computer Network Technology Corporation; and Bio-Vascular, Inc. He is also 19 a member of the National Advisory Board of the Chemical Banking Corporation. Mr. Perlman has been a director of the Company since 1985. John R. Eickhoff has been Vice President and Chief Financial Officer of the Company since June 1993. Mr. Eickhoff was Vice President and Corporate Controller of the Company from July 1989 to June 1993. Loren D. Gross has been Vice President and Corporate Controller of the Company since July 1993. Mr. Gross was Assistant Corporate Controller of the Company from March 1987 to July 1993. Linda J. Jadwin has been Vice President, Corporate Communications of the Company since March 1990. Ms. Jadwin was Vice President, Communications and Administration of the Company's Computer Products business from April 1989 to March 1990. Glenn W. Jeffrey has been Executive Vice President of the Company since December 1992. Mr. Jeffrey was Executive Vice President, Organization Resources of the Company from June 1990 to December 1992; President of Jeffrey & Associates, an executive and organization development firm, from September 1989 to June 1990; and Vice President, Human Resources, Corporate Staff and Restaurants, for The Pillsbury Company, a food and restaurant company, from August 1988 to April 1989. James D. Miller has been Vice President, Strategic Initiatives of the Company since January 1993. From February 1989 to January 1993, Mr. Miller was Vice President and Associate General Counsel for the Company. Stephen B. Morris has been Vice President of the Company and President of Arbitron since December 1992. Mr. Morris was President and Chief Executive Officer, Vidcode, Inc., which electronically monitors, verifies and reports the broadcast of television commercials, from August 1990 to December 1992; and Director and co-founder of Spectra Marketing Systems, a micro-marketing firm, from March 1987 to March 1992. Prior to that time, he spent seventeen years at General Foods Corporation, the last three as General Manager/President of the Maxwell House Division. Steven J. Olson has been Vice President and General Counsel of the Company since October 1994. From October 1984 to October 1994, Mr. Olson was Vice President and Associate General Counsel for the Company. Patrick C. Sommers has been Vice President of the Company and President of Ceridian Employer Services since November 1992. Mr. Sommers was President, GTE Industry Services, a group of diversified companies providing software, medical information, networking and publishing products and services, from April 1990 to November 1992; and President, D&B Information Resources, Inc., a subsidiary of Dun & Bradstreet Corporation which collects and assimilates information into databases, from May 1988 to April 1990. Ronald L. Turner has been Vice President of the Company and President of Computing Devices International since January 1993. Mr. Turner was President and Chief Executive Officer, GEC-Marconi Electronics Systems Corporation, a defense electronics company, from March 1987 to January 1993. Mr. Turner is a director of Advanced Technology Services, Inc. and FLIR Systems, Inc. 20 PART II All information incorporated by reference into Items 5 through 8 below is contained in the financial portion of the Company's 1994 Annual Report to Stockholders, which is filed with this Report as Exhibit 13. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The Company's common stock, par value $.50 per share ("Common Stock"), is listed and trades on the New York Stock Exchange as well as on the Chicago and Pacific Stock Exchanges. The following table sets forth the high and low sales prices for a share of Common Stock on the New York Stock Exchange.
1994 1993 High Low High Low 1st Quarter 24 3/4 18 1/2 16 1/8 14 3/8 2nd Quarter 25 5/8 21 1/2 16 1/8 13 3rd Quarter 27 1/2 24 18 1/2 14 3/8 4th Quarter 27 1/8 23 1/2 19 7/8 17 1/2
The number of holders of record of Common Stock on February 28, 1995 was 18,157. No dividends have been declared or paid on the Common Stock since 1985. The Company's domestic revolving credit agreement (which expires May 30, 1995) limits the amount of cash the Company may expend to pay dividends on its Common Stock or to repurchase shares of its Common Stock or 5 1/2% Preferred Stock to 25% of the amount of the Company's net income in profitable quarters after the first quarter of 1993. Pursuant to a program approved by the Board of Directors in 1994, the Company repurchased 70,000 shares of Common Stock in the open market during 1994 for $1.8 million. As of December 31, 1994, the additional amount the Company could expend for additional stock repurchases or cash dividends totaled $22.6 million. Item 6. Selected Financial Data. See "Selected Five-Year Data" on page 1, which is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 22 through 35, which is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data. 21 The financial statements described in Item 14(a)1 of this Report are incorporated herein by reference. See "Supplementary Quarterly Data (Unaudited)" on page 57, which is incorporated herein by reference. Item 9. Disagreements on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. See information regarding the directors and nominees for director of Ceridian under the heading "Nominees for Director" on pages 4 and 5 of the Proxy Statement for the Annual Meeting of Stockholders, May 10, 1995 (the "Proxy Statement"), which is incorporated herein by reference. See the information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934 under the heading "Compliance With Section 16(a) of the Securities Exchange Act" on page 25 of the Proxy Statement, which is incorporated herein by reference. Information regarding the executive officers of Ceridian is on pages 18 and 19 of this Report, and is incorporated herein by reference. Item 11. Executive Compensation. See information under the headings "Directors' Compensation" on pages 6 and 7 of the Proxy Statement and "Executive Compensation" on pages 17 through 22 of the Proxy Statement, all of which is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. See information under the heading "Share Ownership Information" on pages 23 and 24 of the Proxy Statement, which is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. See information under the heading "Compensation Committee Interlocks and Insider Participation" on page 7 of the Proxy Statement, which is incorporated herein by reference. 22 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) 1. Financial Statements of Registrant Incorporated by reference from the pages indicated in the Company's 1994 Annual Report to Stockholders into Part II, Item 8, of this Report: Page Report of Management.....................................36 Independent Auditors' Report.............................37 Consolidated Statements of Operations for the years ended December 31, 1994, 1993 and 1992.........................38 Consolidated Balance Sheets as of December 31, 1994 and 1993...............................39 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992......................40-41 Notes to Consolidated Financial Statements for the three years ended December 31, 1994...............42-56 (a) 2. Financial Statement Schedules of Registrant Included in Part IV of this Report: Page Independent Auditors' Report on financial statement schedule... .................................27 Schedule II - Valuation and qualifying accounts.......28-29 All other financial statement schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes. 23 (a) 3. Exhibits The following is a complete list of Exhibits filed or incorporated by reference as part of this report. Exhibit Description 2.01 Asset Purchase Agreement, dated as of March 4, 1992, as amended, among the Company, as seller, and Video Lottery Technologies, Inc. and Automated Wagering International, Inc., as purchasers (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated June 23, 1992 (File No. 1-1969)) 2.02 Asset Purchase Agreement, dated as of March 14, 1993, between the Company and Siemens Energy & Automation, Inc. (incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 1-1969)) 2.03 Transfer Agreement between the Company and Control Data Systems, Inc., dated as of July 15, 1992 (incorporated by reference to Exhibit 10.1 to Amendment No. 1, dated July 10, 1992, to Control Data Systems, Inc.'s Registration Statement on Form 10 (File No. 0-20252)) 2.04 Distribution Agreement between Control Data Systems, Inc. and the Company dated as of July 15, 1992 (incorporated by reference to Exhibit 10.2 to Amendment No. 1, dated July 10, 1992, to Control Data Systems, Inc.'s Registration Statement on Form 10 (File No. 0-20252)) 2.05 Agreement and Plan of Reorganization, dated as of May 25, 1994, among Tesseract Corporation, Braemar Acquisition Corp. and the Company (incorporated by reference to Exhibit 2 to the Company's Current Report on Form 8-K dated June 24, 1994, as amended (File No. 1-1969)) 3.01 Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 4.01 to the Company's Registration Statement on Form S-8 (File No. 33-54379)) 3.02 Bylaws of the Company, as amended (incorporated by reference to Exhibit 3.01 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993 (File No. 1-1969)) 4.01 Form of Deposit Agreement, dated as of December 23, 1993, between The Bank of New York and the Company (incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-3 (File No. 33-50959)) 4.02 Form of Indenture, with respect to the 5 1/2% Convertible Subordinated Debentures Due 2008, dated as of December 23, 1993, between The Bank of New York and the Company (incorporated by 24 reference to Exhibit 4.7 to the Company's Registration Statement on Form S-3 (File No. 33-50959)) 10. 01* Executive Employment Agreement between the Company and Lawrence Perlman, dated February 1, 1994 (incorporated by reference to Exhibit 10.01 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993 (File No. 1-1969)) 10.02* Executive Employment Agreement between the Company and Ronald L. Turner, dated February 3, 1995 10.03* Executive Employment Agreement between the Company and Patrick C. Sommers, dated February 3, 1995 10.04* Executive Employment Agreement between the Company and Stephen B. Morris, dated February 3, 1995 10.05* Executive Employment Agreement between the Company and John R. Eickhoff, dated February 3, 1995 10.06* Employee Non-Statutory Stock Option Award Agreement between the Company and Patrick C. Sommers, dated as of January 3, 1994 10.07* Employee Non-Statutory Stock Option Award Agreement between the Company and John R. Eickhoff, dated as of January 3, 1994 10.08* Directors Deferred Compensation Plan - 1993 Restatement (As amended through December 13, 1993) (incorporated by reference to Exhibit 10.05 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993 (File No. 1-1969)) 10.09* Directors' Benefit Protection Trust Agreement, dated as of December 1, 1994, between the Company and First Trust National Association 10.10* 1993 Non-Employee Director Stock Plan (incorporated by reference to Exhibit 2 to the Company's Proxy Statement for Annual Meeting of Stockholders, May 12, 1993 (File No. 1-1969)) 10.11* 1993 Long-Term Incentive Plan (As amended through October 21, 1994) 10.12* 1990 Long-Term Incentive Plan (1992 Restatement) (As amended through October 21, 1994) 10.13* Description of the Company's Annual Executive Incentive Plan 10.14* Benefit Equalization Plan, as amended (Effective generally as of January 1, 1994) 10.15* Employees' Benefit Protection Trust Agreement, dated as of December 1, 1994, between the Company and First Trust National Association 10.16* Deferred Compensation Plan 10.17* Form of Indemnification Agreement between the Company and its Directors (incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991 (File No. 1-1969)) * Management contract or compensatory plan or arrangement required to be filed as an exhibit to this report. 25 10.18 Agreement for Information Technology Services, dated as of January 10, 1995, between the Company and Integrated Systems Solutions Corporation 10.19 Amended and Restated Credit Agreement, dated as of May 13, 1994, among the Company, Bank of America N.T. & S.A., as Agent, and the Other Financial Institutions Parties Thereto (incorporated by reference to Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 (File No. 1-1969)) 10.20 Form of Underwriting Agreement among the Company, Bear, Stearns & Co. Inc., Cowen & Company and Piper Jaffray, Inc., dated December 16, 1993 (incorporated by reference to Exhibit 1.1 to the Company's Registration Statement on Form S-3 (File No. 33-50959)) 11. Statement re computation of earnings (loss) per share 12. Statements re computation of ratio of earnings to fixed charges 13. 1994 Annual Report to Stockholders of the Company 22. Subsidiaries of the Company 24. Consent of Independent Auditors 25. Power of Attorney 27. Financial Data Schedule If requested, the Company will provide copies of any of the exhibits listed above upon payment of its reasonable expenses in furnishing such exhibits. The Company will provide to the Securities and Exchange Commission, upon request, any schedule to any of the foregoing exhibits which has not been filed. (b) Reports on Form 8-K The Company filed no reports on Form 8-K during the quarter ended December 31, 1994. A report on Form 8-K dated January 19, 1995 was filed by the Company, reporting in "Item 5: Other Events" the signing of technology services and marketing agreements with ISSC and the announcement of the Company's financial results for the quarter and year ended December 31, 1994. Included in that report were the Company's consolidated statements of operations for the three and twelve month periods ended December 31, 1994 and 1993, and condensed consolidated balance sheets for the Company as of December 31, 1994 and 1993. The Company also filed on January 25, 1995 an amendment to a report on Form 8-K dated June 24, 1994, which reported the acquisition of Tesseract Corporation by the Company. 26 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES THE BOARD OF DIRECTORS AND STOCKHOLDERS CERIDIAN CORPORATION: Under date of January 24, 1995, we reported on the consolidated balance sheets of Ceridian Corporation and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations and cash flows for each of the years in the three-year period ended December 31, 1994, as contained in the 1994 Annual Report to Stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the Annual Report on Form 10-K for the year 1994. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedules as listed in the accompanying index (see Item 14.(a)2.). These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. As discussed in notes A and I to the consolidated financial statements, the Company changed its method of accounting for postretirement benefits other than pensions in 1992. KPMG Peat Marwick LLP Minneapolis, Minnesota January 24, 1995 27
SCHEDU CERIDIAN CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (Dollars in millions) Restructure and Discontinued Operations Reserves (1) Employer Computing Arbitron Arbitron Services Devices TV ScanAm Consolidation Severance Oth Reserve Balance 12/31/91 $ $ - - $ $ 5.1 - $ 113 1992 Restructure Loss (2) 29.9 8.8 1.1 Cash Payments 44 (0.8) (1.7) (5.2) Asset Write-Off (79 (28.5) (1.1) Discontinued Operations(3) (2 Adoption of FAS 106 (4) 71 Other Non-cash Items (14 0.1 Reserve Balance 12/31/92 $ $ 0.6 - $ 6.0 $ 1.1 $ 133 1993 Restructure Loss (2) 57.0 18.9 5.5 Cash Payments 0 (4.1) (0.6) (4.0) (6.1) Asset Write-Off (44 (26.8) Adoption of FAS 112 (4) (15 (12 Other Non-cash Items (0 Reserve Balance 12/31/93 $ 26.1 $ $ 20.9 - $ 0.5 $ 60 1994 Restructure Loss (2) 15 Sale of TeleMoney (5) 14 Cash Payments (17.4) (8.5) (0.5) (27 Other Non-cash Items 2.4 2 Reserve Balance 12/31/94 $ 11.1 $ - $ 12.4 $ $ 64 - (1) For additional information, see Note B to the consolidated financial stateme (2) Does not include restructure gains of $7.6 in 1992, $14.7 in 1993 and $15.0 (3) Represents obligations related to the disposition of discontinued operations (4) Represents the reclassification to other liabilities of FAS 106 and FAS 112 obligations as described in Notes A and I to the consolidated financial stat (5) Represents obligations undertaken in connection with the sale of TeleMoney.
28
SCHEDULE II (CONT.) CERIDIAN CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (Dollars in millions) Allowance for Doubtful Accounts Receivable Year Ended December 31 1994 1993 1992 Balance at beginning of year $ 5.4 $ 4.3 $ 3.8 Additions charged to costs and expenses 0.9 1.7 1.1 Write-offs and other adjustments* (0.1) (0.6) (0.6) Balance at end of year $ 6.2 $ 5.4 $ 4.3 (*)Other adjustments include balances removed as a result of sales of businesses. Investments and Advances Year Ended December 31, 1994 1993 1992 Balance of Seagate note at beginning of year $ 10.0 $ 10.0 $ 47.9 Principal payment received (37.9) Discount on Seagate note as initially recorded or at beginning of year (6.2) Amortization/Recovery of discount 6.2 Balance of Seagate note at end of year $ 10.0 $ 10.0 $ 10.0
29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 21, 1995. CERIDIAN CORPORATION By /s/Lawrence Perlman Lawrence Perlman Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 21, 1995. /s/Lawrence Perlman /s/J. R. Eickhoff Lawrence Perlman John R. Eickhoff Chairman, President and Chief Vice President and Chief Executive Officer (Principal Financial Officer Executive Officer) and (Principal Financial Officer) Director /s/Loren D. Gross Loren D. Gross */s/George R. Lewis Vice President and Corporate George R. Lewis, Director Controller (Principal Accounting Officer) */s/Charles Marshall Charles Marshall, Director */s/Ruth M. Davis */s/Carole J. Uhrich Ruth M. Davis, Director Carole J. Uhrich, Director */s/Allen W. Dawson */s/Richard W. Vieser Allen W. Dawson, Director Richard W. Vieser, Director */s/Ronald James */s/Paul S. Walsh Ronald James, Director Paul S. Walsh, Director */s/Richard G. Lareau /s/John A. Haveman Richard G. Lareau, Director *By: John A. Haveman Attorney-in-fact 30 Exhibit 10.13 Description of the Ceridian Corporation Annual Executive Incentive Plan The Company's Annual Executive Incentive Plan provides yearly cash bonuses to Company executives, although the Board's Compensation and Human Resources Committee (the "Committee" ) may, in its discretion, permit individuals to elect to receive part or all of their annual bonus in the form of stock options rather than cash. The annual determination of an individual executive's target bonus, expressed as a percentage of base salary, is based on a subjective assessment by the Committee of the responsibilities of the position, competitive practice and the Committee's desire to give greater weight to performance-based compensation at higher levels of responsibility within the Company. For 1994, target bonus percentages for executives ranged from 20% to 65% of base salary, with the maximum possible bonus generally one and one- half times the target amount. Of the total potential bonus, 80% consisted of a financial component, and 20% was based on a subjective assessment of the executive's individual performance in the areas of quality improvement and fostering work force diversity. The financial component consisted of a requirement that the Company achieve a specified level of earnings per share ("EPS") during 1994 and, for executives assigned to operating units, a requirement that the operating unit achieve specified financial goals, generally a specified level of pre-tax earnings. With respect to the financial component, bonus payments at, above or below the target percentages could be made depending on whether the financial performance of the Company (and, if applicable, the business unit to which the executive is assigned) met, exceeded or fell short of the applicable targeted financial goal. The targeted financial component of the bonus would be payable if budgeted earnings were achieved, but no bonus would be payable if an earnings threshold amount were not achieved. For 1994, both the financial and non-financial components of the annual incentive program were paid at or slightly above the superior level for executives, resulting in bonus payments for executives ranging between 30% and 97.5% of base salary. The Committee retains discretion to adjust upward the annual incentive if, in its judgment, such an action is warranted under the circumstances. 31
Exhibit 11 CERIDIAN CORPORATION AND SUBSIDIARIES STATEMENT RE COMPUTATION OF EARNINGS (LOSS) PER SHARE (Amounts in thousands, except per share data) Year Ended December 31 1994 1993 1992 Net earnings (loss) applicable to common stockholders - primary $ 65,626 $ (30,676) $ (392,800) Discontinued operations (321,600) Extraordinary loss (8,400) Change in accounting (FAS 106) (41,800) Earnings (Loss) from continuing operations 65,626 (22,276) (29,400) Restore dividends on convertible preferred stock (a) 12,980 325 Restore interest expense on convertible debentures (a) (b) 13,900 Net earnings (loss) for fully $ 78,606 $ (21,951) $ (15,500) diluted earnings per share Weighted average common shares 44,504 43,131 42,617 outstanding Common share equivalents from stock 1,361 options (c) Weighted average common shares and 45,865 43,131 42,617 equivalents outstanding - primary Shares issuable assuming conversion 10,384 260 of preferred stock (a) Shares issuable assuming 6,794 conversion of debentures (a) Weighted average common shares and 56,249 43,391 49,411 equivalents outstanding - adjusted for full dilution Primary earnings (loss) per share: Continuing operations $ 1.43 $ (0.52) $ (0.69) Discontinued operations (7.55) Extraordinary loss (0.19) Change in accounting (FAS 106) (0.98) Total $ 1.43 $ (0.71) $ (9.22) Fully diluted earnings (loss) per $ 1.40 $ (0.51) $ (0.31) share (c) (a) Convertible preferred stock issued and convertible debentures redeemed in December 1993. (b) Net of income tax effect which is nil. (c) Common stock equivalents and shares issuable assuming conversion of convertible debentures not reported in 1993 and 1992 because the result is anti- dilutive or additional dilution is less than 3% as prescribed by APBO No. 15. This calculation is submitted in accordance with Regulation S-X item 601(b)(11).
32
Exhibit 12 CERIDIAN CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in millions) Year Ended December 31, 1994 1993 1992 1991 1990 Earnings (Loss) before income taxes and other items(1) . . . . . . $ 85.2 $ (18.2) $(186.3) $ 1.9 $ 15.9 Less undistributed earnings and non-guaranteed losses from less than 50% owned affiliates included above -- -- (0.6) (2.6) 1.3 Total earnings (loss) before income taxes and other items. . . $ 85.2 ($18.2) (185.7) (4.5) 14.6 Add: Interest . . . . . . . 1.6 16.4 17.7 25.4 43.8 Interest portion of rentals (2) . . . 11.9 12.4 31.8 17.2 31.6 Adjusted earnings (loss) before income taxes and other items. . . . $ 98.7 $ 10.6 $(150.8) $ 61.7 $ 90.0 referred stock dividends $ 13.0 $ 0.3 $ 0.3 $ 0.5 $ 0.5 Pre-tax to net income ratio (3) . . . 100% 100% 100% 100% 100% Preferred dividend factor on a pre-tax basis . . 13.0 0.3 0.3 0.5 0.5 Interest . . . . . . . . 1.6 16.4 17.7 25.4 43.8 Interest portion of rentals (2) . . . . 11.9 12.4 17.2 31.8 31.6 Total fixed charges and preferred dividends $ 26.5 $ 29.1 $ 35.2 $ 57.7 $ 75.9 Ratio of earnings to fixed charges and preferred dividends. . 3.72 1.07 1.19 Earnings to combined fixed charges and preferred stock deficiency. . . $18.05 $ 186.0 (1) Results include discontinued operations. (2) Assumed to be one-third of rental expense. A tax gross-up would not have a material effect in any year. (3)
-33- Exhibit 22 CERIDIAN CORPORATION SUBSIDIARIES AT DECEMBER 31, 1994 State or other Jurisdiction Name of Incorporation CD Plus S.A. France Ceridian Properties, Inc. Delaware Computing Devices Canada Ltd. Canada Computing Devices Company Limited (Hastings) United Kingdom Computing Devices Hastings Limited United Kingdom Computing Devices Eastborne Limited United Kingdom Computing Devices International Employment, Inc. Delaware Earth Energy Systems, Inc. New Jersey Paragon Imaging, Inc. Florida ScanAmerica, L.P. (Limited Partnership) Delaware Scarborough Research Delaware Tesseract Corporation California User Technology Services Inc. New York VTC C-MOS Incorporated Delaware 34 Exhibit 24 CONSENT OF INDEPENDENT AUDITORS BOARD OF DIRECTORS OF CERIDIAN CORPORATION We consent to incorporation by reference in Registration Statements Nos. 2-97570, 2-67753, 33-15920, 2-93345, 2-81865, 33-26839, 33-34045, 33- 49601, 33-54379, 33-56325 and 33-56833 on Forms S-8 of Ceridian Corporation of our reports dated January 24, 1995. Such reports relate to the consolidated financial statements and related financial statement schedule of Ceridian Corporation and subsidiaries as of December 31, 1994 and 1993 and for each of the years in the three-year period ended December 31, 1994 and are included or incorporated by reference in the 1994 Annual Report on Form 10-K of Ceridian Corporation. KPMG Peat Marwick LLP Minneapolis, Minnesota March 21, 1995 35 Exhibit 25 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a Director of Ceridian Corporation (the "Company"), a Delaware corporation, do hereby make, nominate and appoint JOHN R. EICKHOFF, STEVEN J. OLSON and JOHN A. HAVEMAN, and each of them, to be my attorney in fact for three months from the date hereof, with full power and authority to sign his name on the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended; provided that such Form 10-K is first reviewed by the Audit Committee of the Board of Directors of the Company and by my attorney in fact; and his name, when thus signed, shall have the same force and effect as though I had manually signed such Form 10-K. IN WITNESS WHEREOF, I have signed this Power of Attorney as of February 3, 1995. /s/Lawrence Perlman /s/George R. Lewis Lawrence Perlman George R. Lewis /s/Ruth M. Davis /s/Charles Marshall Ruth M. Davis Charles Marshall s/Allen W. Dawson /s/Carole J. Uhrich llen W. Dawson Carole J. Uhrich s/Ronald James /s/Richard W. Vieser onald James Richard W. Vieser s/Richard G. Lareau /s/Paul S. Walsh ichard G. Lareau Paul S. Walsh -36- EXHIBIT INDEX Exhibit Description 2.01 Asset Purchase Agreement, dated as of IBR March 4, 1992, as amended, among the Company, as seller, and Video Lottery Technologies, Inc. and Automated Wagering International, Inc., as purchasers (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated June 23, 1992 (File No. 1-1969)) 2.02 Asset Purchase Agreement, dated as of IBR March 14, 1993, between the Company and Siemens Energy & Automation, Inc. (incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 1-1969)) 2.03 Transfer Agreement between the Company IBR and Control Data Systems, Inc., dated as of July 15, 1992 (incorporated by reference to Exhibit 10.1 to Amendment No. 1, dated July 10, 1992, to Control Data Systems, Inc.'s Registration Statement on Form 10 (File No. 0-20252)) 2.04 Distribution Agreement between Control IBR Data Systems, Inc. and the Company dated as of July 15, 1992 (incorporated by reference to Exhibit 10.2 to Amendment No. 1, dated July 10, 1992, to Control Data Systems, Inc.'s Registration Statement on Form 10 (File No. 0-20252)) 2.05 Agreement and Plan of Reorganization, IBR dated as of May 25, 1994, among Tesseract Corporation, Braemar Acquisition Corp. and the Company (incorporated by reference to Exhibit 2 to the Company's Current Report on Form 8-K dated June 24, 1994, as amended (File No. 1-1969)) 3.01 Restated Certificate of Incorporation IBR of the Company (incorporated by reference to Exhibit 4.01 to the Company's Registration Statement on Form S-8 (File No. 33-54379)) 3.02 Bylaws of the Company, as amended (incorporated IBR by reference to Exhibit 3.01 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993 (File No. 1-1969)) 1 4.01 Form of Deposit Agreement, dated as of December 23, IBR 1993, between The Bank of New York and the Company incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-3 (File No. 33-50959)) 4.02 Form of Indenture, with respect to the 5 1/2% IBR Convertible Subordinated Debentures Due 2008, dated as of December 23, 1993, between the The Bank of New York and the Company (incorporated by reference to Exhibit 4.7 to the Company's Registration Statement on Form S-3 (File No. 33-50959)) 10. 01* Executive Employment Agreement between the IBR Company and Lawrence Perlman, dated February 1, 1994 (incorporated by reference to Exhibit 10.01 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993 (File No. 1-1969)) 10.02* Executive Employment Agreement between the E Company and Ronald L. Turner, dated February 3, 1995 10.03* Executive Employment Agreement between the E Company and Patrick C. Sommers, dated February 3, 1995 10.04* Executive Employment Agreement between the E Company and Stephen B. Morris, dated February 3, 1995 10.05* Executive Employment Agreement between the E Company and John R. Eickhoff, dated February 3, 1995 10.06* Employee Non-Statutory Stock Option Award E Agreement between the Company and Patrick C. Sommers, dated as of January 3, 1994 10.07* Employee Non-Statutory Stock Option Award E Agreement between the Company and John R. Eickhoff, dated as of January 3, 1994 10.08* Directors Deferred Compensation Plan - IBR 1993 Restatement (As amended through December 13, 1993) (incorporated by reference to Exhibit 10.05 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993 (File No. 1-1969)) 10.09* Directors' Benefit Protection Trust Agreement, E 2 dated as of December 1, 1994, between the Company and First Trust National Association 10.10* 1993 Non-Employee Director Stock Plan IBR incorporated by reference to Exhibit 2 to the Company's Proxy Statement for Annual Meeting of Stockholders, May 12, 1993 File No. 1-1969)) 10.11* 1993 Long-Term Incentive Plan (As amended E through October 21, 1994) 10.12* 1990 Long-Term Incentive Plan (1992 E Restatement) (As amended through October 21, 1994) 10.13* Description of the Company's Annual E Executive Incentive Plan 10.14* Benefit Equalization Plan, as amended E Effective generally as of January 1, 1994) 10.15* Employees' Benefit Protection Trust Agreement, E dated as of December 1, 1994, between the Company and First Trust National Association 10.16* Deferred Compensation Plan E 10.17* Form of Indemnification Agreement between the IBR Company and its Directors (incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991 (File No. 1-1969)) 10.18 Agreement for Information Technology Services, E dated as of January 10, 1995, between the Company and Integrated Systems Solutions Corporation 10.19 Amended and Restated Credit Agreement, dated IBR as of May 13, 1994, among the Company, Bank of America N.T. & S.A., as Agent, and the Other Financial Institutions Parties Thereto incorporated by reference to Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 File No. 1-1969)) 10.20 Form of Underwriting Agreement among the IBR Company, Bear, Stearns & Co. Inc., Cowen & Company and Piper Jaffray, Inc., dated December 16, 1993 (incorporated by reference *Management contract or compensatory plan or arrangement required to be filed as an exhibit to this report. 3 to Exhibit 1.1 to the Company's Registration Statement on Form S-3 (File No. 33-50959)) 11. Statement re computation of earnings (loss) E per share 12. Statements re computation of ratios E 13. 1994 Annual Report to Stockholders of E the Company 22. Subsidiaries of the Company E 24. Consent of Independent Auditors E 25. Power of Attorney E 27. Financial Data Schedule E 4 EX-10.02 2 EXHIBIT 10.02 EXHIBIT 10.02 CERIDIAN CORPORATION EXECUTIVE EMPLOYMENT AGREEMENT PARTIES Ceridian Corporation (a Delaware Corporation) 8100 34th Avenue South Minneapolis, Minnesota 55425-1640 and RONALD L. TURNER ("Executive") Date: February 3, 1995 RECITALS A. Ceridian wishes to obtain the services of Executive for at least the duration of this Agreement, and the Executive wishes to provide his or her services for such period. B. Ceridian desires reasonable protection of Ceridian's Confidential Information (as defined below). C. Ceridian desires assurance that Executive will not compete with Ceridian or engage in recruitment of Ceridian's employees for a reasonable period of time after termination of employment, and Executive is willing to refrain from competition and recruitment. D. Executive desires to be assured of a minimum Base Salary (as defined below) from Ceridian for Executive's services for the term of this Agreement (unless terminated earlier pursuant to the terms of this Agreement). E. It is expressly recognized by the parties that Executive's acceptance of, and continuance in, Executive's position with Ceridian and agreement to be bound by the terms of this Agreement represents a substantial commitment to Ceridian in terms of Executive's personal and professional career and a foregoing of present and future career options by Executive, for all of which Ceridian receives substantial value. F. The parties recognize that a Change of Control (as defined below) may result in material alteration or diminishment of Executive's position and responsibilities and substantially frustrate the purpose of Executive's commitment to Ceridian and forebearance of options. -1- G. The parties recognize that in light of the above-described commitment and forebearance of options, it is essential that, for the benefit of Ceridian and its stockholders, provision be made for a Change of Control Termination (as defined below) in order to enable Executive to accept and effectively continue in Executive's position in the face of inherently disruptive circumstances arising from the possibility of a Change of Control of the Parent Corporation (as defined below), although no such change is now contemplated or foreseen. H. The parties wish to replace any and all prior agreements and undertakings with respect to the Executive's employment and Change of Control occurrences and compensation. NOW, THEREFORE, in consideration of Executive's acceptance of and continuance in Executive's employment for the term of this Agreement and the parties' agreement to be bound by the terms contained herein, the parties agree as follows: ARTICLE I DEFINITIONS 1.01 "Base Salary" shall mean regular cash compensation paid on a periodic basis exclusive of benefits, bonuses or incentive payments. 1.02 "Board" shall mean the Board of Directors of Ceridian Corporation (the "Parent Corporation"). 1.03 "Ceridian" shall mean Ceridian Corporation and, except as otherwise provided in Article VIII and Section 9.02 of Article IX, (a) any Subsidiary (as that term is defined in Section 1.07); and any successor in interest by way of consolidation, operation of (b) law, merger or otherwise. 1.04 "Confidential Information" shall mean information or material which is not generally available to or used by others, or the utility or value of which is not generally known or recognized as standard practice, whether or not the underlying details are in the public domain, including: (a) information or material relating to Ceridian and its business as conducted or anticipated to be conducted; business plans; operations; past, current or anticipated software, products or services; customers or prospective customers; or research, engineering, development, manufacturing, purchasing, accounting, or marketing activities; (b) information or material relating to Ceridian's inventions, improvements, discoveries, "know-how," technological developments, or unpublished writings or other works of authorship, or to the materials, apparatus, processes, formulae, plans or methods used in the development, manufacture or marketing of Ceridian's software, products or services; 2 (c) information which when received is marked as "proprietary," "private," or "confidential;" (d) trade secrets; (e) software in various stages of development, including computer programs in source code and binary code form, software designs, specifications, programming aids (including "library subroutines" and productivity tools), programming languages, interfaces, visual displays, technical documentation, user manuals, data files and databases; and (f) any similar information of the type described above which Ceridian obtained from another party and which Ceridian treats as or designates as being proprietary, private or confidential, whether or not owned or developed by Ceridian. Notwithstanding the foregoing, "Confidential Information" does not include any information which is properly published or in the public domain; provided, however, that information which is published by or with the aid of Executive outside the scope of employment or contrary to the requirements of this Agreement will not be considered to have been properly published, and therefore will not be in the public domain for purposes of this Agreement. 1.05 "Disability" shall mean the inability of Executive to perform his or her duties under this Agreement because of illness or incapacity for a continuous period of five months. 1.06 "Parent Corporation" shall mean Ceridian Corporation and, except as otherwise provided in Article VIII and Section 9.02 of Article IX, any successor in interest by way of consolidation, operation of law, merger or otherwise. "Parent Corporation" shall not include any Subsidiary. 1.07 "Subsidiary" shall mean: (a) any corporation at least a majority of whose securities having ordinary voting power for the election of directors (other than securities having such power only by reason of the occurrence of a contingency) is at the time owned by Parent Corporation and/or one or more Subsidiaries; and (b) any division or business unit (or portion thereof) of Parent Corporation or a corporation described in clause (a) of this Section 1.07. 3 ARTICLE II EMPLOYMENT, DUTIES AND TERM 2.01 Employment. Upon the terms and conditions set forth in this Agreement, Ceridian hereby employs Executive, and Executive accepts such employment. Except as expressly provided herein, termination of this Agreement by either party shall also terminate Executive's employment by Ceridian. 2.02 Duties. Executive shall devote his or her full-time and best efforts to Ceridian and to fulfilling the duties of his or her position which shall include such duties as may from time to time be assigned him or her by Ceridian, provided that such duties are reasonably consistent with Executive's education, experience and background. Executive shall comply with Ceridian's policies and procedures to the extent they are not inconsistent with this Agreement in which case the provisions of this Agreement prevail. 2.03 Term. Subject to the provisions of Articles IV, VII, and VIII, Executive's employment shall continue until the later of: (a) June 30, 1997; and (b) two years after a Change of Control which occurs prior to June 30, 1997. In any event, the Agreement shall automatically terminate without notice when Executive reaches 65 years of age. If employment is continued after the age of 65 by mutual agreement, it shall be terminable at will by either party. ARTICLE III COMPENSATION AND EXPENSES 3.01 Base Salary. For all services rendered under this Agreement during the term of Executive's employment, Ceridian shall pay Executive a minimum Base Salary at the annual rate currently being paid or, if Executive is not currently in Ceridian's employ, at the annual rate specified in the written offer of employment. If Executive's salary is increased from time to time during the term of this Agreement, the increased amount shall be the Base Salary for the remainder of the term and any extensions. 3.02 Bonus and Incentive. Bonus or incentive compensation shall be in the sole discretion of Ceridian. Except as otherwise provided in Article VII, Ceridian shall have the right in accordance with their terms to alter, amend or eliminate any bonus or incentive plans, or Executive's participation therein, without compensation to Executive. 3.03 Business Expenses. Ceridian shall, in accordance with, and to the extent of, its policies in effect from time to time, bear all ordinary and necessary business expenses incurred by Executive in performing his or her duties as an employee of Ceridian, provided that Executive accounts promptly for such expenses to Ceridian in the manner prescribed from time to time by Ceridian. ARTICLE IV EARLY TERMINATION 4 4.01 Early Termination. Subject to the respective continuing obligations of the parties pursuant to Articles V, VI, and IX, this Article sets forth the terms for early termination of this Agreement; provided, however, that this Article shall not apply to a Change of Control Termination which is governed solely by the provisions of Article VII. 4.02 Termination for Cause. Ceridian may terminate this Agreement immediately for cause. For the purpose hereof "cause" means (a) fraud, (b) misrepresentation, (c) theft or embezzlement of Ceridian assets, (d) intentional violations of law involving moral turpitude, (e) the continued failure by Executive to satisfactorily perform his or her duties as reasonably assigned to Executive pursuant to Section 2.02 of Article II of this Agreement for a period of 60 days after a written demand for such satisfactory performance which specifically identifies the manner in which it is alleged Executive has not satisfactorily performed such duties. In the event of termination for cause pursuant to this Section 4.02, Executive shall be paid at the usual rate of Executive's annual Base Salary through the date of termination specified in any notice of termination. 4.03 Termination Without Cause. Either Executive or Ceridian may terminate this Agreement and Executive's employment without cause on at least 75 days' written notice. In the event of termination of this Agreement and of Executive's employment pursuant to this Section 4.03, compensation shall be paid as follows: (a) if the notice of termination is given by Executive at any time Executive shall be paid at the usual rate of his or her annual Base Salary through the date of termination specified in such notice (but not to exceed 75 days); if the notice of termination is given by Ceridian and effective (b) prior to Executive's 65th birthday, (1) Executive shall be paid at the usual rate of his or her annual Base Salary through the date of termination specified in the notice provided, however, that Ceridian shall have the option of making termination of the Agreement and Executive's employment effective immediately upon notice in which case Executive shall be paid through a notice period of 75 days; and (2) Executive shall receive, within 15 days following termination, a lump sum payment equivalent to two years' Base Salary. (c) If the notice of termination is given by Ceridian to be effective on or after Executive's 65th birthday Executive shall be paid at the usual rate of his or her annual Base Salary through the date of termination specified in any notice. (d) In the event that termination occurs pursuant to Sections 4.03(b) or 4.03(c), then, in addition to the payments specified in said Sections, Ceridian shall pay to Executive any amount equal to (1) the bonus, if any, to which Executive would otherwise have become entitled under all Ceridian bonus plans in effect at the time of termination of this Agreement had Executive remained continuously employed for the full fiscal year in which 5 termination occurred and continued to perform his or her duties in the same manner as they were performed immediately prior to termination, multiplied by (2) a fraction, the numerator of which shall be the number of whole months Executive was employed in the year in which termination occurred and the denominator of which is 12. The amount payable pursuant to this Section 4.03(d) shall be paid within 15 days after the date such bonus would have been paid had Executive remained employed for the full fiscal year. 4.04 Termination In The Event of Death or Disability. This Agreement shall terminate in the event of death or disability of Executive. (a) In the event of Executive's death, Ceridian shall pay an amount equal to 12 months of Base Salary at the rate in effect at the time of Executive's death plus the amount Executive would have received in annual incentive plan bonus for the year in which termination occurs had "target" goals been achieved. Such amount shall be paid (1) to the beneficiary or beneficiaries designated in writing to Ceridian by Executive, (2) in the absence of such designation to the surviving spouse, or (3) if there is no surviving spouse, or such surviving spouse disclaims all or any part, then the full amount, or such disclaimed portion, shall be paid to the executor, administrator or other personal representative of Executive's estate. The amount shall be paid as a lump sum as soon as practicable following Ceridian's receipt of notice of Executive's death. All such payments shall be in addition to any payments due pursuant to Section 4.04(c) below. (b) In the event of disability, Base Salary shall be terminated as of the end of the month in which the last day of the five-month period of Executive's inability to perform his or her duties occurs. (c) In the event of termination by reason of Executive's death or disability, Ceridian shall pay to Executive any amount equal to (1) the amount Executive would have received in annual incentive plan bonus for the year in which termination occurs had "target" goals been achieved, multiplied by (2) a fraction, the numerator of which shall be the number of whole months Executive was employed in the year in which the death or disability occurred and the denominator of which is 12. The amount payable pursuant to this Section 4.04(c) shall be paid within 15 days after the date such bonus would have been paid had Executive remained employed for the full fiscal year. 4.05 Entire Termination Payment. The compensation provided for in this Article IV for early termination of this Agreement and termination pursuant to this Article IV shall constitute Executive's sole remedy for such termination. Executive shall not be entitled to any other termination or severance payment which may be payable to Executive under any other agreement between Executive and Ceridian. ARTICLE V CONFIDENTIALITY, DISCLOSURE AND ASSIGNMENT 6 5.01 Confidentiality. Executive will not, during the term or after the termination or expiration of this Agreement, publish, disclose, or utilize in any manner any Confidential Information obtained while employed by Ceridian. If Executive leaves the employ of Ceridian, Executive will not, without Ceridian's prior written consent, retain or take away any drawing, writing or other record in any form containing any Confidential Information. 5.02 Business Conduct and Ethics. During the term of employment with Ceridian, Executive will engage in no activity or employment which may conflict with the interest of Ceridian, and will comply with Ceridian's policies and guidelines pertaining to business conduct and ethics. 5.03 Disclosure. Executive will disclose promptly in writing to Ceridian all inventions, discoveries, software, writings and other works of authorship which are conceived, made, discovered, or written jointly or singly on Ceridian time or on Executive's own time, providing the invention, improvement, discovery, software, writing or other work of authorship is capable of being used by Ceridian in the normal course of business, and all such inventions, improvements, discoveries, software, writings and other works of authorship shall belong solely to Ceridian. 5.04 Instruments of Assignment. Executive will sign and execute all instruments of assignment and other papers to evidence vestiture of Executive's entire right, title and interest in such inventions, improvements, discoveries, software, writings or other works of authorship in Ceridian, at the request and the expense of Ceridian, and Executive will do all acts and sign all instruments of assignment and other papers Ceridian may reasonably request relating to applications for patents, patents, copyrights, and the enforcement and protection thereof. If Executive is needed, at any time, to give testimony, evidence, or opinions in any litigation or proceeding involving any patents or copyrights or applications for patents or copyrights, both domestic and foreign, relating to inventions, improvements, discoveries, software, writings or other works of authorship conceived, developed or reduced to practice by Executive, Executive agrees to do so, and if Executive leaves the employ of Ceridian, Ceridian shall pay Executive at a rate mutually agreeable to Executive and Ceridian, plus reasonable traveling or other expenses. 5.05 Inventions Developed on Executive's Own Time. The two immediately preceding sections entitled "Disclosure" and "Instruments of Assignment" do not apply to inventions in which a Ceridian claim of any rights will create a violation of Chapter 47 Minnesota Revised Statutes, Section 1-181.78, reproduced below and constituting the written notification of its Subdivision 3. 181.78 Agreements relating to inventions Subdivision 1. 7 Any provision in an employment agreement which provides that an Executive shall assign or offer to assign any of his rights in an invention to his employer shall not apply to an invention for which no equipment, supplies, facility or trade secret information of the employer was used and which was developed entirely on the employee's own time, and (1) which does not relate (a) directly to the business of the employer or (b) to the employer's actual or demonstrably anticipated research or development, or (2) which does not result from any work performed by the employee for the employer. Any provision which purports to apply to such an invention is to that extent against the public policy of this state and is to that extent void and unenforceable. Subdivision 2. No employer shall require a provision made void and unenforceable by subdivision 1 as a condition of employment or continuing employment. Subdivision 3. IF AN EMPLOYMENT AGREEMENT ENTERED INTO AFTER AUGUST 1, 1977, CONTAINS A PROVISION REQUIRING THE EMPLOYEE TO ASSIGN OR OFFER TO ASSIGN ANY OF HIS RIGHTS IN ANY INVENTION TO HIS EMPLOYER, THE EMPLOYER MUST ALSO, AT THE TIME THE AGREEMENT IS MADE, PROVIDE A WRITTEN NOTIFICATION TO THE EMPLOYEE THAT THE AGREEMENT DOES NOT APPLY TO AN INVENTION FOR WHICH NO EQUIPMENT, SUPPLIES, FACILITY OR TRADE SECRET INFORMATION OF THE EMPLOYER WAS USED AND WHICH WAS DEVELOPED ENTIRELY ON THE EMPLOYEE'S OWN TIME, AND (1) WHICH DOES NOT RELATE (a) DIRECTLY TO THE BUSINESS OF THE EMPLOYER OR (b) TO THE EMPLOYER'S ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT, OR (2) WHICH DOES NOT RESULT FROM ANY WORK PERFORMED BY THE EMPLOYEE FOR THE EMPLOYER. 5.06 Executive's Declaration. Executive has no inventions, improvements, discoveries, software, writings or other works of authorship useful to Ceridian in the normal course of business, which were conceived, made or written prior to the date of this Agreement and which are excluded from this Agreement. 5.07 Survival. The obligations of this Article V shall survive the expiration or termination of this Agreement. ARTICLE VI NON-COMPETITION, NON-RECRUITMENT 6.01 General. The parties hereto recognize and agree that (a) Executive is a senior executive of Ceridian and is a key Executive of Ceridian, (b) Executive has received, and will in the future receive, substantial amounts of Confidential Information, (c) Ceridian's business is conducted on a worldwide basis, and (d) provision for non-competition and non-recruitment obligations by Executive is critical to Ceridian's continued economic well-being and protection of Ceridian's Confidential Information. In light of these considerations, this Article VI sets forth the terms and conditions of Executive's obligations of non-competition and non-recruitment subsequent to the 8 termination of this Agreement and/or Executive's employment for any reason. 6.02 Non-Competition. (a) Unless the obligation is waived or limited by Ceridian in accordance with subsection (b) of this Section 6.02, Executive agrees that for a period of two years following termination of employment for any reason, Executive will not directly or indirectly, alone or as a partner, officer, director, shareholder or employee of any other firm or entity, engage in any commercial activity in competition with any part of Ceridian's business as conducted as of the date of such termination of employment or with any part of Ceridian's contemplated business with respect to which Executive has Confidential Information as governed by Article V of this Agreement. For purposes of this subsection (a), "shareholder" shall not include beneficial ownership of less than five percent (5%) of the combined voting power of all issued and outstanding voting securities of a publicly held corporation whose stock is traded on a major stock exchange. Also for purposes of this subsection (a), "Ceridian's business" shall include business conducted by Ceridian or its affiliates and any partnership or joint venture in which Ceridian or its affiliates is a partner or joint venturer; provided that, "affiliate" as used in this sentence shall not include any corporation in which Ceridian has ownership of less than fifteen percent (15%) of the voting stock. (b) At its sole option Ceridian may, by written notice to Executive within 30 days after the effective date of termination of Executive's employment, waive or limit the time and/or geographic area in which Executive cannot engage in competitive activity. (c) During the term of the non-competition obligation, prior to accepting employment with, or agreeing to provide consulting services to, any firm which offers products or services in the fields of electronics or information processing, Executive shall give 30 days prior written notice to Ceridian. Such written notice shall describe the proposed employment or consulting services and the firm to which they will be rendered. Ceridian's failure to respond or object to such notice shall not in any way constitute acquiescence or waiver of Ceridian's rights under this Article VI. (d) During any period of non-competition pursuant to this Article VI Ceridian shall pay Executive an amount equal to the usual rate of Executive's Base Salary in effect at the time of termination. There shall be credited against Ceridian's obligation to make such payments any other payments made by Ceridian to Executive pursuant to Article IV of this Agreement. In the event that Ceridian elects, pursuant to subsection (b) of this Section 6.02, to waive all or any portion of the non-competition obligation, no payment shall be required by Ceridian with respect to the portion of the non-competition period which has been waived. 9 6.03 Non-Recruitment. For a period of two years following termination of employment for any reason, Executive will not initiate or actively participate in any other employer's recruitment or hiring of Ceridian employees. This provision shall not preclude Executive from responding to a request (other than by Executive's employer) for a reference with respect to an individual's employment qualifications. 6.04 Survival. The obligations of this Article VI shall survive the expiration or termination of this Agreement. ARTICLE VII CHANGE OF CONTROL 7.01 Definitions. For purposes of this Article VII, the following definitions shall be applied: "Change of Control" shall mean any of the following events: (a) (1) a merger or consolidation to which Parent Corporation is a party if the individuals and entities who were stockholders of Parent Corporation immediately prior to the effective date of such merger or consolidation have beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of less than fifty percent (50%) of the total combined voting power for election of directors of the surviving corporation immediately following the effective date of such merger or consolidation; or (2) the direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) in the aggregate of securities of Parent Corporation representing twenty-five percent (25%) or more of the total combined voting power of Parent Corporation's then issued and outstanding securities by any person or entity, or group of associated persons or entities acting in concert; or (3) the sale of the properties and assets of Parent Corporation, substantially as an entirety, to any person or entity which is not a wholly-owned subsidiary of Parent Corporation. (4) the stockholders of Parent Corporation approve any plan or proposal for the liquidation of Parent Corporation; or (5) a change in the composition of the Board at any time during any consecutive 24 month period such that the "Continuity Directors" cease for any reason to constitute at least a seventy percent (70%) majority of the Board. For purposes of this clause, "Continuity Directors" means those members of the Board who either: (A) were directors at the beginning of such consecutive 24 month period; or 10 (B) were elected by, or on the nomination or recommendation of, at least a two-thirds (2/3) majority of the then- existing Board. (b) "Change of Control Actions" shall mean any payment (including any benefit or transfer of property) in the nature of compensation, to or for the benefit of Executive under any arrangement, which is considered contingent on a Change of Control for purposes of Section 280G of the Internal Revenue Code. As used in this definition, the term "arrangement" includes, without limitation, any agreement between Executive and Ceridian and any and all of Ceridian's salary, bonus, incentive, restricted stock, stock option, compensation or benefit plans, programs or arrangements, and shall include this Agreement. "Change of Control Termination" (c) shall mean, with respect to Executive, any of the following events occurring within two years after a Change of Control: (1) Termination of Executive's employment by Ceridian for any reason other than (A) fraud, (B) theft or embezzlement of Ceridian assets, (C) intentional violations of law involving moral turpitude, or (D) the substantial and continuing failure by Executive to satisfactorily perform his or her duties as reasonably assigned to Executive pursuant to Section 2.02 of Article II of this Agreement for a period of 60 days after a written demand for such satisfactory performance which specifically identifies the manner in which it is alleged Executive has not satisfactorily performed such duties. (2) Termination of employment with Ceridian by Executive pursuant to Section 7.02 of this Article VII. A Change of Control Termination by Executive shall not, however, include termination by reason of death. (d) "Good Reason" shall mean a good faith determination by Executive, in Executive's reasonable judgment, that any one or more of the following events has occurred, without Executive's express written consent, after a Change of Control: (1) A change in Executive's reporting responsibilities, titles or offices as in effect immediately prior to the Change of Control, or any removal of Executive from, or any failure to re-elect Executive to, any of such positions, which has the effect of materially diminishing Executive's responsibility or authority; (2) A reduction by Ceridian in Executive's Base Salary as in effect immediately prior to the Change of Control or as the same may be increased from time to time; 11 (3) Ceridian requiring Executive to be based anywhere other than within 25 miles of Executive's job location at the time of the Change of Control; (4) Without replacement by plans, programs, or arrangements which, taken as a whole, provide benefits to Executive at least reasonably comparable to those discontinued or adversely affected, (A) the failure by Ceridian to continue in effect, within its maximum stated term, any pension, bonus, incentive, stock ownership, purchase, option, life insurance, health, accident, disability, or any other employee compensation or benefit plan, program or arrangement, in which Executive is participating immediately prior to a Change of Control; or (B) the taking of any action by Ceridian that would materially adversely affect Executive's participation or materially reduce Executive's benefits under any of such plans, programs or arrangements; (5) The failure by Ceridian to provide office space, furniture, and secretarial support at least comparable to that provided Executive immediately prior to the Change of Control or the taking of any similar action by Ceridian that would materially adversely affect the working conditions in or under which Executive performs his or her employment duties; (6) If Executive's primary employment duties are with a Subsidiary, the sale, merger, contribution, transfer or any other transaction in conjunction with which Parent Corporation's ownership interest in such Subsidiary decreases below the level specified in Section 1.07 of Article I unless (A) this Agreement is assigned to the purchaser/transferee with the provisions of Article VII in full force and effect and operative as if a Change of Control has occurred with respect to the purchaser/transferee as Parent Corporation immediately after the purchase/transfer becomes effective, and (B) such purchaser/transferee has a creditworthiness reasonably equivalent to Parent Corporation's; or (7) Any material breach of this Agreement by Ceridian. (e) "Internal Revenue Code" -- Any reference to a section of the Internal Revenue Code shall mean that section of the Internal Revenue Code of 1986, or to the corresponding section of such Code as from time to time amended. 7.02 Change of Control Termination Right. For a period of two years following a Change of Control, Executive shall have the right, at any time and within Executive's sole discretion, to terminate employment with Ceridian for Good Reason. Such termination shall be accomplished by, and effective upon, Executive giving written notice to Ceridian of Executive's decision to terminate. Except as otherwise expressly provided in this Agreement, upon the exercise of said right, all 12 obligations and duties of Executive under this Agreement shall be of no further force and effect. 7.03 Change of Control Termination Payment. In the event of a Change of Control Termination, and subject to the "Limitation on Change of Control Compensation" contained in Section 7.04, then, and without further action by the Board, Compensation Committee or otherwise, Parent Corporation shall, within five days of such termination, make a lump sum payment to Executive in an amount equal to one dollar ($1.00) less than three times the average annualized compensation as defined by Section 280G of the Internal Revenue Code, received by Executive from Ceridian and includible in Executive's gross income for federal income tax purposes, for the five most recent taxable years of the Executive ending before the date upon which the Change in Control occurred (or such portion of such period during which Executive was an employee of Ceridian). 7.04 Limitation on Change of Control Compensation. Notwithstanding any other provisions of this Agreement or of any other agreement, contract or understanding heretofore or hereafter entered into between Ceridian and Executive, Executive shall not be entitled to receive any Change of Control Action which would, with respect to Executive, constitute a "parachute payment" for purposes of Section 280G of the Internal Revenue Code. In the event any Change of Control Action would, with respect to Executive, constitute a "parachute payment", Executive shall have the right to designate those Change of Control Action(s) which would be reduced or eliminated so that Executive will not receive a "parachute payment". 7.05 Interest. In the event Parent Corporation does not make timely payment in full of the Change of Control Termination payment described in Section 7.03, Executive shall be entitled to receive interest on any unpaid amount at the lower of: (a) prime rate of interest (or such comparable index as may be adopted) established from time to time by the Norwest Bank Minneapolis, N.A., Minneapolis, Minnesota; or (b) the maximum rate permitted under Section 280G(d)(4) of the Internal Revenue Code. 7.06 Attorneys' Fees. In the event Executive incurs any legal expense to enforce or defend his or her rights under this Article VII of this Agreement, or to recover damages for breach thereof, Executive shall be entitled to recover from Ceridian any expenses for attorneys' fees and disbursements incurred. 7.07 Benefits Continuation. In the event of a Change of Control Termination, Executive (and anyone entitled to claim under or through Executive) shall, until age 65, be entitled to receive from Ceridian the same or equivalent health, dental, accidental death and dismemberment, short and long-term disability, life insurance coverages, and all other insurance policies and health and welfare benefits programs, policies or arrangements, at the same levels and coverages as Executive was receiving on the day immediately prior to the Change of Control. To the extent that election of continuation of any of such coverages, programs, policies, or arrangements is made 13 available to employees terminating at age 55 with 15 or more years of service, Executive shall be required to pay no more for continuation than is required of such employees on the day immediately prior to the Change of Control. If no such continuation program is available, Executive shall be required to pay no more than he/she paid as an active employee, or if provided by Ceridian at no cost to employees on the day immediately prior to the Change of Control, they shall continue to be made available to Executive on this basis. ARTICLE VIII CHANGE OF SUBSIDIARY STATUS In the event that, prior to a Change of Control: (a) a Subsidiary is sold, merged, contributed, or in any other manner transferred, or if for any reason Parent Corporation's ownership interest in any such Subsidiary falls below the level specified in Section 1.07, (b) Executive's primary employment duties are with the Subsidiary at the time of the occurrence of such event, and (c) Executive does not, in conjunction therewith, transfer employment directly to Parent Corporation or another Subsidiary, then: (1) If Executive gives his or her written consent to the assignment of this Agreement to such Subsidiary, or to the purchaser or new majority interest holder of such Subsidiary, (and such assignment is accepted) this Agreement shall remain in full force and effect between Executive and the assignee, except that the provisions of Article VII of this Agreement shall become null and void; (2) If such assignment is not accepted by the Subsidiary or purchaser, then this Agreement shall be deemed to have been terminated by Ceridian without cause pursuant to Section 4.03 of Article IV; and (3) In all other cases, this Agreement shall be deemed terminated for cause pursuant to Section 4.02 of Article IV. ARTICLE IX GENERAL PROVISIONS 9.01 No Adequate Remedy. The parties declare that it is impossible to measure in money the damages which will accrue to either party by reason of a failure to perform any of the obligations under this Agreement. Therefore, if either party shall institute any action or proceeding to enforce the provisions hereof, such party against whom such action or proceeding is brought hereby waives the claim or defense that such party has an adequate remedy at law, and such party shall not urge in any such action or proceeding the claim or defense that such party has an adequate remedy at law. 9.02 Successors and Assigns. Except as otherwise provided in Article VIII, this Agreement shall be binding upon and inure to the benefit of the successors and assigns of Parent Corporation and each Subsidiary, whether by way of merger, consolidation, operation of law, assignment, purchase or other acquisition of substantially all of the assets or business of Ceridian, and any such successor or assign shall 14 absolutely and unconditionally assume all of Ceridian's obligations hereunder. 9.03 Notices. All notices, requests and demands given to or made pursuant hereto shall, except as otherwise specified herein, be in writing and be delivered or mailed to any such party at its address: (a) Ceridian Corporation 8100 34th Avenue South Minneapolis, Minnesota 55425-1640 Attention: Office of General Counsel (b) In the case of Executive shall be: At the address listed on the last page of this Agreement. Either party may, by notice hereunder, designate a changed address. Any notice, if mailed properly addressed, postage prepaid, registered or certified mail, shall be deemed dispatched on the registered date or that stamped on the certified mail receipt, and shall be deemed received within the second business day thereafter or when it is actually received, whichever is sooner. 9.04 Captions. The various headings or captions in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement. 9.05 Governing Law. The validity, construction and performance of this Agreement shall be governed by the laws of the State of Minnesota and any and every legal proceeding arising out of or in connection with this Agreement shall be brought in the appropriate courts of the State of Minnesota, each of the parties hereby consenting to the exclusive jurisdiction of said courts for this purpose. The parties hereto expressly recognize and agree that the implementation of this Governing Law provision is essential in light of the fact that Parent Corporation's corporate headquarters and its principal executive offices are located within the State of Minnesota, and there is a critical need for uniformity in the interpretation and enforcement of the employment agreements between Ceridian and its senior executives. 9.06 Construction. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. 9.07 Waivers. No failure on the part of either party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right or remedy hereunder preclude any other or further exercise thereof or 15 the exercise of any other right or remedy granted hereby or by any related document or by law. 9.08 Modification. This Agreement may not be and shall not be modified or amended except by written instrument signed by the parties hereto. 9.09 Entire Agreement. This Agreement constitutes the entire agreement and understanding between the parties hereto in reference to all the matters herein agreed upon. This Agreement replaces in full all prior employment agreements or understandings of the parties hereto, and any and all such prior agreements or understandings are hereby rescinded by mutual agreement. 16 IN WITNESS WHEREOF, The parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. EXECUTIVE CERIDIAN CORPORATION Ronald L. Turner By: /s/Ronald L. Turner Title:President, Computing Devices Address: 8800 Queen Avenue South Bloomington, MN 55440 17 EX-10.03 3 EXHIBIT 10.03 EXHIBIT 10.03 CERIDIAN CORPORATION EXECUTIVE EMPLOYMENT AGREEMENT PARTIES Ceridian Corporation (a Delaware Corporation) 8100 34th Avenue South Minneapolis, Minnesota 55425-1640 and PATRICK C. SOMMERS ("Executive") Date: February 3, 1995 RECITALS A. Ceridian wishes to obtain the services of Executive for at least the duration of this Agreement, and the Executive wishes to provide his or her services for such period. B. Ceridian desires reasonable protection of Ceridian's Confidential Information (as defined below). C. Ceridian desires assurance that Executive will not compete with Ceridian or engage in recruitment of Ceridian's employees for a reasonable period of time after termination of employment, and Executive is willing to refrain from competition and recruitment. D. Executive desires to be assured of a minimum Base Salary (as defined below) from Ceridian for Executive's services for the term of this Agreement (unless terminated earlier pursuant to the terms of this Agreement). E. It is expressly recognized by the parties that Executive's acceptance of, and continuance in, Executive's position with Ceridian and agreement to be bound by the terms of this Agreement represents a substantial commitment to Ceridian in terms of Executive's personal and professional career and a foregoing of present and future career options by Executive, for all of which Ceridian receives substantial value. F. The parties recognize that a Change of Control (as defined below) may result in material alteration or diminishment of Executive's position and responsibilities and substantially frustrate the purpose of Executive's commitment to Ceridian and forebearance of options. G. The parties recognize that in light of the above-described commitment and forebearance of options, it is essential that, for the benefit of Ceridian and its stockholders, provision be made for a Change of 1 Control Termination (as defined below) in order to enable Executive to accept and effectively continue in Executive's position in the face of inherently disruptive circumstances arising from the possibility of a Change of Control of the Parent Corporation (as defined below), although no such change is now contemplated or foreseen. H. The parties wish to replace any and all prior agreements and undertakings with respect to the Executive's employment and Change of Control occurrences and compensation. NOW, THEREFORE, in consideration of Executive's acceptance of and continuance in Executive's employment for the term of this Agreement and the parties' agreement to be bound by the terms contained herein, the parties agree as follows: ARTICLE I DEFINITIONS 1.01 "Base Salary" shall mean regular cash compensation paid on a periodic basis exclusive of benefits, bonuses or incentive payments. 1.02 "Board" shall mean the Board of Directors of Ceridian Corporation (the "Parent Corporation"). 1.03 "Ceridian" shall mean Ceridian Corporation and, except as otherwise provided in Article VIII and Section 9.02 of Article IX, any Subsidiary (as that term is defined in Section 1.07); and (a) (b) any successor in interest by way of consolidation, operation of law, merger or otherwise. 1.04 "Confidential Information" shall mean information or material which is not generally available to or used by others, or the utility or value of which is not generally known or recognized as standard practice, whether or not the underlying details are in the public domain, including: (a) information or material relating to Ceridian and its business as conducted or anticipated to be conducted; business plans; operations; past, current or anticipated software, products or services; customers or prospective customers; or research, engineering, development, manufacturing, purchasing, accounting, or marketing activities; (b) information or material relating to Ceridian's inventions, improvements, discoveries, "know-how," technological developments, or unpublished writings or other works of authorship, or to the materials, apparatus, processes, formulae, plans or methods used in the development, manufacture or marketing of Ceridian's software, products or services; (c) information which when received is marked as "proprietary," "private," or "confidential;" 2 (d) trade secrets; (e) software in various stages of development, including computer programs in source code and binary code form, software designs, specifications, programming aids (including "library subroutines" and productivity tools), programming languages, interfaces, visual displays, technical documentation, user manuals, data files and databases; and (f) any similar information of the type described above which Ceridian obtained from another party and which Ceridian treats as or designates as being proprietary, private or confidential, whether or not owned or developed by Ceridian. Notwithstanding the foregoing, "Confidential Information" does not include any information which is properly published or in the public domain; provided, however, that information which is published by or with the aid of Executive outside the scope of employment or contrary to the requirements of this Agreement will not be considered to have been properly published, and therefore will not be in the public domain for purposes of this Agreement. 1.05 "Disability" shall mean the inability of Executive to perform his or her duties under this Agreement because of illness or incapacity for a continuous period of five months. 1.06 "Parent Corporation" shall mean Ceridian Corporation and, except as otherwise provided in Article VIII and Section 9.02 of Article IX, any successor in interest by way of consolidation, operation of law, merger or otherwise. "Parent Corporation" shall not include any Subsidiary. 1.07 "Subsidiary" shall mean: (a) any corporation at least a majority of whose securities having ordinary voting power for the election of directors (other than securities having such power only by reason of the occurrence of a contingency) is at the time owned by Parent Corporation and/or one or more Subsidiaries; and (b) any division or business unit (or portion thereof) of Parent Corporation or a corporation described in clause (a) of this Section 1.07. ARTICLE II EMPLOYMENT, DUTIES AND TERM 2.01 Employment. Upon the terms and conditions set forth in this Agreement, Ceridian hereby employs Executive, and Executive accepts such employment. Except as expressly provided herein, termination of this Agreement by either party shall also terminate Executive's employment by Ceridian. 2.02 Duties. Executive shall devote his or her full-time and best efforts to Ceridian and to fulfilling the duties of his or her position which shall include such duties as may from time to time be assigned him or her by Ceridian, provided that such duties are reasonably consistent 3 with Executive's education, experience and background. Executive shall comply with Ceridian's policies and procedures to the extent they are not inconsistent with this Agreement in which case the provisions of this Agreement prevail. 2.03 Term. Subject to the provisions of Articles IV, VII, and VIII, Executive's employment shall continue until the later of: (a) June 30, 1997; and (b) two years after a Change of Control which occurs prior to June 30, 1997. In any event, the Agreement shall automatically terminate without notice when Executive reaches 65 years of age. If employment is continued after the age of 65 by mutual agreement, it shall be terminable at will by either party. ARTICLE III COMPENSATION AND EXPENSES 3.01 Base Salary. For all services rendered under this Agreement during the term of Executive's employment, Ceridian shall pay Executive a minimum Base Salary at the annual rate currently being paid or, if Executive is not currently in Ceridian's employ, at the annual rate specified in the written offer of employment. If Executive's salary is increased from time to time during the term of this Agreement, the increased amount shall be the Base Salary for the remainder of the term and any extensions. 3.02 Bonus and Incentive. Bonus or incentive compensation shall be in the sole discretion of Ceridian. Except as otherwise provided in Article VII, Ceridian shall have the right in accordance with their terms to alter, amend or eliminate any bonus or incentive plans, or Executive's participation therein, without compensation to Executive. 3.03 Business Expenses. Ceridian shall, in accordance with, and to the extent of, its policies in effect from time to time, bear all ordinary and necessary business expenses incurred by Executive in performing his or her duties as an employee of Ceridian, provided that Executive accounts promptly for such expenses to Ceridian in the manner prescribed from time to time by Ceridian. ARTICLE IV EARLY TERMINATION 4.01 Early Termination. Subject to the respective continuing obligations of the parties pursuant to Articles V, VI, and IX, this Article sets forth the terms for early termination of this Agreement; provided, however, that this Article shall not apply to a Change of Control Termination which is governed solely by the provisions of Article VII. 4.02 Termination for Cause. Ceridian may terminate this Agreement immediately for cause. For the purpose hereof "cause" means (a) fraud, (b) misrepresentation, (c) theft or embezzlement of Ceridian assets, (d) intentional violations of law involving moral turpitude, (e) the continued failure by Executive to satisfactorily perform his or her duties as reasonably assigned to Executive pursuant to Section 2.02 of Article II of this Agreement for a period of 60 days after a 4 written demand for such satisfactory performance which specifically identifies the manner in which it is alleged Executive has not satisfactorily performed such duties. In the event of termination for cause pursuant to this Section 4.02, Executive shall be paid at the usual rate of Executive's annual Base Salary through the date of termination specified in any notice of termination. 4.03 Termination Without Cause. Either Executive or Ceridian may terminate this Agreement and Executive's employment without cause on at least 75 days' written notice. In the event of termination of this Agreement and of Executive's employment pursuant to this Section 4.03, compensation shall be paid as follows: (a) if the notice of termination is given by Executive at any time Executive shall be paid at the usual rate of his or her annual Base Salary through the date of termination specified in such notice (but not to exceed 75 days); (b) if the notice of termination is given by Ceridian and effective prior to Executive's 65th birthday, (1) Executive shall be paid at the usual rate of his or her annual Base Salary through the date of termination specified in the notice provided, however, that Ceridian shall have the option of making termination of the Agreement and Executive's employment effective immediately upon notice in which case Executive shall be paid through a notice period of 75 days; and (2) Executive shall receive, within 15 days following termination, a lump sum payment equivalent to two years' Base Salary. (c) If the notice of termination is given by Ceridian to be effective on or after Executive's 65th birthday Executive shall be paid at the usual rate of his or her annual Base Salary through the date of termination specified in any notice. (d) In the event that termination occurs pursuant to Sections 4.03(b) or 4.03(c), then, in addition to the payments specified in said Sections, Ceridian shall pay to Executive any amount equal to (1) the bonus, if any, to which Executive would otherwise have become entitled under all Ceridian bonus plans in effect at the time of termination of this Agreement had Executive remained continuously employed for the full fiscal year in which termination occurred and continued to perform his or her duties in the same manner as they were performed immediately prior to termination, multiplied by (2) a fraction, the numerator of which shall be the number of whole months Executive was employed in the year in which termination occurred and the denominator of which is 12. The amount payable pursuant to this Section 4.03(d) shall be paid within 15 days after the date such bonus would have been paid had Executive remained employed for the full fiscal year. 4.04 Termination In The Event of Death or Disability. This Agreement shall terminate in the event of death or disability of Executive. 5 (a) In the event of Executive's death, Ceridian shall pay an amount equal to 12 months of Base Salary at the rate in effect at the time of Executive's death plus the amount Executive would have received in annual incentive plan bonus for the year in which termination occurs had "target" goals been achieved. Such amount shall be paid (1) to the beneficiary or beneficiaries designated in writing to Ceridian by Executive, (2) in the absence of such designation to the surviving spouse, or (3) if there is no surviving spouse, or such surviving spouse disclaims all or any part, then the full amount, or such disclaimed portion, shall be paid to the executor, administrator or other personal representative of Executive's estate. The amount shall be paid as a lump sum as soon as practicable following Ceridian's receipt of notice of Executive's death. All such payments shall be in addition to any payments due pursuant to Section 4.04(c) below. (b) In the event of disability, Base Salary shall be terminated as of the end of the month in which the last day of the five-month period of Executive's inability to perform his or her duties occurs. (c) In the event of termination by reason of Executive's death or disability, Ceridian shall pay to Executive any amount equal to (1) the amount Executive would have received in annual incentive plan bonus for the year in which termination occurs had "target" goals been achieved, multiplied by (2) a fraction, the numerator of which shall be the number of whole months Executive was employed in the year in which the death or disability occurred and the denominator of which is 12. The amount payable pursuant to this Section 4.04(c) shall be paid within 15 days after the date such bonus would have been paid had Executive remained employed for the full fiscal year. 4.05 Entire Termination Payment. The compensation provided for in this Article IV for early termination of this Agreement and termination pursuant to this Article IV shall constitute Executive's sole remedy for such termination. Executive shall not be entitled to any other termination or severance payment which may be payable to Executive under any other agreement between Executive and Ceridian. ARTICLE V CONFIDENTIALITY, DISCLOSURE AND ASSIGNMENT 5.01 Confidentiality. Executive will not, during the term or after the termination or expiration of this Agreement, publish, disclose, or utilize in any manner any Confidential Information obtained while employed by Ceridian. If Executive leaves the employ of Ceridian, Executive will not, without Ceridian's prior written consent, retain or take away any drawing, writing or other record in any form containing any Confidential Information. 5.02 Business Conduct and Ethics. During the term of employment with Ceridian, Executive will engage in no activity or employment which may conflict with the interest of Ceridian, and will comply with 6 Ceridian's policies and guidelines pertaining to business conduct and ethics. 5.03 Disclosure. Executive will disclose promptly in writing to Ceridian all inventions, discoveries, software, writings and other works of authorship which are conceived, made, discovered, or written jointly or singly on Ceridian time or on Executive's own time, providing the invention, improvement, discovery, software, writing or other work of authorship is capable of being used by Ceridian in the normal course of business, and all such inventions, improvements, discoveries, software, writings and other works of authorship shall belong solely to Ceridian. 5.04 Instruments of Assignment. Executive will sign and execute all instruments of assignment and other papers to evidence vestiture of Executive's entire right, title and interest in such inventions, improvements, discoveries, software, writings or other works of authorship in Ceridian, at the request and the expense of Ceridian, and Executive will do all acts and sign all instruments of assignment and other papers Ceridian may reasonably request relating to applications for patents, patents, copyrights, and the enforcement and protection thereof. If Executive is needed, at any time, to give testimony, evidence, or opinions in any litigation or proceeding involving any patents or copyrights or applications for patents or copyrights, both domestic and foreign, relating to inventions, improvements, discoveries, software, writings or other works of authorship conceived, developed or reduced to practice by Executive, Executive agrees to do so, and if Executive leaves the employ of Ceridian, Ceridian shall pay Executive at a rate mutually agreeable to Executive and Ceridian, plus reasonable traveling or other expenses. 5.05 Inventions Developed on Executive's Own Time. The two immediately preceding sections entitled "Disclosure" and "Instruments of Assignment" do not apply to inventions in which a Ceridian claim of any rights will create a violation of Chapter 47 Minnesota Revised Statutes, Section 1-181.78, reproduced below and constituting the written notification of its Subdivision 3. 181.78 Agreements relating to inventions Subdivision 1. Any provision in an employment agreement which provides that an Executive shall assign or offer to assign any of his rights in an invention to his employer shall not apply to an invention for which no equipment, supplies, facility or trade secret information of the employer was used and which was developed entirely on the employee's own time, and (1) which does not relate (a) directly to the business of the employer or (b) to the employer's actual or demonstrably anticipated research or development, or (2) which does not result from any work performed by the employee for the employer. Any provision which purports to apply to such an invention is to that extent against the public policy of this state and is to that extent void and unenforceable. 7 Subdivision 2. No employer shall require a provision made void and unenforceable by subdivision 1 as a condition of employment or continuing employment. Subdivision 3. IF AN EMPLOYMENT AGREEMENT ENTERED INTO AFTER AUGUST 1, 1977, CONTAINS A PROVISION REQUIRING THE EMPLOYEE TO ASSIGN OR OFFER TO ASSIGN ANY OF HIS RIGHTS IN ANY INVENTION TO HIS EMPLOYER, THE EMPLOYER MUST ALSO, AT THE TIME THE AGREEMENT IS MADE, PROVIDE A WRITTEN NOTIFICATION TO THE EMPLOYEE THAT THE AGREEMENT DOES NOT APPLY TO AN INVENTION FOR WHICH NO EQUIPMENT, SUPPLIES, FACILITY OR TRADE SECRET INFORMATION OF THE EMPLOYER WAS USED AND WHICH WAS DEVELOPED ENTIRELY ON THE EMPLOYEE'S OWN TIME, AND (1) WHICH DOES NOT RELATE (a) DIRECTLY TO THE BUSINESS OF THE EMPLOYER OR (b) TO THE EMPLOYER'S ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT, OR (2) WHICH DOES NOT RESULT FROM ANY WORK PERFORMED BY THE EMPLOYEE FOR THE EMPLOYER. 5.06 Executive's Declaration. Executive has no inventions, improvements, discoveries, software, writings or other works of authorship useful to Ceridian in the normal course of business, which were conceived, made or written prior to the date of this Agreement and which are excluded from this Agreement. 5.07 Survival. The obligations of this Article V shall survive the expiration or termination of this Agreement. ARTICLE VI NON-COMPETITION, NON-RECRUITMENT 6.01 General. The parties hereto recognize and agree that (a) Executive is a senior executive of Ceridian and is a key Executive of Ceridian, (b) Executive has received, and will in the future receive, substantial amounts of Confidential Information, (c) Ceridian's business is conducted on a worldwide basis, and (d) provision for non-competition and non-recruitment obligations by Executive is critical to Ceridian's continued economic well-being and protection of Ceridian's Confidential Information. In light of these considerations, this Article VI sets forth the terms and conditions of Executive's obligations of non-competition and non-recruitment subsequent to the termination of this Agreement and/or Executive's employment for any reason. 6.02 Non-Competition. (a) Unless the obligation is waived or limited by Ceridian in accordance with subsection (b) of this Section 6.02, Executive agrees that for a period of two years following termination of employment for any reason, Executive will not directly or indirectly, alone or as a partner, officer, director, shareholder or employee of any other firm or entity, engage in any commercial activity in competition with any part of Ceridian's business as 8 conducted as of the date of such termination of employment or with any part of Ceridian's contemplated business with respect to which Executive has Confidential Information as governed by Article V of this Agreement. For purposes of this subsection (a), "shareholder" shall not include beneficial ownership of less than five percent (5%) of the combined voting power of all issued and outstanding voting securities of a publicly held corporation whose stock is traded on a major stock exchange. Also for purposes of this subsection (a), "Ceridian's business" shall include business conducted by Ceridian or its affiliates and any partnership or joint venture in which Ceridian or its affiliates is a partner or joint venturer; provided that, "affiliate" as used in this sentence shall not include any corporation in which Ceridian has ownership of less than fifteen percent (15%) of the voting stock. (b) At its sole option Ceridian may, by written notice to Executive within 30 days after the effective date of termination of Executive's employment, waive or limit the time and/or geographic area in which Executive cannot engage in competitive activity. (c) During the term of the non-competition obligation, prior to accepting employment with, or agreeing to provide consulting services to, any firm which offers products or services in the fields of electronics or information processing, Executive shall give 30 days prior written notice to Ceridian. Such written notice shall describe the proposed employment or consulting services and the firm to which they will be rendered. Ceridian's failure to respond or object to such notice shall not in any way constitute acquiescence or waiver of Ceridian's rights under this Article VI. (d) During any period of non-competition pursuant to this Article VI Ceridian shall pay Executive an amount equal to the usual rate of Executive's Base Salary in effect at the time of termination. There shall be credited against Ceridian's obligation to make such payments any other payments made by Ceridian to Executive pursuant to Article IV of this Agreement. In the event that Ceridian elects, pursuant to subsection (b) of this Section 6.02, to waive all or any portion of the non-competition obligation, no payment shall be required by Ceridian with respect to the portion of the non-competition period which has been waived. 6.03 Non-Recruitment. For a period of two years following termination of employment for any reason, Executive will not initiate or actively participate in any other employer's recruitment or hiring of Ceridian employees. This provision shall not preclude Executive from responding to a request (other than by Executive's employer) for a reference with respect to an individual's employment qualifications. 6.04 Survival. The obligations of this Article VI shall survive the expiration or termination of this Agreement. 9 ARTICLE VII CHANGE OF CONTROL 7.01 Definitions. For purposes of this Article VII, the following definitions shall be applied: (a) "Change of Control" shall mean any of the following events: (1) a merger or consolidation to which Parent Corporation is a party if the individuals and entities who were stockholders of Parent Corporation immediately prior to the effective date of such merger or consolidation have beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of less than fifty percent (50%) of the total combined voting power for election of directors of the surviving corporation immediately following the effective date of such merger or consolidation; or (2) the direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) in the aggregate of securities of Parent Corporation representing twenty-five percent (25%) or more of the total combined voting power of Parent Corporation's then issued and outstanding securities by any person or entity, or group of associated persons or entities acting in concert; or (3) the sale of the properties and assets of Parent Corporation, substantially as an entirety, to any person or entity which is not a wholly-owned subsidiary of Parent Corporation. (4) the stockholders of Parent Corporation approve any plan or proposal for the liquidation of Parent Corporation; or (5) a change in the composition of the Board at any time during any consecutive 24 month period such that the "Continuity Directors" cease for any reason to constitute at least a seventy percent (70%) majority of the Board. For purposes of this clause, "Continuity Directors" means those members of the Board who either: (A) were directors at the beginning of such consecutive 24 month period; or were elected by, or on the nomination or recommendation (B) of, at least a two-thirds (2/3) majority of the then- existing Board. (b) "Change of Control Actions" shall mean any payment (including any benefit or transfer of property) in the nature of compensation, to or for the benefit of Executive under any arrangement, which is considered contingent on a Change of Control for purposes of Section 280G of the Internal Revenue Code. As used in this definition, the term "arrangement" includes, without limitation, any agreement between Executive and Ceridian and any and all of 10 Ceridian's salary, bonus, incentive, restricted stock, stock option, compensation or benefit plans, programs or arrangements, and shall include this Agreement. (c) "Change of Control Termination" shall mean, with respect to Executive, any of the following events occurring within two years after a Change of Control: (1) Termination of Executive's employment by Ceridian for any reason other than (A) fraud, (B) theft or embezzlement of Ceridian assets, (C) intentional violations of law involving moral turpitude, or (D) the substantial and continuing failure by Executive to satisfactorily perform his or her duties as reasonably assigned to Executive pursuant to Section 2.02 of Article II of this Agreement for a period of 60 days after a written demand for such satisfactory performance which specifically identifies the manner in which it is alleged Executive has not satisfactorily performed such duties. (2) Termination of employment with Ceridian by Executive pursuant to Section 7.02 of this Article VII. A Change of Control Termination by Executive shall not, however, include termination by reason of death. (d) "Good Reason" shall mean a good faith determination by Executive, in Executive's reasonable judgment, that any one or more of the following events has occurred, without Executive's express written consent, after a Change of Control: (1) A change in Executive's reporting responsibilities, titles or offices as in effect immediately prior to the Change of Control, or any removal of Executive from, or any failure to re-elect Executive to, any of such positions, which has the effect of materially diminishing Executive's responsibility or authority; (2) A reduction by Ceridian in Executive's Base Salary as in effect immediately prior to the Change of Control or as the same may be increased from time to time; (3) Ceridian requiring Executive to be based anywhere other than within 25 miles of Executive's job location at the time of the Change of Control; (4) Without replacement by plans, programs, or arrangements which, taken as a whole, provide benefits to Executive at least reasonably comparable to those discontinued or adversely affected, (A) the failure by Ceridian to continue in effect, within its maximum stated term, any pension, bonus, incentive, stock ownership, purchase, option, life insurance, health, accident, disability, or any other employee compensation or benefit plan, program or arrangement, in which Executive is participating immediately 11 prior to a Change of Control; or (B) the taking of any action by Ceridian that would materially adversely affect Executive's participation or materially reduce Executive's benefits under any of such plans, programs or arrangements; (5) The failure by Ceridian to provide office space, furniture, and secretarial support at least comparable to that provided Executive immediately prior to the Change of Control or the taking of any similar action by Ceridian that would materially adversely affect the working conditions in or under which Executive performs his or her employment duties; (6) If Executive's primary employment duties are with a Subsidiary, the sale, merger, contribution, transfer or any other transaction in conjunction with which Parent Corporation's ownership interest in such Subsidiary decreases below the level specified in Section 1.07 of Article I unless (A) this Agreement is assigned to the purchaser/transferee with the provisions of Article VII in full force and effect and operative as if a Change of Control has occurred with respect to the purchaser/transferee as Parent Corporation immediately after the purchase/transfer becomes effective, and (B) such purchaser/transferee has a creditworthiness reasonably equivalent to Parent Corporation's; or (7) Any material breach of this Agreement by Ceridian. (e) "Internal Revenue Code" -- Any reference to a section of the Internal Revenue Code shall mean that section of the Internal Revenue Code of 1986, or to the corresponding section of such Code as from time to time amended. 7.02 Change of Control Termination Right. For a period of two years following a Change of Control, Executive shall have the right, at any time and within Executive's sole discretion, to terminate employment with Ceridian for Good Reason. Such termination shall be accomplished by, and effective upon, Executive giving written notice to Ceridian of Executive's decision to terminate. Except as otherwise expressly provided in this Agreement, upon the exercise of said right, all obligations and duties of Executive under this Agreement shall be of no further force and effect. 7.03 Change of Control Termination Payment. In the event of a Change of Control Termination, and subject to the "Limitation on Change of Control Compensation" contained in Section 7.04, then, and without further action by the Board, Compensation Committee or otherwise, Parent Corporation shall, within five days of such termination, make a lump sum payment to Executive in an amount equal to one dollar ($1.00) less than three times the average annualized compensation as defined by Section 280G of the Internal Revenue Code, received by Executive from Ceridian and includible in Executive's gross income for federal income tax purposes, for the five most recent taxable years of the Executive ending before the date upon which the Change in Control 12 occurred (or such portion of such period during which Executive was an employee of Ceridian). 7.04 Limitation on Change of Control Compensation. Notwithstanding any other provisions of this Agreement or of any other agreement, contract or understanding heretofore or hereafter entered into between Ceridian and Executive, Executive shall not be entitled to receive any Change of Control Action which would, with respect to Executive, constitute a "parachute payment" for purposes of Section 280G of the Internal Revenue Code. In the event any Change of Control Action would, with respect to Executive, constitute a "parachute payment", Executive shall have the right to designate those Change of Control Action(s) which would be reduced or eliminated so that Executive will not receive a "parachute payment". 7.05 Interest. In the event Parent Corporation does not make timely payment in full of the Change of Control Termination payment described in Section 7.03, Executive shall be entitled to receive interest on any unpaid amount at the lower of: (a) prime rate of interest (or such comparable index as may be adopted) established from time to time by the Norwest Bank Minneapolis, N.A., Minneapolis, Minnesota; or (b) the maximum rate permitted under Section 280G(d)(4) of the Internal Revenue Code. 7.06 Attorneys' Fees. In the event Executive incurs any legal expense to enforce or defend his or her rights under this Article VII of this Agreement, or to recover damages for breach thereof, Executive shall be entitled to recover from Ceridian any expenses for attorneys' fees and disbursements incurred. 7.07 Benefits Continuation. In the event of a Change of Control Termination, Executive (and anyone entitled to claim under or through Executive) shall, until age 65, be entitled to receive from Ceridian the same or equivalent health, dental, accidental death and dismemberment, short and long-term disability, life insurance coverages, and all other insurance policies and health and welfare benefits programs, policies or arrangements, at the same levels and coverages as Executive was receiving on the day immediately prior to the Change of Control. To the extent that election of continuation of any of such coverages, programs, policies, or arrangements is made available to employees terminating at age 55 with 15 or more years of service, Executive shall be required to pay no more for continuation than is required of such employees on the day immediately prior to the Change of Control. If no such continuation program is available, Executive shall be required to pay no more than he/she paid as an active employee, or if provided by Ceridian at no cost to employees on the day immediately prior to the Change of Control, they shall continue to be made available to Executive on this basis. 13 ARTICLE VIII CHANGE OF SUBSIDIARY STATUS In the event that, prior to a Change of Control: (a) a Subsidiary is sold, merged, contributed, or in any other manner transferred, or if for any reason Parent Corporation's ownership interest in any such Subsidiary falls below the level specified in Section 1.07, (b) Executive's primary employment duties are with the Subsidiary at the time of the occurrence of such event, and (c) Executive does not, in conjunction therewith, transfer employment directly to Parent Corporation or another Subsidiary, then: (1) If Executive gives his or her written consent to the assignment of this Agreement to such Subsidiary, or to the purchaser or new majority interest holder of such Subsidiary, (and such assignment is accepted) this Agreement shall remain in full force and effect between Executive and the assignee, except that the provisions of Article VII of this Agreement shall become null and void; (2) If such assignment is not accepted by the Subsidiary or purchaser, then this Agreement shall be deemed to have been terminated by Ceridian without cause pursuant to Section 4.03 of Article IV; and (3) In all other cases, this Agreement shall be deemed terminated for cause pursuant to Section 4.02 of Article IV. ARTICLE IX GENERAL PROVISIONS 9.01 No Adequate Remedy. The parties declare that it is impossible to measure in money the damages which will accrue to either party by reason of a failure to perform any of the obligations under this Agreement. Therefore, if either party shall institute any action or proceeding to enforce the provisions hereof, such party against whom such action or proceeding is brought hereby waives the claim or defense that such party has an adequate remedy at law, and such party shall not urge in any such action or proceeding the claim or defense that such party has an adequate remedy at law. 9.02 Successors and Assigns. Except as otherwise provided in Article VIII, this Agreement shall be binding upon and inure to the benefit of the successors and assigns of Parent Corporation and each Subsidiary, whether by way of merger, consolidation, operation of law, assignment, purchase or other acquisition of substantially all of the assets or business of Ceridian, and any such successor or assign shall absolutely and unconditionally assume all of Ceridian's obligations hereunder. 9.03 Notices. All notices, requests and demands given to or made pursuant hereto shall, except as otherwise specified herein, be in writing and be delivered or mailed to any such party at its address: 14 (a) Ceridian Corporation 8100 34th Avenue South Minneapolis, Minnesota 55425-1640 Attention: Office of General Counsel (b) In the case of Executive shall be: At the address listed on the last page of this Agreement. Either party may, by notice hereunder, designate a changed address. Any notice, if mailed properly addressed, postage prepaid, registered or certified mail, shall be deemed dispatched on the registered date or that stamped on the certified mail receipt, and shall be deemed received within the second business day thereafter or when it is actually received, whichever is sooner. 9.04 Captions. The various headings or captions in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement. 9.05 Governing Law. The validity, construction and performance of this Agreement shall be governed by the laws of the State of Minnesota and any and every legal proceeding arising out of or in connection with this Agreement shall be brought in the appropriate courts of the State of Minnesota, each of the parties hereby consenting to the exclusive jurisdiction of said courts for this purpose. The parties hereto expressly recognize and agree that the implementation of this Governing Law provision is corporate headquarters and its principal executive offices are located within the State of Minnesota, and there is a critical need for uniformity in the interpretation and enforcement of the employment agreements between Ceridian and its senior executives. 9.06 Construction. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. 9.07 Waivers. No failure on the part of either party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right or remedy granted hereby or by any related document or by law. 9.08 Modification. This Agreement may not be and shall not be modified or amended except by written instrument signed by the parties hereto. 9.09 Entire Agreement. This Agreement constitutes the entire agreement and understanding between the parties hereto in reference to all the 15 matters herein agreed upon. This Agreement replaces in full all prior employment agreements or understandings of the parties hereto, and any and all such prior agreements or understandings are hereby rescinded by mutual agreement. IN WITNESS WHEREOF, The parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. EXECUTIVE CERIDIAN CORPORATION Patrick C. Sommers By:/s/Patrick C. Sommers Title: President, Employer Services Address: 8100 34th Avenue South Bloomington, MN 55425 16 EX-10.04 4 EXHIBIT 10.04 EXHIBIT 10.04 CERIDIAN CORPORATION EXECUTIVE EMPLOYMENT AGREEMENT PARTIES Ceridian Corporation (a Delaware Corporation) 8100 34th Avenue South Minneapolis, Minnesota 55425-1640 and STEPHEN B. MORRIS ("Executive") Date: February 3, 1995 RECITALS A. Ceridian wishes to obtain the services of Executive for at least the duration of this Agreement, and the Executive wishes to provide his or her services for such period. B. Ceridian desires reasonable protection of Ceridian's Confidential Information (as defined below). C. Ceridian desires assurance that Executive will not compete with Ceridian or engage in recruitment of Ceridian's employees for a reasonable period of time after termination of employment, and Executive is willing to refrain from competition and recruitment. D. Executive desires to be assured of a minimum Base Salary (as defined below) from Ceridian for Executive's services for the term of this Agreement (unless terminated earlier pursuant to the terms of this Agreement). E. It is expressly recognized by the parties that Executive's acceptance of, and continuance in, Executive's position with Ceridian and agreement to be bound by the terms of this Agreement represents a substantial commitment to Ceridian in terms of Executive's personal and professional career and a foregoing of present and future career options by Executive, for all of which Ceridian receives substantial value. F. The parties recognize that a Change of Control (as defined below) may result in material alteration or diminishment of Executive's position and responsibilities and substantially frustrate the purpose of Executive's commitment to Ceridian and forebearance of options. G. The parties recognize that in light of the above-described commitment and forebearance of options, it is essential that, for the benefit of Ceridian and its stockholders, provision be made for a Change of Control Termination (as defined below) in order to enable Executive to 1 accept and effectively continue in Executive's position in the face of inherently disruptive circumstances arising from the possibility of a Change of Control of the Parent Corporation (as defined below), although no such change is now contemplated or foreseen. H. The parties wish to replace any and all prior agreements and undertakings with respect to the Executive's employment and Change of Control occurrences and compensation. NOW, THEREFORE, in consideration of Executive's acceptance of and continuance in Executive's employment for the term of this Agreement and the parties' agreement to be bound by the terms contained herein, the parties agree as follows: ARTICLE I DEFINITIONS 1.01 "Base Salary" shall mean regular cash compensation paid on a periodic basis exclusive of benefits, bonuses or incentive payments. 1.02 "Board" shall mean the Board of Directors of Ceridian Corporation (the "Parent Corporation"). 1.03 "Ceridian" shall mean Ceridian Corporation and, except as otherwise provided in Article VIII and Section 9.02 of Article IX, (a) any Subsidiary (as that term is defined in Section 1.07); and (b) any successor in interest by way of consolidation, operation of law, merger or otherwise. 1.04 "Confidential Information" shall mean information or material which is not generally available to or used by others, or the utility or value of which is not generally known or recognized as standard practice, whether or not the underlying details are in the public domain, including: (a) information or material relating to Ceridian and its business as conducted or anticipated to be conducted; business plans; operations; past, current or anticipated software, products or services; customers or prospective customers; or research, engineering, development, manufacturing, purchasing, accounting, or marketing activities; (b) information or material relating to Ceridian's inventions, improvements, discoveries, "know-how," technological developments, or unpublished writings or other works of authorship, or to the materials, apparatus, processes, formulae, plans or methods used in the development, manufacture or marketing of Ceridian's software, products or services; (c) information which when received is marked as "proprietary," "private," or "confidential;" 2 (d) trade secrets; software in various stages of development, including computer (e) programs in source code and binary code form, software designs, specifications, programming aids (including "library subroutines" and productivity tools), programming languages, interfaces, visual displays, technical documentation, user manuals, data files and databases; and (f) any similar information of the type described above which Ceridian obtained from another party and which Ceridian treats as or designates as being proprietary, private or confidential, whether or not owned or developed by Ceridian. Notwithstanding the foregoing, "Confidential Information" does not include any information which is properly published or in the public domain; provided, however, that information which is published by or with the aid of Executive outside the scope of employment or contrary to the requirements of this Agreement will not be considered to have been properly published, and therefore will not be in the public domain for purposes of this Agreement. 1.05 "Disability" shall mean the inability of Executive to perform his or her duties under this Agreement because of illness or incapacity for a continuous period of five months. 1.06 "Parent Corporation" shall mean Ceridian Corporation and, except as otherwise provided in Article VIII and Section 9.02 of Article IX, any successor in interest by way of consolidation, operation of law, merger or otherwise. "Parent Corporation" shall not include any Subsidiary. 1.07 "Subsidiary" shall mean: (a) any corporation at least a majority of whose securities having ordinary voting power for the election of directors (other than securities having such power only by reason of the occurrence of a contingency) is at the time owned by Parent Corporation and/or one or more Subsidiaries; and (b) any division or business unit (or portion thereof) of Parent Corporation or a corporation described in clause (a) of this Section 1.07. ARTICLE II EMPLOYMENT, DUTIES AND TERM 2.01 Employment. Upon the terms and conditions set forth in this Agreement, Ceridian hereby employs Executive, and Executive accepts such employment. Except as expressly provided herein, termination of this Agreement by either party shall also terminate Executive's employment by Ceridian. 2.02 Duties. Executive shall devote his or her full-time and best efforts to Ceridian and to fulfilling the duties of his or her position which shall include such duties as may from time to time be assigned him or her by Ceridian, provided that such duties are reasonably consistent with Executive's education, experience and background. Executive 3 shall comply with Ceridian's policies and procedures to the extent they are not inconsistent with this Agreement in which case the provisions of this Agreement prevail. 2.03 Term. Subject to the provisions of Articles IV, VII, and VIII, Executive's employment shall continue until the later of: (a) June 30, 1997; and (b) two years after a Change of Control which occurs prior to June 30, 1997. In any event, the Agreement shall automatically terminate without notice when Executive reaches 65 years of age. If employment is continued after the age of 65 by mutual agreement, it shall be terminable at will by either party. ARTICLE III COMPENSATION AND EXPENSES 3.01 Base Salary. For all services rendered under this Agreement during the term of Executive's employment, Ceridian shall pay Executive a minimum Base Salary at the annual rate currently being paid or, if Executive is not currently in Ceridian's employ, at the annual rate specified in the written offer of employment. If Executive's salary is increased from time to time during the term of this Agreement, the increased amount shall be the Base Salary for the remainder of the term and any extensions. 3.02 Bonus and Incentive. Bonus or incentive compensation shall be in the sole discretion of Ceridian. Except as otherwise provided in Article VII, Ceridian shall have the right in accordance with their terms to alter, amend or eliminate any bonus or incentive plans, or Executive's participation therein, without compensation to Executive. 3.03 Business Expenses. Ceridian shall, in accordance with, and to the extent of, its policies in effect from time to time, bear all ordinary and necessary business expenses incurred by Executive in performing his or her duties as an employee of Ceridian, provided that Executive accounts promptly for such expenses to Ceridian in the manner prescribed from time to time by Ceridian. ARTICLE IV EARLY TERMINATION 4.01 Early Termination. Subject to the respective continuing obligations of the parties pursuant to Articles V, VI, and IX, this Article sets forth the terms for early termination of this Agreement; provided, however, that this Article shall not apply to a Change of Control Termination which is governed solely by the provisions of Article VII. 4.02 Termination for Cause. Ceridian may terminate this Agreement immediately for cause. For the purpose hereof "cause" means (a) fraud, (b) misrepresentation, (c) theft or embezzlement of Ceridian assets, (d) intentional violations of law involving moral turpitude, (e) the continued failure by Executive to satisfactorily perform his or her duties as reasonably assigned to Executive pursuant to Section 2.02 of Article II of this Agreement for a period of 60 days after a written demand for such satisfactory performance which specifically 4 identifies the manner in which it is alleged Executive has not satisfactorily performed such duties. In the event of termination for cause pursuant to this Section 4.02, Executive shall be paid at the usual rate of Executive's annual Base Salary through the date of termination specified in any notice of termination. 4.03 Termination Without Cause. Either Executive or Ceridian may terminate this Agreement and Executive's employment without cause on at least 75 days' written notice. In the event of termination of this Agreement and of Executive's employment pursuant to this Section 4.03, compensation shall be paid as follows: (a) if the notice of termination is given by Executive at any time Executive shall be paid at the usual rate of his or her annual Base Salary through the date of termination specified in such notice (but not to exceed 75 days); (b) if the notice of termination is given by Ceridian and effective prior to Executive's 65th birthday, (1) Executive shall be paid at the usual rate of his or her annual Base Salary through the date of termination specified in the notice provided, however, that Ceridian shall have the option of making termination of the Agreement and Executive's employment effective immediately upon notice in which case Executive shall be paid through a notice period of 75 days; and (2) Executive shall receive, within 15 days following termination, a lump sum payment equivalent to two years' Base Salary. (c) If the notice of termination is given by Ceridian to be effective on or after Executive's 65th birthday Executive shall be paid at the usual rate of his or her annual Base Salary through the date of termination specified in any notice. (d) In the event that termination occurs pursuant to Sections 4.03(b) or 4.03(c), then, in addition to the payments specified in said Sections, Ceridian shall pay to Executive any amount equal to (1) the bonus, if any, to which Executive would otherwise have become entitled under all Ceridian bonus plans in effect at the time of termination of this Agreement had Executive remained continuously employed for the full fiscal year in which termination occurred and continued to perform his or her duties in the same manner as they were performed immediately prior to termination, multiplied by (2) a fraction, the numerator of which shall be the number of whole months Executive was employed in the year in which termination occurred and the denominator of which is 12. The amount payable pursuant to this Section 4.03(d) shall be paid within 15 days after the date such bonus would have been paid had Executive remained employed for the full fiscal year. 4.04 Termination In The Event of Death or Disability. This Agreement shall terminate in the event of death or disability of Executive. (a) In the event of Executive's death, Ceridian shall pay an amount equal to 12 months of Base Salary at the rate in effect at the 5 time of Executive's death plus the amount Executive would have received in annual incentive plan bonus for the year in which termination occurs had "target" goals been achieved. Such amount shall be paid (1) to the beneficiary or beneficiaries designated in writing to Ceridian by Executive, (2) in the absence of such designation to the surviving spouse, or (3) if there is no surviving spouse, or such surviving spouse disclaims all or any part, then the full amount, or such disclaimed portion, shall be paid to the executor, administrator or other personal representative of Executive's estate. The amount shall be paid as a lump sum as soon as practicable following Ceridian's receipt of notice of Executive's death. All such payments shall be in addition to any payments due pursuant to Section 4.04(c) below. (b) In the event of disability, Base Salary shall be terminated as of the end of the month in which the last day of the five-month period of Executive's inability to perform his or her duties occurs. (c) In the event of termination by reason of Executive's death or disability, Ceridian shall pay to Executive any amount equal to (1) the amount Executive would have received in annual incentive plan bonus for the year in which termination occurs had "target" goals been achieved, multiplied by (2) a fraction, the numerator of which shall be the number of whole months Executive was employed in the year in which the death or disability occurred and the denominator of which is 12. The amount payable pursuant to this Section 4.04(c) shall be paid within 15 days after the date such bonus would have been paid had Executive remained employed for the full fiscal year. 4.05 Entire Termination Payment. The compensation provided for in this Article IV for early termination of this Agreement and termination pursuant to this Article IV shall constitute Executive's sole remedy for such termination. Executive shall not be entitled to any other termination or severance payment which may be payable to Executive under any other agreement between Executive and Ceridian. ARTICLE V CONFIDENTIALITY, DISCLOSURE AND ASSIGNMENT 5.01 Confidentiality. Executive will not, during the term or after the termination or expiration of this Agreement, publish, disclose, or utilize in any manner any Confidential Information obtained while employed by Ceridian. If Executive leaves the employ of Ceridian, Executive will not, without Ceridian's prior written consent, retain or take away any drawing, writing or other record in any form containing any Confidential Information. 5.02 Business Conduct and Ethics. During the term of employment with Ceridian, Executive will engage in no activity or employment which may conflict with the interest of Ceridian, and will comply with Ceridian's policies and guidelines pertaining to business conduct and ethics. 6 5.03 Disclosure. Executive will disclose promptly in writing to Ceridian all inventions, discoveries, software, writings and other works of authorship which are conceived, made, discovered, or written jointly or singly on Ceridian time or on Executive's own time, providing the invention, improvement, discovery, software, writing or other work of authorship is capable of being used by Ceridian in the normal course of business, and all such inventions, improvements, discoveries, software, writings and other works of authorship shall belong solely to Ceridian. 5.04 Instruments of Assignment. Executive will sign and execute all instruments of assignment and other papers to evidence vestiture of Executive's entire right, title and interest in such inventions, improvements, discoveries, software, writings or other works of authorship in Ceridian, at the request and the expense of Ceridian, and Executive will do all acts and sign all instruments of assignment and other papers Ceridian may reasonably request relating to applications for patents, patents, copyrights, and the enforcement and protection thereof. If Executive is needed, at any time, to give testimony, evidence, or opinions in any litigation or proceeding involving any patents or copyrights or applications for patents or copyrights, both domestic and foreign, relating to inventions, improvements, discoveries, software, writings or other works of authorship conceived, developed or reduced to practice by Executive, Executive agrees to do so, and if Executive leaves the employ of Ceridian, Ceridian shall pay Executive at a rate mutually agreeable to Executive and Ceridian, plus reasonable traveling or other expenses. 5.05 Inventions Developed on Executive's Own Time. The two immediately preceding sections entitled "Disclosure" and "Instruments of Assignment" do not apply to inventions in which a Ceridian claim of any rights will create a violation of Chapter 47 Minnesota Revised Statutes, Section 1-181.78, reproduced below and constituting the written notification of its Subdivision 3. 181.78 Agreements relating to inventions Subdivision 1. Any provision in an employment agreement which provides that an Executive shall assign or offer to assign any of his rights in an invention to his employer shall not apply to an invention for which no equipment, supplies, facility or trade secret information of the employer was used and which was developed entirely on the employee's own time, and (1) which does not relate (a) directly to the business of the employer or (b) to the employer's actual or demonstrably anticipated research or development, or (2) which does not result from any work performed by the employee for the employer. Any provision which purports to apply to such an invention is to that extent against the public policy of this state and is to that extent void and unenforceable. Subdivision 2. 7 No employer shall require a provision made void and unenforceable by subdivision 1 as a condition of employment or continuing employment. Subdivision 3. IF AN EMPLOYMENT AGREEMENT ENTERED INTO AFTER AUGUST 1, 1977, CONTAINS A PROVISION REQUIRING THE EMPLOYEE TO ASSIGN OR OFFER TO ASSIGN ANY OF HIS RIGHTS IN ANY INVENTION TO HIS EMPLOYER, THE EMPLOYER MUST ALSO, AT THE TIME THE AGREEMENT IS MADE, PROVIDE A WRITTEN NOTIFICATION TO THE EMPLOYEE THAT THE AGREEMENT DOES NOT APPLY TO AN INVENTION FOR WHICH NO EQUIPMENT, SUPPLIES, FACILITY OR TRADE SECRET INFORMATION OF THE EMPLOYER WAS USED AND WHICH WAS DEVELOPED ENTIRELY ON THE EMPLOYEE'S OWN TIME, AND (1) WHICH DOES NOT RELATE (a) DIRECTLY TO THE BUSINESS OF THE EMPLOYER OR (b) TO THE EMPLOYER'S ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT, OR (2) WHICH DOES NOT RESULT FROM ANY WORK PERFORMED BY THE EMPLOYEE FOR THE EMPLOYER. 5.06 Executive's Declaration. Executive has no inventions, improvements, discoveries, software, writings or other works of authorship useful to Ceridian in the normal course of business, which were conceived, made or written prior to the date of this Agreement and which are excluded from this Agreement. 5.07 Survival. The obligations of this Article V shall survive the expiration or termination of this Agreement. ARTICLE VI NON-COMPETITION, NON-RECRUITMENT 6.01 General. The parties hereto recognize and agree that (a) Executive is a senior executive of Ceridian and is a key Executive of Ceridian, (b) Executive has received, and will in the future receive, substantial amounts of Confidential Information, (c) Ceridian's business is conducted on a worldwide basis, and (d) provision for non-competition and non-recruitment obligations by Executive is critical to Ceridian's continued economic well-being and protection of Ceridian's Confidential Information. In light of these considerations, this Article VI sets forth the terms and conditions of Executive's obligations of non-competition and non-recruitment subsequent to the termination of this Agreement and/or Executive's employment for any reason. 6.02 Non-Competition. (a) Unless the obligation is waived or limited by Ceridian in accordance with subsection (b) of this Section 6.02, Executive agrees that for a period of two years following termination of employment for any reason, Executive will not directly or indirectly, alone or as a partner, officer, director, shareholder or employee of any other firm or entity, engage in any commercial activity in competition with any part of Ceridian's business as conducted as of the date of such termination of employment or with any part of Ceridian's contemplated business with respect to 8 which Executive has Confidential Information as governed by Article V of this Agreement. For purposes of this subsection (a), "shareholder" shall not include beneficial ownership of less than five percent (5%) of the combined voting power of all issued and outstanding voting securities of a publicly held corporation whose stock is traded on a major stock exchange. Also for purposes of this subsection (a), "Ceridian's business" shall include business conducted by Ceridian or its affiliates and any partnership or joint venture in which Ceridian or its affiliates is a partner or joint venturer; provided that, "affiliate" as used in this sentence shall not include any corporation in which Ceridian has ownership of less than fifteen percent (15%) of the voting stock. (b) At its sole option Ceridian may, by written notice to Executive within 30 days after the effective date of termination of Executive's employment, waive or limit the time and/or geographic area in which Executive cannot engage in competitive activity. (c) During the term of the non-competition obligation, prior to accepting employment with, or agreeing to provide consulting services to, any firm which offers products or services in the fields of electronics or information processing, Executive shall give 30 days prior written notice to Ceridian. Such written notice shall describe the proposed employment or consulting services and the firm to which they will be rendered. Ceridian's failure to respond or object to such notice shall not in any way constitute acquiescence or waiver of Ceridian's rights under this Article VI. (d) During any period of non-competition pursuant to this Article VI Ceridian shall pay Executive an amount equal to the usual rate of Executive's Base Salary in effect at the time of termination. There shall be credited against Ceridian's obligation to make such payments any other payments made by Ceridian to Executive pursuant to Article IV of this Agreement. In the event that Ceridian elects, pursuant to subsection (b) of this Section 6.02, to waive all or any portion of the non-competition obligation, no payment shall be required by Ceridian with respect to the portion of the non-competition period which has been waived. 6.03 Non-Recruitment. For a period of two years following termination of employment for any reason, Executive will not initiate or actively participate in any other employer's recruitment or hiring of Ceridian employees. This provision shall not preclude Executive from responding to a request (other than by Executive's employer) for a reference with respect to an individual's employment qualifications. 6.04 Survival. The obligations of this Article VI shall survive the expiration or termination of this Agreement. ARTICLE VII CHANGE OF CONTROL 9 7.01 Definitions. For purposes of this Article VII, the following definitions shall be applied: (a) "Change of Control" shall mean any of the following events: (1) a merger or consolidation to which Parent Corporation is a party if the individuals and entities who were stockholders of Parent Corporation immediately prior to the effective date of such merger or consolidation have beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of less than fifty percent (50%) of the total combined voting power for election of directors of the surviving corporation immediately following the effective date of such merger or consolidation; or (2) the direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) in the aggregate of securities of Parent Corporation representing twenty-five percent (25%) or more of the total combined voting power of Parent Corporation's then issued and outstanding securities by any person or entity, or group of associated persons or entities acting in concert; or (3) the sale of the properties and assets of Parent Corporation, substantially as an entirety, to any person or entity which is not a wholly-owned subsidiary of Parent Corporation. (4) the stockholders of Parent Corporation approve any plan or proposal for the liquidation of Parent Corporation; or (5) a change in the composition of the Board at any time during any consecutive 24 month period such that the "Continuity Directors" cease for any reason to constitute at least a seventy percent (70%) majority of the Board. For purposes of this clause, "Continuity Directors" means those members of the Board who either: (A) were directors at the beginning of such consecutive 24 month period; or (B) were elected by, or on the nomination or recommendation of, at least a two-thirds (2/3) majority of the then- existing Board. (b) "Change of Control Actions" shall mean any payment (including any benefit or transfer of property) in the nature of compensation, to or for the benefit of Executive under any arrangement, which is considered contingent on a Change of Control for purposes of Section 280G of the Internal Revenue Code. As used in this definition, the term "arrangement" includes, without limitation, any agreement between Executive and Ceridian and any and all of Ceridian's salary, bonus, incentive, restricted stock, stock option, compensation or benefit plans, programs or arrangements, and shall include this Agreement. 10 (c) "Change of Control Termination" shall mean, with respect to Executive, any of the following events occurring within two years after a Change of Control: (1) Termination of Executive's employment by Ceridian for any reason other than (A) fraud, (B) theft or embezzlement of Ceridian assets, (C) intentional violations of law involving moral turpitude, or (D) the substantial and continuing failure by Executive to satisfactorily perform his or her duties as reasonably assigned to Executive pursuant to Section 2.02 of Article II of this Agreement for a period of 60 days after a written demand for such satisfactory performance which specifically identifies the manner in which it is alleged Executive has not satisfactorily performed such duties. (2) Termination of employment with Ceridian by Executive pursuant to Section 7.02 of this Article VII. A Change of Control Termination by Executive shall not, however, include termination by reason of death. (d) "Good Reason" shall mean a good faith determination by Executive, in Executive's reasonable judgment, that any one or more of the following events has occurred, without Executive's express written consent, after a Change of Control: (1) A change in Executive's reporting responsibilities, titles or offices as in effect immediately prior to the Change of Control, or any removal of Executive from, or any failure to re-elect Executive to, any of such positions, which has the effect of materially diminishing Executive's responsibility or authority; (2) A reduction by Ceridian in Executive's Base Salary as in effect immediately prior to the Change of Control or as the same may be increased from time to time; (3) Ceridian requiring Executive to be based anywhere other than within 25 miles of Executive's job location at the time of the Change of Control; (4) Without replacement by plans, programs, or arrangements which, taken as a whole, provide benefits to Executive at least reasonably comparable to those discontinued or adversely affected, (A) the failure by Ceridian to continue in effect, within its maximum stated term, any pension, bonus, incentive, stock ownership, purchase, option, life insurance, health, accident, disability, or any other employee compensation or benefit plan, program or arrangement, in which Executive is participating immediately prior to a Change of Control; or (B) the taking of any action by Ceridian that would materially adversely affect 11 Executive's participation or materially reduce Executive's benefits under any of such plans, programs or arrangements; (5) The failure by Ceridian to provide office space, furniture, and secretarial support at least comparable to that provided Executive immediately prior to the Change of Control or the taking of any similar action by Ceridian that would materially adversely affect the working conditions in or under which Executive performs his or her employment duties; (6) If Executive's primary employment duties are with a Subsidiary, the sale, merger, contribution, transfer or any other transaction in conjunction with which Parent Corporation's ownership interest in such Subsidiary decreases below the level specified in Section 1.07 of Article I unless (A) this Agreement is assigned to the purchaser/transferee with the provisions of Article VII in full force and effect and operative as if a Change of Control has occurred with respect to the purchaser/transferee as Parent Corporation immediately after the purchase/transfer becomes effective, and (B) such purchaser/transferee has a creditworthiness reasonably equivalent to Parent Corporation's; or (7) Any material breach of this Agreement by Ceridian. "Internal Revenue Code" -- Any reference to a section of the (e) Internal Revenue Code shall mean that section of the Internal Revenue Code of 1986, or to the corresponding section of such Code as from time to time amended. 7.02 Change of Control Termination Right. For a period of two years following a Change of Control, Executive shall have the right, at any time and within Executive's sole discretion, to terminate employment with Ceridian for Good Reason. Such termination shall be accomplished by, and effective upon, Executive giving written notice to Ceridian of Executive's decision to terminate. Except as otherwise expressly provided in this Agreement, upon the exercise of said right, all obligations and duties of Executive under this Agreement shall be of no further force and effect. 7.03 Change of Control Termination Payment. In the event of a Change of Control Termination, and subject to the "Limitation on Change of Control Compensation" contained in Section 7.04, then, and without further action by the Board, Compensation Committee or otherwise, Parent Corporation shall, within five days of such termination, make a lump sum payment to Executive in an amount equal to one dollar ($1.00) less than three times the average annualized compensation as defined by Section 280G of the Internal Revenue Code, received by Executive from Ceridian and includible in Executive's gross income for federal income tax purposes, for the five most recent taxable years of the Executive ending before the date upon which the Change in Control occurred (or such portion of such period during which Executive was an employee of Ceridian). 12 7.04 Limitation on Change of Control Compensation. Notwithstanding any other provisions of this Agreement or of any other agreement, contract or understanding heretofore or hereafter entered into between Ceridian and Executive, Executive shall not be entitled to receive any Change of Control Action which would, with respect to Executive, constitute a "parachute payment" for purposes of Section 280G of the Internal Revenue Code. In the event any Change of Control Action would, with respect to Executive, constitute a "parachute payment", Executive shall have the right to designate those Change of Control Action(s) which would be reduced or eliminated so that Executive will not receive a "parachute payment". 7.05 Interest. In the event Parent Corporation does not make timely payment in full of the Change of Control Termination payment described in Section 7.03, Executive shall be entitled to receive interest on any unpaid amount at the lower of: (a) prime rate of interest (or such comparable index as may be adopted) established from time to time by the Norwest Bank Minneapolis, N.A., Minneapolis, Minnesota; or (b) the maximum rate permitted under Section 280G(d)(4) of the Internal Revenue Code. 7.06 Attorneys' Fees. In the event Executive incurs any legal expense to enforce or defend his or her rights under this Article VII of this Agreement, or to recover damages for breach thereof, Executive shall be entitled to recover from Ceridian any expenses for attorneys' fees and disbursements incurred. 7.07 Benefits Continuation. In the event of a Change of Control Termination, Executive (and anyone entitled to claim under or through Executive) shall, until age 65, be entitled to receive from Ceridian the same or equivalent health, dental, accidental death and dismemberment, short and long-term disability, life insurance coverages, and all other insurance policies and health and welfare benefits programs, policies or arrangements, at the same levels and coverages as Executive was receiving on the day immediately prior to the Change of Control. To the extent that election of continuation of any of such coverages, programs, policies, or arrangements is made available to employees terminating at age 55 with 15 or more years of service, Executive shall be required to pay no more for continuation than is required of such employees on the day immediately prior to the Change of Control. If no such continuation program is available, Executive shall be required to pay no more than he/she paid as an active employee, or if provided by Ceridian at no cost to employees on the day immediately prior to the Change of Control, they shall continue to be made available to Executive on this basis. ARTICLE VIII CHANGE OF SUBSIDIARY STATUS In the event that, prior to a Change of Control: (a) a Subsidiary is sold, merged, contributed, or in any other manner transferred, or if for any reason Parent Corporation's ownership interest in any such Subsidiary falls below the level specified in Section 1.07, (b) Executive's primary 13 employment duties are with the Subsidiary at the time of the occurrence of such event, and (c) Executive does not, in conjunction therewith, transfer employment directly to Parent Corporation or another Subsidiary, then: (1) If Executive gives his or her written consent to the assignment of this Agreement to such Subsidiary, or to the purchaser or new majority interest holder of such Subsidiary, (and such assignment is accepted) this Agreement shall remain in full force and effect between Executive and the assignee, except that the provisions of Article VII of this Agreement shall become null and void; (2) If such assignment is not accepted by the Subsidiary or purchaser, then this Agreement shall be deemed to have been terminated by Ceridian without cause pursuant to Section 4.03 of Article IV; and (3) In all other cases, this Agreement shall be deemed terminated for cause pursuant to Section 4.02 of Article IV. ARTICLE IX GENERAL PROVISIONS 9.01 No Adequate Remedy. The parties declare that it is impossible to measure in money the damages which will accrue to either party by reason of a failure to perform any of the obligations under this Agreement. Therefore, if either party shall institute any action or proceeding to enforce the provisions hereof, such party against whom such action or proceeding is brought hereby waives the claim or defense that such party has an adequate remedy at law, and such party shall not urge in any such action or proceeding the claim or defense that such party has an adequate remedy at law. 9.02 Successors and Assigns. Except as otherwise provided in Article VIII, this Agreement shall be binding upon and inure to the benefit of the successors and assigns of Parent Corporation and each Subsidiary, whether by way of merger, consolidation, operation of law, assignment, purchase or other acquisition of substantially all of the assets or business of Ceridian, and any such successor or assign shall absolutely and unconditionally assume all of Ceridian's obligations hereunder. 9.03 Notices. All notices, requests and demands given to or made pursuant hereto shall, except as otherwise specified herein, be in writing and be delivered or mailed to any such party at its address: (a) Ceridian Corporation 8100 34th Avenue South Minneapolis, Minnesota 55425-1640 Attention: Office of General Counsel (b) In the case of Executive shall be: At the address listed on the last page of this Agreement. 14 Either party may, by notice hereunder, designate a changed address. Any notice, if mailed properly addressed, postage prepaid, registered or certified mail, shall be deemed dispatched on the registered date or that stamped on the certified mail receipt, and shall be deemed received within the second business day thereafter or when it is actually received, whichever is sooner. 9.04 Captions. The various headings or captions in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement. 9.05 Governing Law. The validity, construction and performance of this Agreement shall be governed by the laws of the State of Minnesota and any and every legal proceeding arising out of or in connection with this Agreement shall be brought in the appropriate courts of the State of Minnesota, each of the parties hereby consenting to the exclusive jurisdiction of said courts for this purpose. The parties hereto expressly recognize and agree that the implementation of this Governing Law provision is essential in light of the fact that Parent Corporation's corporate headquarters and its principal executive offices are located within the State of Minnesota, and there is a critical need for uniformity in the interpretation and enforcement of the employment agreements between Ceridian and its senior executives. 9.06 Construction. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. 9.07 Waivers. No failure on the part of either party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right or remedy granted hereby or by any related document or by law. 9.08 Modification. This Agreement may not be and shall not be modified or amended except by written instrument signed by the parties hereto. 9.09 Entire Agreement. This Agreement constitutes the entire agreement and understanding between the parties hereto in reference to all the matters herein agreed upon. This Agreement replaces in full all prior employment agreements or understandings of the parties hereto, and any and all such prior agreements or understandings are hereby rescinded by mutual agreement. IN WITNESS WHEREOF, The parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. 15 EXECUTIVE CERIDIAN CORPORATION Stephen B. Morris By: /s/Stephen B. Morris Title: President, Arbitron Company Address: 142 West 57th Street New York, NY 10019 16 EX-10.05 5 EXHIBIT 10.05 EXHIBIT 10.05 CERIDIAN CORPORATION EXECUTIVE EMPLOYMENT AGREEMENT PARTIES Ceridian Corporation (a Delaware Corporation) 8100 34th Avenue South Minneapolis, Minnesota 55425-1640 and JOHN R. EICKHOFF ("Executive") Date: February 3, 1995 RECITALS A. Ceridian wishes to obtain the services of Executive for at least the duration of this Agreement, and the Executive wishes to provide his or her services for such period. B. Ceridian desires reasonable protection of Ceridian's Confidential Information (as defined below). C. Ceridian desires assurance that Executive will not compete with Ceridian or engage in recruitment of Ceridian's employees for a reasonable period of time after termination of employment, and Executive is willing to refrain from competition and recruitment. D. Executive desires to be assured of a minimum Base Salary (as defined below) from Ceridian for Executive's services for the term of this Agreement (unless terminated earlier pursuant to the terms of this Agreement). E. It is expressly recognized by the parties that Executive's acceptance of, and continuance in, Executive's position with Ceridian and agreement to be bound by the terms of this Agreement represents a substantial commitment to Ceridian in terms of Executive's personal and professional career and a foregoing of present and future career options by Executive, for all of which Ceridian receives substantial value. F. The parties recognize that a Change of Control (as defined below) may result in material alteration or diminishment of Executive's position and responsibilities and substantially frustrate the purpose of Executive's commitment to Ceridian and forebearance of options. G. The parties recognize that in light of the above-described commitment and forebearance of options, it is essential that, for the benefit of Ceridian and its stockholders, provision be made for a Change of 1 Control Termination (as defined below) in order to enable Executive to accept and effectively continue in Executive's position in the face of inherently disruptive circumstances arising from the possibility of a Change of Control of the Parent Corporation (as defined below), although no such change is now contemplated or foreseen. H. The parties wish to replace any and all prior agreements and undertakings with respect to the Executive's employment and Change of Control occurrences and compensation. NOW, THEREFORE, in consideration of Executive's acceptance of and continuance in Executive's employment for the term of this Agreement and the parties' agreement to be bound by the terms contained herein, the parties agree as follows: ARTICLE I DEFINITIONS 1.01 "Base Salary" shall mean regular cash compensation paid on a periodic basis exclusive of benefits, bonuses or incentive payments. 1.02 "Board" shall mean the Board of Directors of Ceridian Corporation (the "Parent Corporation"). 1.03 "Ceridian" shall mean Ceridian Corporation and, except as otherwise provided in Article VIII and Section 9.02 of Article IX, (a) any Subsidiary (as that term is defined in Section 1.07); and (b) any successor in interest by way of consolidation, operation of law, merger or otherwise. 1.04 "Confidential Information" shall mean information or material which is not generally available to or used by others, or the utility or value of which is not generally known or recognized as standard practice, whether or not the underlying details are in the public domain, including: (a) information or material relating to Ceridian and its business as conducted or anticipated to be conducted; business plans; operations; past, current or anticipated software, products or services; customers or prospective customers; or research, engineering, development, manufacturing, purchasing, accounting, or marketing activities; (b) information or material relating to Ceridian's inventions, improvements, discoveries, "know-how," technological developments, or unpublished writings or other works of authorship, or to the materials, apparatus, processes, formulae, plans or methods used in the development, manufacture or marketing of Ceridian's software, products or services; (c) information which when received is marked as "proprietary," "private," or "confidential;" 2 (d) trade secrets; (e) software in various stages of development, including computer programs in source code and binary code form, software designs, specifications, programming aids (including "library subroutines" and productivity tools), programming languages, interfaces, visual displays, technical documentation, user manuals, data files and databases; and (f) any similar information of the type described above which Ceridian obtained from another party and which Ceridian treats as or designates as being proprietary, private or confidential, whether or not owned or developed by Ceridian. Notwithstanding the foregoing, "Confidential Information" does not include any information which is properly published or in the public domain; provided, however, that information which is published by or with the aid of Executive outside the scope of employment or contrary to the requirements of this Agreement will not be considered to have been properly published, and therefore will not be in the public domain for purposes of this Agreement. 1.05 "Disability" shall mean the inability of Executive to perform his or her duties under this Agreement because of illness or incapacity for a continuous period of five months. 1.06 "Parent Corporation" shall mean Ceridian Corporation and, except as otherwise provided in Article VIII and Section 9.02 of Article IX, any successor in interest by way of consolidation, operation of law, merger or otherwise. "Parent Corporation" shall not include any Subsidiary. 1.07 "Subsidiary" shall mean: (a) any corporation at least a majority of whose securities having ordinary voting power for the election of directors (other than securities having such power only by reason of the occurrence of a contingency) is at the time owned by Parent Corporation and/or one or more Subsidiaries; and (b) any division or business unit (or portion thereof) of Parent Corporation or a corporation described in clause (a) of this Section 1.07. ARTICLE II EMPLOYMENT, DUTIES AND TERM 2.01 Employment. Upon the terms and conditions set forth in this Agreement, Ceridian hereby employs Executive, and Executive accepts such employment. Except as expressly provided herein, termination of this Agreement by either party shall also terminate Executive's employment by Ceridian. 2.02 Duties. Executive shall devote his or her full-time and best efforts to Ceridian and to fulfilling the duties of his or her position which shall include such duties as may from time to time be assigned him or her by Ceridian, provided that such duties are reasonably consistent 3 with Executive's education, experience and background. Executive shall comply with Ceridian's policies and procedures to the extent they are not inconsistent with this Agreement in which case the provisions of this Agreement prevail. 2.03 Term. Subject to the provisions of Articles IV, VII, and VIII, Executive's employment shall continue until the later of: (a) June 30, 1997; and (b) two years after a Change of Control which occurs prior to June 30, 1997. In any event, the Agreement shall automatically terminate without notice when Executive reaches 65 years of age. If employment is continued after the age of 65 by mutual agreement, it shall be terminable at will by either party. ARTICLE III COMPENSATION AND EXPENSES 3.01 Base Salary. For all services rendered under this Agreement during the term of Executive's employment, Ceridian shall pay Executive a minimum Base Salary at the annual rate currently being paid or, if Executive is not currently in Ceridian's employ, at the annual rate specified in the written offer of employment. If Executive's salary is increased from time to time during the term of this Agreement, the increased amount shall be the Base Salary for the remainder of the term and any extensions. 3.02 Bonus and Incentive. Bonus or incentive compensation shall be in the sole discretion of Ceridian. Except as otherwise provided in Article VII, Ceridian shall have the right in accordance with their terms to alter, amend or eliminate any bonus or incentive plans, or Executive's participation therein, without compensation to Executive. 3.03 Business Expenses. Ceridian shall, in accordance with, and to the extent of, its policies in effect from time to time, bear all ordinary and necessary business expenses incurred by Executive in performing his or her duties as an employee of Ceridian, provided that Executive accounts promptly for such expenses to Ceridian in the manner prescribed from time to time by Ceridian. ARTICLE IV EARLY TERMINATION 4.01 Early Termination. Subject to the respective continuing obligations of the parties pursuant to Articles V, VI, and IX, this Article sets forth the terms for early termination of this Agreement; provided, however, that this Article shall not apply to a Change of Control Termination which is governed solely by the provisions of Article VII. 4.02 Termination for Cause. Ceridian may terminate this Agreement immediately for cause. For the purpose hereof "cause" means (a) fraud, (b) misrepresentation, (c) theft or embezzlement of Ceridian assets, (d) intentional violations of law involving moral turpitude, (e) the continued failure by Executive to satisfactorily perform his or her duties as reasonably assigned to Executive pursuant to Section 2.02 of Article II of this Agreement for a period of 60 days after a 4 written demand for such satisfactory performance which specifically identifies the manner in which it is alleged Executive has not satisfactorily performed such duties. In the event of termination for cause pursuant to this Section 4.02, Executive shall be paid at the usual rate of Executive's annual Base Salary through the date of termination specified in any notice of termination. 4.03 Termination Without Cause. Either Executive or Ceridian may terminate this Agreement and Executive's employment without cause on at least 75 days' written notice. In the event of termination of this Agreement and of Executive's employment pursuant to this Section 4.03, compensation shall be paid as follows: (a) if the notice of termination is given by Executive at any time Executive shall be paid at the usual rate of his or her annual Base Salary through the date of termination specified in such notice (but not to exceed 75 days); (b) if the notice of termination is given by Ceridian and effective prior to Executive's 65th birthday, (1) Executive shall be paid at the usual rate of his or her annual Base Salary through the date of termination specified in the notice provided, however, that Ceridian shall have the option of making termination of the Agreement and Executive's employment effective immediately upon notice in which case Executive shall be paid through a notice period of 75 days; and (2) Executive shall receive, within 15 days following termination, a lump sum payment equivalent to two years' Base Salary. (c) If the notice of termination is given by Ceridian to be effective on or after Executive's 65th birthday Executive shall be paid at the usual rate of his or her annual Base Salary through the date of termination specified in any notice. (d) In the event that termination occurs pursuant to Sections 4.03(b) or 4.03(c), then, in addition to the payments specified in said Sections, Ceridian shall pay to Executive any amount equal to (1) the bonus, if any, to which Executive would otherwise have become entitled under all Ceridian bonus plans in effect at the time of termination of this Agreement had Executive remained continuously employed for the full fiscal year in which termination occurred and continued to perform his or her duties in the same manner as they were performed immediately prior to termination, multiplied by (2) a fraction, the numerator of which shall be the number of whole months Executive was employed in the year in which termination occurred and the denominator of which is 12. The amount payable pursuant to this Section 4.03(d) shall be paid within 15 days after the date such bonus would have been paid had Executive remained employed for the full fiscal year. 4.04 Termination In The Event of Death or Disability. This Agreement shall terminate in the event of death or disability of Executive. 5 (a) In the event of Executive's death, Ceridian shall pay an amount equal to 12 months of Base Salary at the rate in effect at the time of Executive's death plus the amount Executive would have received in annual incentive plan bonus for the year in which termination occurs had "target" goals been achieved. Such amount shall be paid (1) to the beneficiary or beneficiaries designated in writing to Ceridian by Executive, (2) in the absence of such designation to the surviving spouse, or (3) if there is no surviving spouse, or such surviving spouse disclaims all or any part, then the full amount, or such disclaimed portion, shall be paid to the executor, administrator or other personal representative of Executive's estate. The amount shall be paid as a lump sum as soon as practicable following Ceridian's receipt of notice of Executive's death. All such payments shall be in addition to any payments due pursuant to Section 4.04(c) below. (b) In the event of disability, Base Salary shall be terminated as of the end of the month in which the last day of the five-month period of Executive's inability to perform his or her duties occurs. (c) In the event of termination by reason of Executive's death or disability, Ceridian shall pay to Executive any amount equal to (1) the amount Executive would have received in annual incentive plan bonus for the year in which termination occurs had "target" goals been achieved, multiplied by (2) a fraction, the numerator of which shall be the number of whole months Executive was employed in the year in which the death or disability occurred and the denominator of which is 12. The amount payable pursuant to this Section 4.04(c) shall be paid within 15 days after the date such bonus would have been paid had Executive remained employed for the full fiscal year. 4.05 Pension Supplement. If Ceridian terminates Executive's employment without cause prior to Executive's 65th birthday, Ceridian shall provide to Executive, out of its general assets, a monthly supplemental retirement benefit in an amount equal to the actuarial equivalent of the difference, if any, between: (a) the monthly benefit to which Executive would have been entitled under the defined benefit pension plan or plans in which he or she participated immediately prior to his or her termination of employment if the amount of payment to which Executive is entitled under Section 4.03(b)(2) were taken into account for purposes of determining his or her "final average pay" or similar term (as then defined under the terms of such plan or plans) for either (1) the year in which Executive's termination of employment occurred; or (2) the prior full year, whichever provides the highest total final average pay; and (b) the amount to which Executive is, in fact, entitled under such plan or plans. 6 The benefit calculated under this Section 4.05 shall be paid at the same time and in the same form as the benefit under the plan with respect to which such calculation is made. 4.06 Entire Termination Payment. The compensation provided for in this Article IV for early termination of this Agreement and termination pursuant to this Article IV shall constitute Executive's sole remedy for such termination. Executive shall not be entitled to any other termination or severance payment which may be payable to Executive under any other agreement between Executive and Ceridian. ARTICLE V CONFIDENTIALITY, DISCLOSURE AND ASSIGNMENT 5.01 Confidentiality. Executive will not, during the term or after the termination or expiration of this Agreement, publish, disclose, or utilize in any manner any Confidential Information obtained while employed by Ceridian. If Executive leaves the employ of Ceridian, Executive will not, without Ceridian's prior written consent, retain or take away any drawing, writing or other record in any form containing any Confidential Information. 5.02 Business Conduct and Ethics. During the term of employment with Ceridian, Executive will engage in no activity or employment which may conflict with the interest of Ceridian, and will comply with Ceridian's policies and guidelines pertaining to business conduct and ethics. 5.03 Disclosure. Executive will disclose promptly in writing to Ceridian all inventions, discoveries, software, writings and other works of authorship which are conceived, made, discovered, or written jointly or singly on Ceridian time or on Executive's own time, providing the invention, improvement, discovery, software, writing or other work of authorship is capable of being used by Ceridian in the normal course of business, and all such inventions, improvements, discoveries, software, writings and other works of authorship shall belong solely to Ceridian. 5.04 Instruments of Assignment. Executive will sign and execute all instruments of assignment and other papers to evidence vestiture of Executive's entire right, title and interest in such inventions, improvements, discoveries, software, writings or other works of authorship in Ceridian, at the request and the expense of Ceridian, and Executive will do all acts and sign all instruments of assignment and other papers Ceridian may reasonably request relating to applications for patents, patents, copyrights, and the enforcement and protection thereof. If Executive is needed, at any time, to give testimony, evidence, or opinions in any litigation or proceeding involving any patents or copyrights or applications for patents or copyrights, both domestic and foreign, relating to inventions, improvements, discoveries, software, writings or other works of authorship conceived, developed or reduced to practice by Executive, Executive agrees to do so, and if Executive leaves the employ of 7 Ceridian, Ceridian shall pay Executive at a rate mutually agreeable to Executive and Ceridian, plus reasonable traveling or other expenses. 5.05 Inventions Developed on Executive's Own Time. The two immediately preceding sections entitled "Disclosure" and "Instruments of Assignment" do not apply to inventions in which a Ceridian claim of any rights will create a violation of Chapter 47 Minnesota Revised Statutes, Section 1-181.78, reproduced below and constituting the written notification of its Subdivision 3. 181.78 Agreements relating to inventions Subdivision 1. Any provision in an employment agreement which provides that an Executive shall assign or offer to assign any of his rights in an invention to his employer shall not apply to an invention for which no equipment, supplies, facility or trade secret information of the employer was used and which was developed entirely on the employee's own time, and (1) which does not relate (a) directly to the business of the employer or (b) to the employer's actual or demonstrably anticipated research or development, or (2) which does not result from any work performed by the employee for the employer. Any provision which purports to apply to such an invention is to that extent against the public policy of this state and is to that extent void and unenforceable. Subdivision 2. No employer shall require a provision made void and unenforceable by subdivision 1 as a condition of employment or continuing employment. Subdivision 3. IF AN EMPLOYMENT AGREEMENT ENTERED INTO AFTER AUGUST 1, 1977, CONTAINS A PROVISION REQUIRING THE EMPLOYEE TO ASSIGN OR OFFER TO ASSIGN ANY OF HIS RIGHTS IN ANY INVENTION TO HIS EMPLOYER, THE EMPLOYER MUST ALSO, AT THE TIME THE AGREEMENT IS MADE, PROVIDE A WRITTEN NOTIFICATION TO THE EMPLOYEE THAT THE AGREEMENT DOES NOT APPLY TO AN INVENTION FOR WHICH NO EQUIPMENT, SUPPLIES, FACILITY OR TRADE SECRET INFORMATION OF THE EMPLOYER WAS USED AND WHICH WAS DEVELOPED ENTIRELY ON THE EMPLOYEE'S OWN TIME, AND (1) WHICH DOES NOT RELATE (a) DIRECTLY TO THE BUSINESS OF THE EMPLOYER OR (b) TO THE EMPLOYER'S ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT, OR (2) WHICH DOES NOT RESULT FROM ANY WORK PERFORMED BY THE EMPLOYEE FOR THE EMPLOYER. 5.06 Executive's Declaration. Executive has no inventions, improvements, discoveries, software, writings or other works of authorship useful to Ceridian in the normal course of business, which were conceived, made or written prior to the date of this Agreement and which are excluded from this Agreement. 5.07 Survival. The obligations of this Article V shall survive the expiration or termination of this Agreement. 8 ARTICLE VI NON-COMPETITION, NON-RECRUITMENT 6.01 General. The parties hereto recognize and agree that (a) Executive is a senior executive of Ceridian and is a key Executive of Ceridian, (b) Executive has received, and will in the future receive, substantial amounts of Confidential Information, (c) Ceridian's business is conducted on a worldwide basis, and (d) provision for non-competition and non-recruitment obligations by Executive is critical to Ceridian's continued economic well-being and protection of Ceridian's Confidential Information. In light of these considerations, this Article VI sets forth the terms and conditions of Executive's obligations of non-competition and non-recruitment subsequent to the termination of this Agreement and/or Executive's employment for any reason. 6.02 Non-Competition. (a) Unless the obligation is waived or limited by Ceridian in accordance with subsection (b) of this Section 6.02, Executive agrees that for a period of two years following termination of employment for any reason, Executive will not directly or indirectly, alone or as a partner, officer, director, shareholder or employee of any other firm or entity, engage in any commercial activity in competition with any part of Ceridian's business as conducted as of the date of such termination of employment or with any part of Ceridian's contemplated business with respect to which Executive has Confidential Information as governed by Article V of this Agreement. For purposes of this subsection (a), "shareholder" shall not include beneficial ownership of less than five percent (5%) of the combined voting power of all issued and outstanding voting securities of a publicly held corporation whose stock is traded on a major stock exchange. Also for purposes of this subsection (a), "Ceridian's business" shall include business conducted by Ceridian or its affiliates and any partnership or joint venture in which Ceridian or its affiliates is a partner or joint venturer; provided that, "affiliate" as used in this sentence shall not include any corporation in which Ceridian has ownership of less than fifteen percent (15%) of the voting stock. (b) At its sole option Ceridian may, by written notice to Executive within 30 days after the effective date of termination of Executive's employment, waive or limit the time and/or geographic area in which Executive cannot engage in competitive activity. (c) During the term of the non-competition obligation, prior to accepting employment with, or agreeing to provide consulting services to, any firm which offers products or services in the fields of electronics or information processing, Executive shall give 30 days prior written notice to Ceridian. Such written notice shall describe the proposed employment or consulting services and the firm to which they will be rendered. Ceridian's 9 failure to respond or object to such notice shall not in any way constitute acquiescence or waiver of Ceridian's rights under this Article VI. (d) During any period of non-competition pursuant to this Article VI Ceridian shall pay Executive an amount equal to the usual rate of Executive's Base Salary in effect at the time of termination. There shall be credited against Ceridian's obligation to make such payments any other payments made by Ceridian to Executive pursuant to Article IV of this Agreement. In the event that Ceridian elects, pursuant to subsection (b) of this Section 6.02, to waive all or any portion of the non-competition obligation, no payment shall be required by Ceridian with respect to the portion of the non-competition period which has been waived. 6.03 Non-Recruitment. For a period of two years following termination of employment for any reason, Executive will not initiate or actively participate in any other employer's recruitment or hiring of Ceridian employees. This provision shall not preclude Executive from responding to a request (other than by Executive's employer) for a reference with respect to an individual's employment qualifications. 6.04 Survival. The obligations of this Article VI shall survive the expiration or termination of this Agreement. ARTICLE VII CHANGE OF CONTROL 7.01 Definitions. For purposes of this Article VII, the following definitions shall be applied: (a) "Change of Control" shall mean any of the following events: (1) a merger or consolidation to which Parent Corporation is a party if the individuals and entities who were stockholders of Parent Corporation immediately prior to the effective date of such merger or consolidation have beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of less than fifty percent (50%) of the total combined voting power for election of directors of the surviving corporation immediately following the effective date of such merger or consolidation; or (2) the direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) in the aggregate of securities of Parent Corporation representing twenty-five percent (25%) or more of the total combined voting power of Parent Corporation's then issued and outstanding securities by any person or entity, or group of associated persons or entities acting in concert; or (3) the sale of the properties and assets of Parent Corporation, substantially as an entirety, to any person or entity which is not a wholly-owned subsidiary of Parent Corporation. 10 (4) the stockholders of Parent Corporation approve any plan or proposal for the liquidation of Parent Corporation; or (5) a change in the composition of the Board at any time during any consecutive 24 month period such that the "Continuity Directors" cease for any reason to constitute at least a seventy percent (70%) majority of the Board. For purposes of this clause, "Continuity Directors" means those members of the Board who either: (A) were directors at the beginning of such consecutive 24 month period; or (B) were elected by, or on the nomination or recommendation of, at least a two-thirds (2/3) majority of the then- existing Board. (b) "Change of Control Actions" shall mean any payment (including any benefit or transfer of property) in the nature of compensation, to or for the benefit of Executive under any arrangement, which is considered contingent on a Change of Control for purposes of Section 280G of the Internal Revenue Code. As used in this definition, the term "arrangement" includes, without limitation, any agreement between Executive and Ceridian and any and all of Ceridian's salary, bonus, incentive, restricted stock, stock option, compensation or benefit plans, programs or arrangements, and shall include this Agreement. (c) "Change of Control Termination" shall mean, with respect to Executive, any of the following events occurring within two years after a Change of Control: (1) Termination of Executive's employment by Ceridian for any reason other than (A) fraud, (B) theft or embezzlement of Ceridian assets, (C) intentional violations of law involving moral turpitude, or (D) the substantial and continuing failure by Executive to satisfactorily perform his or her duties as reasonably assigned to Executive pursuant to Section 2.02 of Article II of this Agreement for a period of 60 days after a written demand for such satisfactory performance which specifically identifies the manner in which it is alleged Executive has not satisfactorily performed such duties. (2) Termination of employment with Ceridian by Executive pursuant to Section 7.02 of this Article VII. A Change of Control Termination by Executive shall not, however, include termination by reason of death. (d) "Good Reason" shall mean a good faith determination by Executive, in Executive's reasonable judgment, that any one or more of the following events has occurred, without Executive's express written consent, after a Change of Control: 11 (1) A change in Executive's reporting responsibilities, titles or offices as in effect immediately prior to the Change of Control, or any removal of Executive from, or any failure to re-elect Executive to, any of such positions, which has the effect of materially diminishing Executive's responsibility or authority; (2) A reduction by Ceridian in Executive's Base Salary as in effect immediately prior to the Change of Control or as the same may be increased from time to time; (3) Ceridian requiring Executive to be based anywhere other than within 25 miles of Executive's job location at the time of the Change of Control; (4) Without replacement by plans, programs, or arrangements which, taken as a whole, provide benefits to Executive at least reasonably comparable to those discontinued or adversely affected, (A) the failure by Ceridian to continue in effect, within its maximum stated term, any pension, bonus, incentive, stock ownership, purchase, option, life insurance, health, accident, disability, or any other employee compensation or benefit plan, program or arrangement, in which Executive is participating immediately prior to a Change of Control; or (B) the taking of any action by Ceridian that would materially adversely affect Executive's participation or materially reduce Executive's benefits under any of such plans, programs or arrangements; (5) The failure by Ceridian to provide office space, furniture, and secretarial support at least comparable to that provided Executive immediately prior to the Change of Control or the taking of any similar action by Ceridian that would materially adversely affect the working conditions in or under which Executive performs his or her employment duties; (6) If Executive's primary employment duties are with a Subsidiary, the sale, merger, contribution, transfer or any other transaction in conjunction with which Parent Corporation's ownership interest in such Subsidiary decreases below the level specified in Section 1.07 of Article I unless (A) this Agreement is assigned to the purchaser/transferee with the provisions of Article VII in full force and effect and operative as if a Change of Control has occurred with respect to the purchaser/transferee as Parent Corporation immediately after the purchase/transfer becomes effective, and (B) such purchaser/transferee has a creditworthiness reasonably equivalent to Parent Corporation's; or (7) Any material breach of this Agreement by Ceridian. 12 (e) "Internal Revenue Code" -- Any reference to a section of the Internal Revenue Code shall mean that section of the Internal Revenue Code of 1986, or to the corresponding section of such Code as from time to time amended. 7.02 Change of Control Termination Right. For a period of two years following a Change of Control, Executive shall have the right, at any time and within Executive's sole discretion, to terminate employment with Ceridian for Good Reason. Such termination shall be accomplished by, and effective upon, Executive giving written notice to Ceridian of Executive's decision to terminate. Except as otherwise expressly provided in this Agreement, upon the exercise of said right, all obligations and duties of Executive under this Agreement shall be of no further force and effect. 7.03 Change of Control Termination Payment. In the event of a Change of Control Termination, and subject to the "Limitation on Change of Control Compensation" contained in Section 7.04, then, and without further action by the Board, Compensation Committee or otherwise, Parent Corporation shall, within five days of such termination, make a lump sum payment to Executive in an amount equal to one dollar ($1.00) less than three times the average annualized compensation as defined by Section 280G of the Internal Revenue Code, received by Executive from Ceridian and includible in Executive's gross income for federal income tax purposes, for the five most recent taxable years of the Executive ending before the date upon which the Change in Control occurred (or such portion of such period during which Executive was an employee of Ceridian). 7.04 Limitation on Change of Control Compensation. Notwithstanding any other provisions of this Agreement or of any other agreement, contract or understanding heretofore or hereafter entered into between Ceridian and Executive, Executive shall not be entitled to receive any Change of Control Action which would, with respect to Executive, constitute a "parachute payment" for purposes of Section 280G of the Internal Revenue Code. In the event any Change of Control Action would, with respect to Executive, constitute a "parachute payment", Executive shall have the right to designate those Change of Control Action(s) which would be reduced or eliminated so that Executive will not receive a "parachute payment". 7.05 Interest. In the event Parent Corporation does not make timely payment in full of the Change of Control Termination payment described in Section 7.03, Executive shall be entitled to receive interest on any unpaid amount at the lower of: (a) prime rate of interest (or such comparable index as may be adopted) established from time to time by the Norwest Bank Minneapolis, N.A., Minneapolis, Minnesota; or (b) the maximum rate permitted under Section 280G(d)(4) of the Internal Revenue Code. 7.06 Attorneys' Fees. In the event Executive incurs any legal expense to enforce or defend his or her rights under this Article VII of this Agreement, or to recover damages for breach thereof, Executive shall 13 be entitled to recover from Ceridian any expenses for attorneys' fees and disbursements incurred. 7.07 Benefits Continuation. In the event of a Change of Control Termination, Executive (and anyone entitled to claim under or through Executive) shall, until age 65, be entitled to receive from Ceridian the same or equivalent health, dental, accidental death and dismemberment, short and long-term disability, life insurance coverages, and all other insurance policies and health and welfare benefits programs, policies or arrangements, at the same levels and coverages as Executive was receiving on the day immediately prior to the Change of Control. To the extent that election of continuation of any of such coverages, programs, policies, or arrangements is made available to employees terminating at age 55 with 15 or more years of service, Executive shall be required to pay no more for continuation than is required of such employees on the day immediately prior to the Change of Control. If no such continuation program is available, Executive shall be required to pay no more than he/she paid as an active employee, or if provided by Ceridian at no cost to employees on the day immediately prior to the Change of Control, they shall continue to be made available to Executive on this basis. 7.08 Pension Supplement. In the event of a Change of Control Termination, Parent Corporation shall, within five days, make a lump sum payment to Executive in an amount equal to the actuarial equivalent of the difference, if any, between: (a) the monthly benefit to which Executive would have been entitled under the defined benefit pension plan or plans in which he or she participated immediately prior to his or her Change of Control Termination if the amount of payment to which Executive is entitled under Section 7.03 were taken into account for purposes of determining his or her "final average pay" or similar term (as then defined under the terms of such plan or plans) for either (1) the year in which the Change of Control Termination occurred; or (2) the prior full year, whichever provides the highest total final average pay; and (b) the amount to which Executive is, in fact, entitled under such plan or plans. For purposes of determining actuarial equivalencies for this Section 7.08, the actuarial factors specified in the particular plan or plans with respect to which the determination is being made shall be applied. ARTICLE VIII CHANGE OF SUBSIDIARY STATUS In the event that, prior to a Change of Control: (a) a Subsidiary is sold, merged, contributed, or in any other manner transferred, or if for any reason Parent Corporation's ownership interest in any such Subsidiary falls below the level specified in Section 1.07, (b) Executive's primary employment duties are with the Subsidiary at the time of the occurrence of 14 such event, and (c) Executive does not, in conjunction therewith, transfer employment directly to Parent Corporation or another Subsidiary, then: (1) If Executive gives his or her written consent to the assignment of this Agreement to such Subsidiary, or to the purchaser or new majority interest holder of such Subsidiary, (and such assignment is accepted) this Agreement shall remain in full force and effect between Executive and the assignee, except that the provisions of Article VII of this Agreement shall become null and void; (2) If such assignment is not accepted by the Subsidiary or purchaser, then this Agreement shall be deemed to have been terminated by Ceridian without cause pursuant to Section 4.03 of Article IV; and (3) In all other cases, this Agreement shall be deemed terminated for cause pursuant to Section 4.02 of Article IV. ARTICLE IX GENERAL PROVISIONS 9.01 No Adequate Remedy. The parties declare that it is impossible to measure in money the damages which will accrue to either party by reason of a failure to perform any of the obligations under this Agreement. Therefore, if either party shall institute any action or proceeding to enforce the provisions hereof, such party against whom such action or proceeding is brought hereby waives the claim or defense that such party has an adequate remedy at law, and such party shall not urge in any such action or proceeding the claim or defense that such party has an adequate remedy at law. 9.02 Successors and Assigns. Except as otherwise provided in Article VIII, this Agreement shall be binding upon and inure to the benefit of the successors and assigns of Parent Corporation and each Subsidiary, whether by way of merger, consolidation, operation of law, assignment, purchase or other acquisition of substantially all of the assets or business of Ceridian, and any such successor or assign shall absolutely and unconditionally assume all of Ceridian's obligations hereunder. 9.03 Notices. All notices, requests and demands given to or made pursuant hereto shall, except as otherwise specified herein, be in writing and be delivered or mailed to any such party at its address: (a) Ceridian Corporation 8100 34th Avenue South Minneapolis, Minnesota 55425-1640 Attention: Office of General Counsel (b) In the case of Executive shall be: At the address listed on the last page of this Agreement. 15 Either party may, by notice hereunder, designate a changed address. Any notice, if mailed properly addressed, postage prepaid, registered or certified mail, shall be deemed dispatched on the registered date or that stamped on the certified mail receipt, and shall be deemed received within the second business day thereafter or when it is actually received, whichever is sooner. 9.04 Captions. The various headings or captions in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement. 9.05 Governing Law. The validity, construction and performance of this Agreement shall be governed by the laws of the State of Minnesota and any and every legal proceeding arising out of or in connection with this Agreement shall be brought in the appropriate courts of the State of Minnesota, each of the parties hereby consenting to the exclusive jurisdiction of said courts for this purpose. The parties hereto expressly recognize and agree that the implementation of this Governing Law provision is essential in light of the fact that Parent Corporation's corporate headquarters and its principal executive offices are located within the State of Minnesota, and there is a critical need for uniformity in the interpretation and enforcement of the employment agreements between Ceridian and its senior executives. 9.06 Construction. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. 9.07 Waivers. No failure on the part of either party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right or remedy granted hereby or by any related document or by law. 9.08 Modification. This Agreement may not be and shall not be modified or amended except by written instrument signed by the parties hereto. 9.09 Entire Agreement. This Agreement constitutes the entire agreement and understanding between the parties hereto in reference to all the matters herein agreed upon. This Agreement replaces in full all prior employment agreements or understandings of the parties hereto, and any and all such prior agreements or understandings are hereby rescinded by mutual agreement. IN WITNESS WHEREOF, The parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. EXECUTIVE CERIDIAN CORPORATION John R. Eickhoff By: /s/John R. Eickhoff Title: Chief Financial Officer Address: 8100 34th Avenue South Bloomington, MN 55425 17 EX-10.06 6 EXHIBIT 10.06 EXHIBIT 10.06 CERIDIAN CORPORATION EMPLOYEE NON-STATUTORY STOCK OPTION AWARD AGREEMENT 1993 Long-Term Incentive Plan This Agreement, dated as of January 3, 1994 (the "Date of Grant"), is between Ceridian Corporation (the "Company") and Pat Sommers (the "Participant"), pursuant to the 1993 Long-Term Incentive Plan of the Company (the "Plan") to evidence the grant of a Non-Statutory Stock Option (the "Option") to the Participant pursuant to the Plan. Any capitalized term used herein which is defined in the Plan shall have the same meaning as set forth therein. 1. Effective as of the Date of Grant, and subject to the other terms and conditions of this Agreement, the Company has granted to the Participant the option to purchase from the Company, and the Company has agreed to sell to the Participant, 9,176 shares of Common Stock (the "Option Shares") at a price of $19.13 per share (the "Exercise Price"). 2. This Option shall become void and expire if the Participant's employment with the Company and all of its Subsidiaries terminates for any reason other than death or Disability on or before December 31, 1994, and otherwise at midnight (Minneapolis time) on the tenth anniversary of the Date of Grant. This Option is a non-statutory stock option and to the extent it becomes exercisable pursuant to the terms hereof, it shall be exercisable even though there may be outstanding an incentive stock option which is granted to the Participant at an earlier time. 3. Because this Option has been granted as a result of the Participant's election (the "Election") to receive in the form of a non-statutory stock option one hundred percent of the difference, if any, between (i) the cash bonus he or she would otherwise be entitled to receive pursuant to the Company's 1994 Executive Incentive Plan (the "EIP"), and (ii) the cash bonus he or she would be entitled to receive under the EIP if only specified target financial and individual performance goals were achieved, the Option shall become exercisable only if and to the extent that financial and individual performance goals justifying a payout above target level under the EIP have been attained. The Committee shall, at its February 1995 meeting, certify which, if any, financial and individual performance goals specified in the EIP have 1 been satisfied, the dollar amount of the total bonus payout the Participant is entitled to receive under the EIP as a result of the satisfaction of such financial and individual performance goals, and the dollar amount of such total bonus payout to be received in the form of a stock option as the result of the Election (the "Election Amount"). Subject to the provisions of paragraph 4 hereof, a portion of the Option Shares equal to the quotient obtained by dividing the Election Amount by one-third of the Exercise Price shall thereupon become immediately exercisable, and the balance of the Option Shares shall be forfeited and the portion of the Option relating thereto shall be cancelled and of no further effect. 4. If the Participant's employment with the Company and all Subsidiaries should terminate by reason of death or Disability on or before December 31, 1994, the Committee shall determine, as provided in paragraph 3 hereof, whether the Participant would otherwise have been entitled to the payment of a bonus under the EIP as a result of the Company's attainment of an applicable financial performance goal. If the Committee determines that a bonus would have been payable, then a portion of the Option Shares shall become exercisable upon the Committee's certification of the Election Amount, such portion to be equal to the product of (a) the quotient obtained by dividing the Election Amount by one-third of the Exercise Price, and (b) a fraction, the numerator of which is the number of whole calendar months during 1994 prior to the date of such employment termination and the denominator of which is 12. 5. The timing and extent of the exercisability of this Option as specified in paragraphs 3 and 4 hereof shall not be affected by any intervening Change of Control, notwithstanding the provisions of Section 12 of the Plan as in effect on the date of any such Change of Control. 6. Notwithstanding any other provision of this Agreement, the Option shall not be exercisable prior to the expiration of six months after the Date of Grant, except in the case of death or Disability. 7. Nothing in the Plan or this Agreement shall confer upon the Participant any right with respect to continuance of employment by the Company or any Subsidiary, nor interfere in any way with the right of the Company or a Subsidiary to terminate the Participant's employment at any time. 8. This Option grant, the Option forming a part thereof, and the Participant's rights under this Agreement shall be nontransferable (i.e., may not be sold, pledged, donated or otherwise assigned or transferred) by the Participant, either voluntarily or involuntarily, except by will or by applicable law, and any attempt to do so shall void this Option grant and Agreement. This Option shall be exercisable during Participant's lifetime only by the Participant or by the Participant's guardian or other legal representative. 9. Neither the Participant nor any other person shall have any rights as a stockholder with respect to any Option Shares until the Participant or other person shall have become a holder of record of such shares and, except as otherwise provided in Section 4.4 of the Plan, no adjustments 2 shall be made for dividends or other distributions or rights as to which there is a record date preceding the date the Participant becomes the holder of record of such shares. 10.Except as specifically provided herein, this Agreement is subject to all of the terms and conditions of the Plan. Where any questions or issues of interpretation arise, the Committee administering the Plan shall have sole discretion to decide such matters. 11.Any notice to be given with respect to this Option, including without limitation a notice of exercise, shall be addressed to the Company, Attention: Corporate Treasury at its principal executive office in Minneapolis, Minnesota, and any notice to be given to the Participant shall be addressed to the Participant at the address given beneath the Participant's signature hereto, or at such other address as either party may hereafter designate in writing to the other. 12.Any notice of stock option exercise must specify the number of shares with respect to which the Option is being exercised and be accompanied by either (i) payment in full of the purchase price for the shares exercised or (ii) a Broker Exercise Notice in form and substance satisfactory to the Company. The exercise of the Option shall be deemed effective upon receipt by Corporate Treasury of such notice and payment of the exercise price from the Participant or the broker or dealer named in the Broker Exercise Notice. Any such notice will not be deemed given until actual receipt by Corporate Treasury. IN WITNESS WHEREOF, Ceridian Corporation has executed this Agreement duly authorized signature, and the Participant has signed this Agreement. CERIDIAN CORPORATION PARTICIPANT By: /s/John A. Haveman /s/Patrick C. Sommers Secretary (Participant's Signature) PARTICIPANT'S MAILING ADDRESS 8100 34th Avenue South Bloomington, MN 55425 3 EX-10.07 7 EXHIBIT 10.07 EXHIBIT 10.07 CERIDIAN CORPORATION EMPLOYEE NON-STATUTORY STOCK OPTION AWARD AGREEMENT 1993 Long-Term Incentive Plan This Agreement, dated as of January 3, 1994 (the "Date of Grant"), is between Ceridian Corporation (the "Company") and Jack Eickhoff (the "Participant"), pursuant to the 1993 Long-Term Incentive Plan of the Company (the "Plan") to evidence the grant of a Non-Statutory Stock Option (the "Option") to the Participant pursuant to the Plan. Any capitalized term used herein which is defined in the Plan shall have the same meaning as set forth therein. 1. Effective as of the Date of Grant, and subject to the other terms and conditions of this Agreement, the Company has granted to the Participant the option to purchase from the Company, and the Company has agreed to sell to the Participant, 5,822 shares of Common Stock (the "Option Shares") at a price of $19.13 per share (the "Exercise Price"). 2. This Option shall become void and expire if the Participant's employment with the Company and all of its Subsidiaries terminates for any reason other than death or Disability on or before December 31, 1994, and otherwise at midnight (Minneapolis time) on the tenth anniversary of the Date of Grant. This Option is a non-statutory stock option and to the extent it becomes exercisable pursuant to the terms hereof, it shall be exercisable even though there may be outstanding an incentive stock option which is granted to the Participant at an earlier time. 3. Because this Option has been granted as a result of the Participant's election (the "Election") to receive in the form of a non-statutory stock option sixty percent of the difference, if any, between (i) the cash bonus he or she would otherwise be entitled to receive pursuant to the Company's 1994 Executive Incentive Plan (the "EIP"), and (ii) the cash bonus he or she would be entitled to receive under the EIP if only specified target financial and individual performance goals were achieved, the Option shall become exercisable only if and to the extent that financial and individual performance goals justifying a payout above target level under the EIP have been attained. The Committee shall, at its February 1995 meeting, certify which, if any, financial and individual performance goals specified in the EIP have been 1 satisfied, the dollar amount of the total bonus payout the Participant is entitled to receive under the EIP as a result of the satisfaction of such financial and individual performance goals, and the dollar amount of such total bonus payout to be received in the form of a stock option as the result of the Election (the "Election Amount"). Subject to the provisions of paragraph 4 hereof, a portion of the Option Shares equal to the quotient obtained by dividing the Election Amount by one-third of the Exercise Price shall thereupon become immediately exercisable, and the balance of the Option Shares shall be forfeited and the portion of the Option relating thereto shall be cancelled and of no further effect. 4. If the Participant's employment with the Company and all Subsidiaries should terminate by reason of death or Disability on or before December 31, 1994, the Committee shall determine, as provided in paragraph 3 hereof, whether the Participant would otherwise have been entitled to the payment of a bonus under the EIP as a result of the Company's attainment of an applicable financial performance goal. If the Committee determines that a bonus would have been payable, then a portion of the Option Shares shall become exercisable upon the Committee's certification of the Election Amount, such portion to be equal to the product of (a) the quotient obtained by dividing the Election Amount by one-third of the Exercise Price, and (b) a fraction, the numerator of which is the number of whole calendar months during 1994 prior to the date of such employment termination and the denominator of which is 12. 5. The timing and extent of the exercisability of this Option as specified in paragraphs 3 and 4 hereof shall not be affected by any intervening Change of Control, notwithstanding the provisions of Section 12 of the Plan as in effect on the date of any such Change of Control. 6. Notwithstanding any other provision of this Agreement, the Option shall not be exercisable prior to the expiration of six months after the Date of Grant, except in the case of death or Disability. 7. Nothing in the Plan or this Agreement shall confer upon the Participant any right with respect to continuance of employment by the Company or any Subsidiary, nor interfere in any way with the right of the Company or a Subsidiary to terminate the Participant's employment at any time. 8. This Option grant, the Option forming a part thereof, and the Participant's rights under this Agreement shall be nontransferable (i.e., may not be sold, pledged, donated or otherwise assigned or transferred) by the Participant, either voluntarily or involuntarily, except by will or by applicable law, and any attempt to do so shall void this Option grant and Agreement. This Option shall be exercisable during Participant's lifetime only by the Participant or by the Participant's guardian or other legal representative. 9. Neither the Participant nor any other person shall have any rights as a stockholder with respect to any Option Shares until the Participant or other person shall have become a holder of record of such shares and, except as otherwise provided in Section 4.3 of the Plan, no adjustments 2 shall be made for dividends or other distributions or rights as to which there is a record date preceding the date the Participant becomes the holder of record of such shares. 10.Except as specifically provided herein, this Agreement is subject to all of the terms and conditions of the Plan. Where any questions or issues of interpretation arise, the Committee administering the Plan shall have sole discretion to decide such matters. 11.Any notice to be given with respect to this Option, including without limitation a notice of exercise, shall be addressed to the Company, Attention: Corporate Treasury at its principal executive office in Minneapolis, Minnesota, and any notice to be given to the Participant shall be addressed to the Participant at the address given beneath the Participant's signature hereto, or at such other address as either party may hereafter designate in writing to the other. 12.Any notice of stock option exercise must specify the number of shares with respect to which the Option is being exercised and be accompanied by either (i) payment in full of the purchase price for the shares exercised or (ii) a Broker Exercise Notice in form and substance satisfactory to the Company. The exercise of the Option shall be deemed effective upon receipt by Corporate Treasury of such notice and payment of the exercise price from the Participant or the broker or dealer named in the Broker Exercise Notice. Any such notice will not be deemed given until actual receipt by Corporate Treasury. IN WITNESS WHEREOF, Ceridian Corporation has executed this Agreement duly authorized signature, and the Participant has signed this Agreement. CERIDIAN CORPORATION PARTICIPANT By: /s/John A. Haveman /s/John R. Eickhoff Secretary (Participant's Signature) PARTICIPANT'S MAILING ADDRESS 8100 34th Avenue South Bloomington, MN 55425 3 EX-10.09 8 EXHIBIT 10.09 EXHIBIT 10.09 CERIDIAN CORPORATION DIRECTORS' BENEFIT PROTECTION TRUST AGREEMENT Table of Contents Page PREAMBLE 1 ARTICLE 1 Description and Definitions 2 1.2 Intentions 2 1.3 Irrevocability; Creditor Claims 2 1.4 Additional Definitions 2 1.5 Grantor Trust 3 1.6 Benefits Implemented Through Trust 4 ARTICLE 2 General Administration 5 2.1 Committee Directions 5 2.2 Contributions 5 2.3 Separate Accounting for Each Plan 6 2.4 Interest of Plans in Trust Fund 6 2.5 Excess Accumulations 7 2.6 Substitution 7 2.7 Transfer to Successor Trust 7 2.8 Merger or Split-up of Plans 8 ARTICLE 3 Duties and Powers of Trustee 9 3.1 General Responsibility 9 3.2 General Powers 9 3.3 Distributions 13 3.4 Trustee Responsibility Regarding Payments on Insolvency 16 3.5 Records 18 3.6 Quarterly Accounting; Final Accounting 18 3.7 Valuation 18 3.8 Delegation of Duties 19 ARTICLE 4 Directed Investments 20 4.1 Appointment of Insurance Company as Investment Manager 20 4.2 Appointment of Investment Adviser as Investment Manager 20 4.3 Directions of Committee 22 ARTICLE 5 Compensation, Indemnification 24 5.1 Compensation and Expenses 24 5.2 Indemnification 24 i ARTICLE 6 Resignation or Removal of Trustee 25 6.1 Resignation; Removal 25 6.2 Successor Trustee 25 6.3 Settlement of Accounts 25 SECTION 7 Controversies, Legal Actions 26 7.1 Controversy 26 7.2 Joinder of Parties 26 ARTICLE 8 Insurers 27 8.1 Insurer Not a Party 27 8.2 Authority of Trustee 27 8.3 Contract Ownership 27 8.4 Limitation of Liability 27 8.5 Change of Trustee 27 ARTICLE 9 Amendment and Termination 28 9.1 Amendment 28 9.2 Final Termination 29 ARTICLE 10 Miscellaneous 30 10.1 Taxes 30 10.2 Third Persons 30 10.3 Nonassignability; Nonalienation 30 10.4 The Plans 30 10.5 Applicable Law 30 10.6 Notices and Directions 31 10.7 Successors and Assigns 31 10.8 Gender and Number 31 10.9 Headings 31 10.10 Counterparts 31 10.11 Beneficial Interest 31 10.12 Effective Date 31 ii CERIDIAN CORPORATION DIRECTORS' BENEFIT PROTECTION TRUST AGREEMENT This Trust Agreement is made and entered into as of December 1, 1994, between Ceridian Corporation, a Delaware corporation (the "Company"), and First Trust National Association, a national banking association with trust powers (the "Trustee"). RECITALS The Company desires to establish a trust to be used in conjunction with certain agreements and plans which provide deferred or supplemental compensation to current or former directors of the Company or a Subsidiary, including such agreements or plans entered into or established after the effective date of this Trust Agreement. The Company desires to appoint the Trustee to act as trustee of the Trust and the Trustee desires to accept the appointment. The Company and the Trustee enter into this Trust Agreement to establish the Trust and to set forth their respective rights and obligations in connection with the Trust. Therefore, in consideration of the mutual undertakings contained in this Trust Agreement, the Company and Trustee agree as follows: ARTICLE 1 Description and Definitions 1.1 Name. The name of the Trust is the "Ceridian Corporation Directors' Benefit Protection Trust." 1.2 Intentions. It is the intention of the parties that this Trust constitute an unfunded arrangement and not affect the status of the Plans as unfunded for purposes of the Code and, to the extent applicable, Title I of ERISA. In addition, it is the intention of the Company and the Subsidiaries to make contributions to the Trust to provide a source of funds to assist in meeting their liabilities under the Plans, subject to the claims of the Company's and the Subsidiaries' creditors in the event of their Insolvency, until paid to Participants and their Beneficiaries in such manner and at such times as specified in the Plans. 1.3 Irrevocability; Creditor Claims. The Trust established pursuant to this Trust Agreement is irrevocable. The principal of the Trust, and any earnings thereon, will be held separate and apart from other funds of the Company and the Subsidiaries and will be used exclusively for the uses and purposes of the 1 Participants, Beneficiaries and general creditors of the Company and the Subsidiaries as herein set forth. The Participants and their Beneficiaries have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plans and this Trust Agreement are mere unsecured contractual rights of the Participants and their Beneficiaries against the Company and the Subsidiaries. Any assets held by the Trust will be subject to the claims of the Company's and the Subsidiaries' general creditors under federal and state law in the event of Insolvency. 1.4 Additional Definitions. In addition to the definitions set forth above, for purposes hereof, unless otherwise clearly apparent from the context, the following terms have the following indicated meanings: (a) "Account" has the meaning set forth in Section 2.3(a). (b) "Beneficiary" means one or more persons, trusts, estates or other entities, designated in accordance with a Plan, that are entitled to receive benefits under a Plan upon the death of a Participant. (c) "Board" means the board of directors of the Company. When this Trust Agreement provides for an action to be taken by the Board, the action may be taken by any committee or individual authorized to take such action pursuant to a proper delegation of the Company's board of directors which remains in effect at the time in question. (d) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (e) "Committee" means the administrative committee appointed by the Company's Chief Executive Officer to administer the Trust. (f) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. (g) "Insolvent" has the meaning set forth in Section 3.4(a). (h) "Insolvent Entity" has the meaning set forth in Section 3.4(a). (i) "IRS" means the Internal Revenue Service. (j) "Participant" means a current or former director of the Company or a Subsidiary who is a party to, or a participant under, one or more of the Plans in accordance with their terms and conditions. 2 (k) "Payment Schedule" has the meaning set forth in Section 3.3(b). (l) "Plan" means any plan, program, policy or agreement pursuant to which the Company or a Subsidiary is required to provide deferred or supplemental compensation to a current or former director in his or her capacity as a director which is listed on Schedule 1, as such schedule may be amended from time to time by the Board. (m) "Subaccount" has the meaning set forth in Section 2.3(b). (n) "Subsidiary" means any corporation that is a member of a controlled group of corporations within the meaning of Code section 414(b) that includes the Company. (o) "Trust" means the trust established pursuant to this Trust Agreement as amended from time to time. (p) "Trust Fund" means the assets held by the Trustee pursuant to the terms of this Trust Agreement and for the purposes of the Plans. 1.5 Grantor Trust. The Trust is intended to be a "grantor trust," of which the Company and the Subsidiaries are the grantors, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Code, and the Trust will be construed accordingly. 1.6 Benefits Implemented Through Trust. Simultaneously with the execution of this Trust Agreement, the Company will deliver to the Trustee true, correct and complete copies of all Plans listed on Schedule 1. If so specified on Schedule 1, benefits implemented through the Trust with respect to a Plan may be limited to any individual Participant or Beneficiary or group of Participants or Beneficiaries and to less than all of the benefits payable under the Plan. The Board may, from time to time, without the consent of the Trustee, add Plans to Schedule 1, expand the scope of Plan benefits implemented through the Trust or amend or modify any Plan listed on Schedule 1 and no such action will be deemed to be an amendment subject to Section 9.1; provided, however, that the effect of such action may not unreasonably increase the Trustee's responsibilities hereunder without the Trustee's consent. The Company will promptly deliver to the Trustee a true, correct and complete copy of any new Plan, or modifications or amendments to such Plan. Any special provisions of this Trust Agreement applicable to a specific Plan listed on Schedule 1 will be set forth on an exhibit to this Trust Agreement and in the event of any inconsistencies between the provisions of any such exhibit and the other provisions of this Trust Agreement, the provisions of the exhibit control. A Plan may be deleted from Schedule 1 by action of the Board and such action will not be deemed to be an amendment subject to 3 Section 9.1 only (a) in the case of a transfer to a successor trust pursuant to Section 2.7 or (b) if the Committee establishes to the reasonable satisfaction of the Trustee that the Plan has been (1) merged with another Plan pursuant to Section 2.8, (2) assumed by (A) a Subsidiary in connection with a transaction pursuant to which it ceases to be such or (B) a successor to all or any portion of the business of the Company or a Subsidiary or (3) terminated but only if all liabilities to Participants and Beneficiaries pursuant to the Plan have been fully satisfied. Any other deletion of a Plan from Schedule 1 is an amendment subject to Section 9.1. 4 ARTICLE 2 General Administration 2.1 Committee Directions. (a) The Secretary or an Assistant Secretary of the Company will certify to the Trustee the names of the Committee members. Persons authorized to give directions to the Trustee on behalf of the Committee will be identified to the Trustee by written notice from the Committee, and such notice will contain specimens of the authorized signatures. The Trustee may rely on such written notice as evidence of the identity and authority of the persons appointed until a written cancellation of the appointment, or the written appointment of a successor, is received by the Trustee. (b) Directions by the Committee, or its delegate, to the Trustee must be in writing and signed by the Committee or persons authorized by the Committee, or may be made by such other method as is acceptable to the Trustee. (c) The Trustee may conclusively rely on written directions from the Committee in taking any action with respect to the Trust, including the making of payments from the Trust Fund and the investment of the Trust Fund pursuant to this Trust Agreement. (d) The Trustee may request directions from the Committee and has no duty to act if such directions are not provided by the Committee. If requested directions are not received within a reasonable time, the Trustee may, but is under no duty to, act on its own discretion to administer the Trust in accordance with this Trust Agreement and the Plans. 2.2 Contributions. The Company and the Subsidiaries, in their sole discretion, may at any time, or from time to time, make deposits of cash or other property acceptable to the Trustee in trust with the Trustee to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. In connection with any deposit, the Committee will designate in writing to the Trustee the portion of the deposit attributable to each Account and, if applicable, Subaccount. Neither the Trustee nor any Participant or Beneficiary has any right to compel such additional deposits. The Trustee has no duty to (a) collect or enforce payment to it of any contributions, (b) require that any contributions be made, (c) compute any amount to be paid to it or (d) determine whether amounts paid comply with the terms of the Plans. 2.3 Separate Accounting for Each Plan. (a) The Trustee will maintain separate Accounts to reflect the interest of each Plan in the Trust Fund. Not 5 less frequently than monthly, the Account of each Plan will be debited or credited, as the case may be, (1) for the entire amount of every contribution received by the Trustee on behalf of such Plan, every benefit payment or expense or other charge properly allocable to such Plan and every transaction relating solely to such Plan, and (2) for the Plan's equitable share of every item of allocated or accrued income, gain or loss of general expenses and other transactions allocable to the Trust Fund as a whole. If contributions are made with respect to a Plan (b) by the Company and one or more other Subsidiaries or two or more Subsidiaries, the Trustee will maintain within the Account with respect to the Plan separate Subaccounts to reflect the portion of the total Account balance attributable to each contributing entity. (c) Except as provided in Section 2.5, (1) in no event will a Plan or the Participants or Beneficiaries covered by that Plan be entitled to payments from the Trust Fund in excess of the value of the Account maintained for that Plan, and (2) if Subaccounts are maintained with respect to a Plan, in no event will Participants or Beneficiaries covered by that Plan be entitled to payments pursuant to the Plan with respect to service as a director of the Company or a Subsidiary in excess of the value of the Subaccount maintained for the Company or Subsidiary with respect to the Plan. 2.4 Interest of Plans in Trust Fund. The Committee may specify in writing to the Trustee that all or part of a Plan's interest in the Trust Fund be held in a segregated account for the Plan and invested separately from the remainder of the Trust Fund. In such event, assets of such segregated account will be held and administered solely for that Plan. Except in cases of such segregation, the contributions received by the Trustee from the Company and the Subsidiaries with respect to all Plans will be held and administered pursuant to the terms of this Trust Agreement as a single fund without distinction between income and principal and without liability for the payment of interest thereon except as expressly provided in this Trust Agreement. During the term of this Trust, except as otherwise expressly provided in this Trust Agreement, all income received by the Trust, net of expenses and taxes, will be accumulated and reinvested. 2.5 Excess Accumulations. 6 (a) If the Trustee determines that the fair market value of an Account or Subaccount exceeds 125 percent of the benefit obligations accrued through the date of the determination chargeable to the Account or Subaccount, at the direction of the Committee, the Trustee will distribute to the Company or Subsidiary all or any portion of the excess. (b) If the Trustee determines that the fair market value of an Account or Subaccount exceeds 125 percent of the benefit obligations accrued through the date of the determination chargeable to the Account or Subaccount, at the direction of the Committee or pursuant to Section 3.3(d)(2), the Trustee will transfer all or any portion of the excess to another Account or another Subaccount maintained for the same entity. (c) For purposes of this section the value of benefit obligations as of a given date is, (1) in the case of a Plan which is a defined contribution plan, the aggregate balance the accounts of all Participants and Beneficiaries as of the most recent Plan valuation date, and (2) in the case of a Plan which is a defined benefit plan, the present value (based on actuarial assumptions determined by the Trustee to be reasonable) of Plan benefits based on service, compensation and other appropriate factors as of the determination date and applying the provisions of the Plan then in effect. 2.6 Substitution. Notwithstanding any provision of any Plan or this Trust Agreement to the contrary, the Company or any Subsidiary that has made contributions to the Trust has the power to reacquire the Trust Fund by substituting readily marketable securities (other than a security issued by the Company or any Subsidiary) acceptable to the Trustee and/or cash of an equivalent fair market value and such other property will, following such substitution, constitute the Trust Fund. 2.7 Transfer to Successor Trust. The Company, by written direction delivered to the Trustee, may direct the withdrawal and transfer of assets constituting all or a part of the interest of a Plan in the Trust Fund to a successor trust, which may be the Trustee acting under a separate trust agreement. The Trustee will be required to effect the direction only if it determines that (a) the trustee of the successor trust would qualify to act as a successor trustee of the Trust pursuant to Section 6.2 and (b) the transfer could not reasonably be expected to result in (1) any material decrease in the rights of Participants and Beneficiaries or (2) Participants and/or Beneficiaries being 7 taxed on benefits under a Plan or successor plan in a year other than the year of actual receipt of benefits. The Trustee will make the transfer as soon as practicable after making such determination, either in cash, or at the direction of the Committee, in other property or partly in cash and partly in other property. 2.8 Merger or Split-up of Plans. If two or more Plans are merged into a single Plan, or if a Plan is divided into two or more Plans, the resulting Plan or Plans will continue to participate in this Trust unless the Company directs the Trustee to make a transfer of assets with respect to such Plan or Plans to a successor trust pursuant to Section 2.7. The Trustee will make such adjustments of the Accounts or Subaccounts as are appropriate to reflect any such merger or split-up of Plans. ARTICLE 3 Duties and Powers of Trustee 3.1 General Responsibility. The general responsibilities of the Trustee are as follows: (a) Except as expressly otherwise provided in this Trust Agreement, the Trustee has exclusive authority and discretion to manage and control the assets comprising the Trust Fund. (b) The Trustee will hold, administer, invest and reinvest, and disburse the Trust Fund in accordance with the powers and subject to the restrictions stated in this Trust Agreement. Investments will be consistent with any funding policy communicated to the Trustee in writing by the Committee. The Trustee may rely on the latest such communication received by it without further inquiry or verification. (c) The Trustee will disburse monies and oth properties from the Trust Fund in accordance with the terms of this Trust Agreement. The Trustee is not liable for any distribution made by it pursuant to such directions and has no duty to make inquiry as to whether any distribution made by it pursuant to any such direction is made pursuant to the provisions of the Plans. The receipt by the payee will constitute a full acquittance to the Trustee. (d) The Trustee has the responsibilities, if any, expressly allocated to it by the Plans. Except as responsibilities may be expressly so allocated, the Trustee, in its capacity as such, has no responsibility or authority with respect to the operation and administration of the Plans, and the rights, powers, and duties of the Trustee are governed solely by the terms of this Agreement without reference to the provisions of the Plans. 8 (e) The Trustee will reimburse the Company from the Trust Fund for expenses incurred by the Company or any employee or agent thereof in connection with the administration of the Plans upon its receipt of written statements therefor in form acceptable to the Trustee. 3.2 General Powers. The Trustee has, without exclusion, all powers conferred on the Trustee by applicable law, unless otherwise expressly provided in this Trust Agreement, and all rights associated with the Trust Fund will be exercised by the Trustee or the person designated by the Trustee, and in no event by Participants or Beneficiaries. Except as otherwise expressly provided in this Trust Agreement, the Trustee has exclusive authority and discretion to invest and reinvest the principal and income of the Trust Fund in real or personal property of any kind and will do so with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. The Trustee will diversify the investments of the Trust Fund so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so. The Trustee is not limited by the laws of any state proscribing or limiting the investment of trust funds by corporate or individual trustees in or to certain kinds, types, or classes of investments or limiting the value or proportion of the trust assets that may be invested in any one property or kind, type, or class of investment. Without limiting the generality of the foregoing, investments and reinvestments are also subject to the following: (a) To invest and reinvest the Trust Fund, together with the income therefrom, in common stock, preferred stock, convertible preferred stock, mutual funds, bonds, debentures, convertible debentures and bonds, mortgages, notes, time certificates of deposit, commercial paper and other evidences of indebtedness (including those issued by the Trustee or any of its affiliates), financial futures contracts, other securities, policies of life insurance, annuity contracts, options to buy or sell securities or other assets, and other property of any kind (personal, real, or mixed, and tangible or intangible); provided, however, that in no event may the Trustee invest in securities (including stock or rights to acquire stock) or obligations issued by the Company or the Subsidiaries, other than a de minimis amount held in common investment vehicles in which the Trustee invests. (b) To hold securities and other properties in bearer form or in the name of a nominee or nominees without disclosing any fiduciary relationship; provided, however, that on the books and records of the Trustee such securities and properties will constantly be shown to be a part of the Trust Fund, and no such registration or holding by the Trustee relieves it from liability for the safe custody and 9 proper disposition of such securities and properties in accordance with the terms and provisions of this Trust Agreement. (c) To sell, grant options to buy, transfer, assign, convey, exchange, mortgage, pledge, lease or otherwise dispose of any of the properties comprising the Trust Fund at such prices and on such terms and in such manner as it may deem proper, and for terms within or extending beyond the duration of the Trust. (d) To manage, administer, operate, lease for any number of years, regardless of any restrictions on leases made by fiduciaries, develop, improve, repair, alter, demolish, mortgage, pledge, grant options with respect to, or otherwise deal with any real property or interest therein at any time held by it; and to cause to be formed a corporation or trust to hold title to any such real property with such powers, all upon such terms and conditions as may be deemed advisable. (e) To renew or extend or participate in the renewal or extension of any note, bond or other evidence of indebtedness, or any other contract or lease, or to exchange the same, or to agree to a reduction in the rate of interest or rent thereon or to any other modification or change in the terms thereof, or of the security therefor, or any guaranty thereof, in any manner and to any extent that it may deem advisable in its absolute discretion; to waive any default, whether in the performance of any covenant or condition of any such note, bond or other evidence of indebtedness, or any other contract or lease, or of the security therefor, and to carry the same past due or to enforce any such default as it may in its absolute discretion deem advisable; to exercise and enforce any and all rights to foreclose, to bid in property on foreclosure; to exercise and enforce in any action, suit, or proceeding at law or in equity any rights or remedies in respect to any such note, bond or other evidence of indebtedness, or any other contract or lease, or the security therefor; to pay, compromise, and discharge with the funds of the Trust Fund any and all liens, charges, or encumbrances upon the same, in its absolute discretion, and to make, execute, and deliver any and all instruments, contracts, or agreements necessary or proper for the accomplishment of any of the foregoing powers. (f) To borrow such sums of money for the benefit of the Trust Fund from any lender upon such terms, for such period of time, at such rates of interest, and upon giving such collateral as it may determine; to secure any loan so made by pledge or mortgage of the trust property; and to renew existing loans. 10 (g) To use the assets of the Trust Fund, whether principal or income, for the purpose of improving, maintaining, or protecting property acquired by the Trust Fund, and to pay, compromise, and discharge with the assets of the Trust Fund any and all liens, charges, or encumbrances at any time upon the same. (h) To hold uninvested such cash funds as may appear reasonably necessary to meet the anticipated cash requirements of the Plans from time to time and to deposit the same or any part thereof, either separately or together with other trust funds under the control of the Trustee, in its own deposit department or to deposit the same in its name as Trustee in such other depositories as it may select. (i) To receive, collect, and give receipts for every item of income or principal of the Trust Fund. (j) To institute, prosecute, maintain, or defend any proceeding at law or in equity concerning the Trust Fund or the assets thereof, at the sole cost and expense of the Trust Fund, and to compromise, settle, and adjust any claims and liabilities asserted against or in favor of the Trust Fund or of the Trustee; but the Trustee is under no duty or obligation to institute, maintain, or defend any action, suit, or other legal proceeding unless it has been indemnified to its satisfaction against any and all loss, cost, expense, and liability it may sustain or anticipate by reason thereof. (k) To vote all stocks and to exercise all rights incident to the ownership of stocks, bonds, or other securities or properties held in the Trust Fund and to issue proxies to vote such stocks; to enter into voting trusts for such period and upon such terms as it may determine; to give general or special proxies or powers of attorney, with or without substitution; to sell or exercise any and all subscription rights and conversion privileges; to sell or retain any and all stock dividends; to oppose, consent to, or join in any plan of reorganization, readjustment, merger, or consolidation in respect to any corporation whose stocks, bonds, or other securities are a part of the Trust Fund, including becoming a member of any stockholders' or bondholders' committee; to accept and hold any new securities issued pursuant to any plan of reorganization, readjustment, merger, consolidation, or liquidation; to pay any assessments on stocks or securities or to relinquish the same; and to otherwise exercise any and all rights and powers to deal in and with the securities and properties held in the Trust Fund in the same manner and to the same extent as any individual owner and holder thereof might do. (l) To make application for any contract issued by an insurance company to be purchased under a Plan, to accept 11 and hold any such contract, and to assign and deliver any such contract. (m) To lend any securities or security from time to time constituting a part of the Trust Fund in exchange for such consideration and upon such terms and conditions as the Trustee deems appropriate. In any such transaction the Trustee may transfer legal title to the securities being loaned to the obligor, and may permit the obligor to return to the Trust Fund securities that are identical (but not necessarily evidenced by the same certificates) to those transferred to it by the Trustee under this Trust Agreement. (n) To employ such agents, experts, counsel, and other persons (any of whom may also be employed by or represent the Company or a Subsidiary) deemed by the Trustee to be necessary or proper for the administration of the Trust; to rely and act on information and advice furnished by such agents, experts, counsel, and other persons; and to pay their reasonable expenses and compensation for services to the Trust from the Trust Fund. (o)To pay out of the Trust Fund all real and personal property taxes, income taxes, and other taxes of any and all kinds levied or, assessed under existing or future laws against the Trust Fund, without any approval or direction of the Committee. (p) To pay any estate, inheritance, income, or other tax, charge, or assessment attributable to any benefit which, in the Trustee's opinion, it is or may be required to pay out of such benefit; and to require, before making any payment, such release or other document from any taxing authority and such indemnity from the intended payee as the Trustee deems necessary for its protection. (q) To retain any funds or property subject to any dispute without liability for the payment of interest, and to decline to make payment or delivery thereof until final adjudication is made by a court of competent jurisdiction. (r) To serve not only as Trustee but also in any other capacity with respect to the Plans pursuant to such agreements or practices as the Trustee considers necessary or appropriate under the circumstances. (s) To participate in and use the Federal Book-entry Account System (a service provided by the Federal Reserve Bank for its member banks for deposit of Treasury securities), or to use the Depository Trust Company, Midwest Trust Company or other generally accepted central depositories. 12 (t) To make, execute, acknowledge, and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted to the Trustee. (u) To bring action before any court of competent jurisdiction for instructions with respect to any matter pertaining to the interpretation of this Trust Agreement or the administration of the Trust Fund. Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or to applicable law, the Trustee has no power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Code. 3.3 Distributions. (a) The establishment of the Trust and the payment or delivery to the Trustee of money or other property does not vest in any Participant or Beneficiary any right, title or interest in and to any of the assets comprising the Trust Fund. To the extent that any Participant or Beneficiary acquires the right to receive payments under any of the Plans, such right is no greater than the right of an unsecured general creditor of the Company or the Subsidiary that is obligated to make the payments pursuant to the terms of the Plan in question and such Participant or Beneficiary will have only the unsecured promise of the Company or Subsidiary that such payments will be made. (b) Concurrent with the establishment of this Trust, the Company will deliver to the Trustee a schedule (the "Payment Schedule") that specifies (1) the benefit payable in respect of each Participant (and his or her Beneficiaries) on a Plan by Plan basis, the formula or formulas or other instructions acceptable to the Trustee for determining the amounts so payable, (2) the form in which such amount is to be paid (as provided for or available under the applicable Plans), (3) the time of commencement for payment of such amounts and (4) the Account and, if applicable, the Subaccount to which the benefit is chargeable. If the Payment Schedule indicates that benefits are payable following the occurrence of a contingent event (e.g., death or termination of service), the Company will provide the Trustee with notice of the occurrence of such event within three business days after the Company has knowledge thereof. The Company will update the Payment Schedule on at least a monthly basis. The Company will also update the Payment Schedule at any other time within three business days after the Trustee submits a written request to the Company for an update. The Trustee will make payments to the Participants and their Beneficiaries in accordance 13 with such Payment Schedule. If, however, a Participant or Beneficiary submits to the Trustee a written claim which establishes to the Trustee's reasonable satisfaction that the Payment Schedule specifies or is based on incorrect information or is not consistent with the Plan, the Trustee may review any information provided to it by the Company, the Participant or Beneficiary or any other person and adjust the benefit as appropriate on the basis of such information. The Trustee has discretionary power and authority to construe, interpret and apply the terms of the Plan and to remedy any ambiguities in connection with such review and adjustment. The Trustee will promptly notify the Committee of any such written claim. (c) The Trustee may make any distribution required to be made by it hereunder by delivering: (1) Its check payable to the person to whom such distribution is to be made, to the person; or (2) Its check payable to an insurer for the benefit of such person, to the insurer; or (3) Contracts held on the life of the Participant to whom or with respect to whom the distribution is being made, to the Participant or Beneficiary; or (4) If a distribution is being made, in whole or in part, of other assets, assignments or other appropriate documents or certificates necessary to effect a transfer of title, to the Participant or Beneficiary. Payments by the Trustee will be delivered or mailed to addresses supplied by the Committee and the Trustee may rely on such addresses unless it has actual knowledge of a change. (d) If the Trustee determines that the balance of any Account or, if applicable, Subaccount is not sufficient or is not expected to be sufficient to make benefit payments that are then either due or expected to become due within 90 days after the determination (the "expected short-term benefit obligations"), the Trustee will promptly provide written notice to the Committee of the deficiency or expected deficiency. Only one such notice is required with respect to any continuous period of deficiency. Upon receipt of such notice, the Committee will promptly take one or both of the following steps. (1) The Committee may cause the Company or a Subsidiary to make an additional contribution to the Trust attributable to the Account or Subaccount. 14 (2) The Committee may instruct the Trustee in writing that the Company or Subsidiary intends to make benefit payments directly pursuant to Section 3.3(e), in which case the Trustee will make a transfer to the deficient Account or Subaccount pursuant to Section 2.5(b) if such a transfer may then be made. During any period in which the balance of the Account or Subaccount is not sufficient or is not expected to be sufficient to satisfy the expected short-term benefit obligations, each benefit payment from the Trust Fund chargeable to the Account or Subaccount will be reduced on a pro rata basis to reflect the deficiency. The Company or Subsidiary, as the case may be, will make the balance of each such payment as it falls due. (e) The Company and the Subsidiaries may make payment of benefits directly to Participants or their Beneficiaries as they become due under the terms of the Plans. The Company and the Subsidiaries will notify the Trustee of their decision to make payment of benefits directly not less than three business days prior to the time amounts are payable to Participants or their Beneficiaries. (f) Notwithstanding anything contained in this Trust Agreement to the contrary, if at any time the Trust is finally determined by the IRS not to be a "grantor trust" with the result that the income of the Trust Fund is not treated as income of the Company or the Subsidiaries pursuant to Code sections 671 through 679, or if a tax is finally determined by the IRS to be payable by one or more Participants or Beneficiaries with respect to any interest in the Plans or the Trust Fund prior to payment of such interest to such Participant or Beneficiary, then (1) the Trust will immediately terminate, (2) the Trustee will immediately determine each Participant's share of the Trust Fund in accordance with the Plans, and (3) the Trustee will immediately distribute such share in a lump sum to each Participant or Beneficiary entitled thereto, regardless of whether such Participant's employment has terminated and regardless of form and time of payments specified in or pursuant to the Plans. Any remaining assets (less any expenses or costs due under Sections 3.2(n) and 5.1 of this Trust Agreement) will then be paid by the Trustee to the Company and the Subsidiaries in such amounts, and in the manner instructed by the Committee. (g) The Trustee will make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plans or this Trust Agreement and will pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been 15 reported, withheld and paid by the Company and the Subsidiaries. 3.4 Trustee Responsibility Regarding Payments on Insolvency. (a) The Trustee will cease payment of benefits to Participants and their Beneficiaries attributable to a particular entity under the terms of a Plan if the entity is Insolvent (the "Insolvent Entity"). The Insolvent Entity will be considered "Insolvent" for purposes of this Trust Agreement if: (1) the Insolvent Entity is unable to pay its debts as they become due, or (2) the Insolvent Entity is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. For purposes of this Section 3.4, if an entity is determined to be Insolvent, each Subsidiary in which such entity has an equity interest will also be deemed to be an Insolvent Entity. However, the insolvency of a subsidiary will not cause a parent corporation to be deemed Insolvent. (b) At all times during the continuance of this Trust, as provided in Section 1.3 above, the principal and income of the Trust will be subject to claims of the general creditors of the Company and its Subsidiaries under federal and state law as set forth below: (1) The board of directors of the Company and the president of the Company have the nondelegable duty to inform the Trustee in writing of the Company's or any Subsidiary's Insolvency. If a person claiming to be a creditor of the Company or any Subsidiary alleges in writing to the Trustee that the Company or any Subsidiary has become Insolvent, the Trustee will determine whether the Company or any Subsidiary is Insolvent and, pending such determination, the Trustee will discontinue payment of benefits to the Participants or their Beneficiaries attributable to the Insolvent Entity. The Trustee may conclusively rely on any determination it receives from the board of directors of the Company or the president of the Company with respect to the Insolvency of the Company or any Subsidiary. (2) Unless the Trustee has actual knowledge of the Company's or a Subsidiary's Insolvency, or has received notice from the Company, a Subsidiary, or a person claiming to be a creditor alleging that the Company or a Subsidiary is Insolvent, the Trustee has no duty to inquire whether the Company or any 16 Subsidiary is Insolvent. The Trustee may in all events rely on such evidence concerning the Company's or any Subsidiary's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's or any Subsidiary's solvency. In this regard, the Trustee may rely upon a letter from the Company's or a Subsidiary's auditors as to the Company's or any Subsidiary's financial status. (3) If at any time the Trustee has determined that the Company or any Subsidiary is Insolvent, the Trustee will discontinue payments to Participants or their Beneficiaries attributable to the Insolvent Entity, and will hold the portion of the assets of the Trust allocable to the Insolvent Entity for the benefit of the Insolvent Entity's general creditors. Nothing in this Trust Agreement in any way diminishes any rights of Participants or their Beneficiaries to pursue their rights as general creditors of the Insolvent Entity with respect to benefits due under the Plans or otherwise. (4) The Trustee will resume the payment of benefits to Participants or their Beneficiaries in accordance with this Article 3 of this Trust Agreement only after the Trustee has determined that the alleged Insolvent Entity is not Insolvent (or is no longer Insolvent). (c) Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust pursuant to Section 3.4(b) hereof and subsequently resumes such payments, the first payment following such discontinuance will include the aggregate amount of all payments due to Participants or their Beneficiaries under the terms of the Plans for the period of such discontinuance, less the aggregate amount of any payments made to Participants or their Beneficiaries by the Company or any Subsidiary in lieu of the payments provided for hereunder during any such period of discontinuance. 3.5 Records. The Trustee will maintain accurate records and detailed accounts of all investments, receipts, disbursements and other transactions hereunder. Such records will be available at all reasonable times for inspection by the Company and Subsidiaries or their authorized representative. The Trustee, at the direction of the Committee, will submit to the Committee and to any insurer such valuations, reports or other information as the Committee may reasonably require and, in the absence of fraud or bad faith, the valuation of the Trust Fund by the Trustee will be conclusive. 3.6 Quarterly Accounting; Final Accounting. 17 (a) Within 45 days following the last day of each calendar quarter and within 45 days after the removal or resignation of the Trustee or the termination of the Trust, the Trustee will file with the Committee a written accounting setting forth in the aggregate and for each Account and Subaccount a description of all assets purchased and sold, all receipts, disbursements and other transactions effected by it during the three-month period then ending or, in the case of removal, resignation or termination, since the previous quarter end, and listing the assets held in the Trust Fund as of the last day of the period and indicating the cost and market values of each such asset. (b) The Committee may approve such accounting either by written notice of approval delivered to the Trustee or by its failure to express written objection to such accounting delivered to the Trustee within 90 days after the date of which such account was delivered to the Committee. (c) The approval by the Committee of an accounting is binding as to all matters covered by the accounting, other than matters which the Committee could not reasonably determine to be in error, on all parties to this Trust Agreement and on all Participants and Beneficiaries, to the same extent as if such accounting had been settled by a judgment or decree of a court of competent jurisdiction in which the Trustee, the Committee, the Company, the Subsidiaries and all persons having or claiming any interest in any Plan or Trust Fund were made parties. (d) Despite the foregoing, nothing contained in this Trust Agreement deprives the Trustee of the right to have an accounting judicially settled, if the Trustee, in the Trustee's sole discretion, desires such a settlement. 3.7 Valuation. The Trustee will determine the fair market value of assets comprising the Trust Fund based upon such sources of information as it may deem reliable, including, but not limited to, stock market quotations, statistical evaluation services, newspapers of general circulation, financial publications, advice from investment counselors, brokerage firms or insurance companies, or any combination of sources. The Trustee may take whatever action it deems reasonable, including employment of attorneys, appraisers, life insurance companies or other professionals, the expense of which will be an expense of administration of the Trust Fund payable by the Company and the Subsidiaries. The Trustee may rely upon information from the Company and the Subsidiaries, the Committee, appraisers or other sources. 3.8 Delegation of Duties. The Company, a Subsidiary or the Committee, or any or all of them, may at any time employ the Trustee as its/their agent to perform any act, keep any records 18 or accounts and make any computations that are required of the Company, any Subsidiary or the Committee by this Trust Agreement or the Plans. The Trustee may be compensated for such employment and such employment will not be deemed to be contrary to the Trust. Nothing done by the Trustee as such agent changes or increases its responsibility or liability as Trustee hereunder. 19 ARTICLE 4 Directed Investments 4.1 Appointment of Insurance Company as Investment Manager. The Committee may appoint one or more insurance companies to serve as an investment manager. The appointment of any such investment manager and investment of the Trust Fund pursuant to such appointment are subject to the provisions of this Section 4.1, notwithstanding any other provisions of this Trust Agreement to the contrary: (a) Written notice of each such appointment will be given to the Trustee a reasonable time in advance of the effective date of the appointment. (b) The Committee will determine the terms of each contract to be entered into between such insurance company and the Trustee (including any agreement or agreements supplemental thereto) pursuant to which investment management services are to be performed by the insurance company. On written direction of the Committee, the Trustee will make application for each such contract and will hold the contract as an asset of the Trust Fund. (c) The Trustee will pay such premiums to the insurance company pursuant to such contract as may be directed in writing by the Committee. (d) Except as otherwise agreed in writing by the Trustee and the Retirement Committee, the Trustee will take only such actions as contractholder of such contract as may be directed in writing by the Committee. (e) Any direction by the Committee with respect to such contract will be complete as to the terms with respect thereto, it being intended that the Trustee will have no discretion whatsoever with respect to the provisions of such contract or actions taken pursuant thereto. 4.2 Appointment of Investment Adviser as Investment Manager. The Committee may appoint one or more parties that are registered as investment advisers under the Investment Advisers Act of 1940 to serve as an investment manager. The appointment of any such investment manager and investment of the Trust Fund pursuant to such appointment are subject to the provisions of this Section 4.2, notwithstanding any other provisions of this Agreement to the contrary: (a) Written notice of each such appointment will be given to the Trustee a reasonable time in advance of the effective date of the appointment. The notice will state what portion of the Trust Fund is to be invested by the investment manager and will direct the Trustee to segregate such portion of the Trust Fund into a separate account for 20 the investment manager. Each such separate account is referred to in this section as an Investment Account. (b) There will be a written agreement between the Committee and each investment manager. The Trustee will receive a copy of each such agreement and all amendments thereto and will give written acknowledgement of receipt of same. Alternately, the Committee may direct the Trustee to enter into such agreement and any ancillary agreements that the Committee determines to be necessary or appropriate. Each agreement with an investment manager will provide that: (1) All directions given by an investment manager to the Trustee will be in writing, signed by an officer or partner of the investment manager or by such other person as may be designated in writing by the investment manager; provided that the Trustee will accept oral directions for the purchase or sale of securities, which will be confirmed by such authorized personnel of the investment manager in writing; (2) In all events the Trustee, or an agent thereof, is to retain physical custody of or title to all assets included in an Investment Account; and (3) The Committee, by written notice to the investment manager and the Trustee, may modify or terminate the authority of the investment manager. (c) Payment of the cost of the acquisition, sale, or exchange of any security or other property for an Investment Account will be charged to that Investment Account unless the agreement between the Committee and investment manager provides otherwise. (d) So long as the appointment of an investment manager is in effect, the investment manager has full power and authority to direct the Trustee as to, and full responsibility for, investment of its Investment Account and for the retention and disposition of any assets in its Investment Account. Subject to any limitations in the agreement between the Committee and the investment manager, the investment manager has the same investment discretion as is accorded the Trustee under Section 3.2. The Trustee may invest any portion of an Investment Account that would otherwise be held in cash but has no obligation to do so. (e) Unless the written agreement between the Committee and investment manager expressly provides to the contrary, the Trustee has voting power with respect to all stocks and other securities in the Investment Account. (f) The Trustee will make available to an investment manager copies of or extracts from such portions of its 21 accounts, books, or records relating to the Investment Account of such investment manager as the Trustee may deem necessary or appropriate in connection with the exercise of the investment manager's function, or as the Committee may direct. (g) All charges (other than those covered in Section 4.2(c) above) against each Investment Account will be made in such proportions as the Committee may direct from time to time. (h) If the authority of an investment manager is terminated and a successor investment manager is not appointed, the assets held in its Investment Account may or may not continue to be segregated as the Trustee may determine. Until receipt of written notice of the termination of the authority of an investment manager, the Trustee will be fully protected in assuming the continuing authority of such investment manager. (i) Any direction by an investment manager will be complete as to the terms with respect thereto, it being intended that the Trustee has no obligation whatsoever to invest or otherwise manage any asset of an Investment Account. 4.3 Directions of Committee. The Committee may direct the Trustee as to the investment and reinvestment of all or a part of the Trust Fund, subject to the following provisions of this Section 4.3, notwithstanding any other provisions of this Trust Agreement to the contrary: (a) Written notice of each such appointment will be given to the Trustee a reasonable time in advance of the effective date of the appointment. Such notice will state what portion of the Trust Fund is to be invested by the Committee and will direct the Trustee to segregate such portion of the Trust Fund into a separate account for the Committee. Each such separate account is referred to in this section as a Committee Account. (b) All directions given by the Committee to the Trustee will be in writing, signed by the duly authorized person or persons; provided that the Trustee will accept oral directions for the purchase or sale of securities which must be confirmed by such authorized personnel in writing. (c) In all events the Trustee or an agent thereof is to retain physical custody of or title to all assets comprising a Committee Account. (d) Payment of the cost of the acquisition, sale, or exchange of any security for a Committee Account will be charged to such Account. 22 (e) The Committee has full power and authority to direct the Trustee as to, and full responsibility for, investment of each Committee Account and for the retention and disposition of any assets at any time included in each Committee Account. The Committee has the same investment discretion as is accorded the Trustee under Section 3.2 of this Agreement. The Trustee may invest any portion of a Committee Account that would otherwise be held in cash but has no obligation to do so. (f) The Trustee has the voting power with respect to all stocks and other securities in a Committee Account except to the extent written directions by the Committee to the Trustee grant voting power to the Committee. (g) The Trustee will make available to the Committee copies of or extracts from such portions of its accounts, books, or records relating to any Committee Account as the Committee may direct. (h) All charges (other than those covered in Section 4.3(d) above) against each Committee Account will be made in such proportions as the Committee may direct from time to time. (I) Any direction by the Committee be complete as to its terms, it being intended that the Trustee will have no obligation whatsoever to invest or otherwise manage any asset of a Committee Account. 23 ARTICLE 5 Compensation, Indemnification 5.1 Compensation and Expenses. The Trustee is entitled to receive such reasonable compensation for its services as Trustee or in any other capacity in connection with the Plans as agreed upon by the Trustee and the Company. The Trustee is entitled to reimbursement for all reasonable and necessary costs, expenses and disbursements incurred by it in connection with the performance of such services. Such compensation and reimbursement will be charged to and paid out of the Trust Fund as an administrative expense but if not so paid or if the Committee so specifies, will be paid directly by the Company and Subsidiaries in such proportions as the Committee determines. 5.2 Indemnification. (a) The Company and the Subsidiaries will indemnify and hold the Trustee harmless from and against all liability, loss, cost or reasonable expense (including reasonable attorneys' fees) to which it may be subject by reason of its execution of its duties under this Trust Agreement, or by reason of any acts taken in good faith in accordance with any directions, or acts omitted in good faith due to absence of directions, from the Company, the Committee or a Participant, unless such liability, loss, cost or expense is due to the Trustee's negligence or misconduct. The indemnity described herein is provided jointly and severally by the Company and the Subsidiaries. (b) In the event that the Trustee is named as a defendant in a lawsuit or proceeding involving one or more of the Plans or the Trust Fund, the Trustee will be entitled to receive on a current basis the indemnity payments provided for in this section; provided, however, that, if the final judgment entered in the lawsuit or proceeding holds that the Trustee is guilty with respect to the Trust Fund of negligence or misconduct, the Trustee must refund the indemnity payments that it has received to the extent such payments are attributable to liability, loss, cost or expense due to such negligence or misconduct. (c) All releases and indemnities provided in this Trust Agreement survive the termination of this Trust Agreement. 24 ARTICLE 6 Resignation or Removal of Trustee 6.1 Resignation; Removal. The Trustee may resign at any time by written notice to the Committee. The resignation will be effective 180 days after the Company's receipt of such notice unless the Company and the Trustee agree otherwise. The Trustee may be removed by the Company on 60 days notice or upon shorter notice accepted by the Trustee. 6.2 Successor Trustee. If the Trustee resigns or is removed, a successor will be appointed, in accordance with this section, by the effective date of the resignation or removal under Section 6.1 above. The successor must (a) be a bank (or a trust company wholly owned by a bank) (b) be among the 100 largest banks in the United States as measured by deposits and (c) have a rating of "B/C" or greater based on the most current rating from Keefe, Bruyett & Woods ("KB&W") or its successor, or if KB&W or its successor should cease to publish ratings, then a short-term debt rating from Moody's of "P-1," or greater, or from Standard and Poor's of "A-1." If no such appointment has been made, the Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of the Trustee in connection with the proceeding will be allowed as administrative expenses of the Trust. 6.3 Settlement of Accounts. Upon resignation or rem Trustee and appointment of a successor Trustee, all assets comprising the Trust Fund will subsequently be transferred to the successor Trustee. The transfer must be completed within 90 days after receipt of notice of resignation, removal or transfer, unless the Company extends the time limit. Upon the transfer of the assets, the successor Trustee will succeed to all of the powers and duties given to the Trustee in this Trust Agreement. The resigning or removed Trustee will render to the Committee an accounting in the form and manner and at the time prescribed in Section 3.6. 25 SECTION 7 Controversies, Legal Actions 7.1 Controversy. If any controversy arises with respect to the Trust, the Trustee will act as it deems advisable, whether by legal proceedings, compromise or otherwise. The Trustee may retain the funds or property involved without liability pending settlement of the controversy. The Trustee is under no obligation to take any legal action of whatever nature unless there is sufficient property in the Trust to indemnify the Trustee with respect to any expenses or losses to which it may be subjected. 7.2 Joinder of Parties. In any action or other judicial proceedings affecting the Trust, it will be necessary to join as parties the Trustee, the Committee, the Company and the Subsidiaries. No Participant, Beneficiary or other person is entitled to any notice or service of process. Any judgment entered in such a proceeding or action will be binding on all persons claiming under the Trust. Nothing in this Trust Agreement is to be construed in a way that deprives a Participant or Beneficiary of his or her right to seek adjudication of his or her rights by administrative process or by a court of competent jurisdiction. 26 ARTICLE 8 Insurers 8.1 Insurer Not a Party. No insurer will be deemed to be a party to the Trust and an insurer's obligations will be measured and determined solely by the terms of contracts and other agreements executed by it. 8.2 Authority of Trustee. An insurer must of the Trustee to any documents or papers executed in connection with any insurance contracts or agreements ancillary or supplemental thereto. The signature of the Trustee is conclusive proof to the insurer that the person on whose life an application is being made is eligible to have a contract issued on his or her life and is eligible for a contract of the type and amount requested. 8.3 Contract Ownership. An insurer will deal with the Trustee as the sole and absolute owner of any insurance contracts and has no obligation to inquire whether any action or failure to act on the part of the Trustee is in accordance with or authorized by the terms of the Plans or this Trust Agreement. 8.4 Limitation of Liability. An insurer will be fully discharged from any and all liability for any action taken or any amount paid in accordance with the direction of the Trustee and has no obligation to see to the proper application of the amounts so paid. An insurer has no liability for the operation of the Trust or the Plans, whether or not in accordance with their terms and provisions. 8.5 Change of Trustee. An insurer will be fully discharged from any and all liability for dealing with a party or parties indicated on its records to be the Trustee until such time as it receives at its home office written notice of the appointment and qualification of a successor Trustee. 27 ARTICLE 9 Amendment and Termination. 9.1 Amendment. Subject to the limitations set forth in this section, this Trust Agreement may be amended by a written instrument executed by the Trustee and the Company. Any amendment, change or modification is subject to the following rules: (a) General Rule. Subject to Sections 9.1(b) and (c) below, this Trust Agreement may be amended: (1) By the Company and the Trustee, provided, however, that if an amendment would in any way adversely affect the rights created by the Plans or this Trust Agreement of any Participant or Beneficiary in the Trust Fund, each and every Participant and Beneficiary whose rights in the Trust Fund would be adversely affected must consent to the amendment before this Trust Agreement may be so amended; and (2) By the Company and the Trustee as may be necessary to comply with laws which would otherwise render the Trust void, voidable or invalid in whole or in part. (b) Limitation. Notwithstanding that an amendment may be permissible under Section 9.1(a) above, this Trust Agreement may not be amended by an amendment that would: (1) Cause any of the assets of the Trust to be used for or diverted to purposes other than for the exclusive benefit of Participants and Beneficiaries as set forth in the Plans, except as is required to satisfy the claims of the Company's or a Subsidiary's general creditors; or (2) Be inconsistent with the terms of any Plan, including the terms of any Plan regarding termination, amendment or modification of the Plan. (c) Writing and Consent. Any amendment to this Trust Agreement must be set forth in writing and signed by the Company and the Trustee and, if consent of any Participant or Beneficiary is required under Section 9.1(a), the Participant or Beneficiary whose consent is required. Any amendment may be current, retroactive or prospective, in each case as provided therein. (d) Taxation. This Trust Agreement may not be amended, altered, changed or modified in a manner that would cause the Participants and/or Beneficiaries under any Plan to be taxed on the benefits under any Plan in a year other than the year of actual receipt of benefits. 28 9.2 Final Termination. The Trust will not terminate until the date on which Participants and their Beneficiaries are no longer entitled to benefits pursuant to the terms of the Plans. Upon termination of the Trust, any assets remaining in the Trust will be returned to the Company and the Subsidiaries. Such remaining assets will be paid by the Trustee to the Company and the Subsidiaries in such amounts and in the manner instructed by the Committee, whereupon the Trustee will be released and discharged from all obligations hereunder. From and after the date of termination and until final distribution of the Trust Fund, the Trustee will continue to have all of the powers provided herein as are necessary or expedient for the orderly liquidation and distribution of the Trust Fund. 29 ARTICLE 10 Miscellaneous 10.1 Taxes. The Company and the Subsidiaries will from time to time pay taxes of any and all kinds whatsoever that at any time are lawfully levied or assessed upon or become payable in respect of the Trust Fund, the income or any property forming a part thereof, or any security transaction pertaining thereto. To the extent that any taxes lawfully levied or assessed upon the Trust Fund are not paid by the Company and the Subsidiaries, the Trustee has the power to pay such taxes out of the Trust Fund and must seek reimbursement from the Company and the Subsidiaries. Prior to making any payment, the Trustee may require such releases or other documents from any lawful taxing authority as it deems necessary. The Trustee will contest the validity of taxes in any manner deemed appropriate by the Company or its counsel, but at the Company's and the Subsidiaries' expense, and only if it has received an indemnity bond or other security satisfactory to it to pay any such expenses. The Trustee (a) will not be liable for any nonpayment of tax when it distributes an interest hereunder on directions from the Committee and (b) has no obligation to prepare or file any tax return on behalf of the Trust Fund, any such return being the sole responsibility of the Company and Subsidiaries. The Trustee will cooperate with the Committee in connection with the preparation and filing of any such return. 10.2 Third Persons. All persons dealing with the Trustee are released from inquiring into the decisions or authority of the Trustee and from seeing to the application of any moneys, securities or other property paid or delivered to the Trustee. 10.3 Nonassignability; Nonalienation. Benefits payable to Participants and their Beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. 10.4 The Plans. The Trust and the Plans are parts of a single, integrated employee benefit plan system and will be construed together. In the event of any conflict between the terms of this Trust Agreement and the agreements that constitute the Plans, such conflict will be resolved in favor of this Trust Agreement. 10.5 Applicable Law. Except to the extent, if any, preempted by ERISA, all questions arising in connection with this Trust Agreement, including, without limitation, those pertaining to construction, validity, effect, enforcement and remedies, will be determined in accordance with the internal, substantive laws of the State of Minnesota without regard to the conflict of law principles of the State of Minnesota or of any other jurisdiction. Any provision of this Trust Agreement prohibited by law are ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. 30 10.6 Notices and Directions. Whenever a notice or direction is given by the Committee to the Trustee, it will be in the form required by Section 2.1. Actions by the Company will be by the Board or a duly authorized officer, with such actions certified to the Trustee by an appropriately certified copy of the action taken. The Trustee will be protected in acting upon any such notice, resolution, order, certificate or other communication believed by it to be genuine and to have been signed by the proper party or parties. 10.7 Successors and Assigns. This Trust Agreement is binding upon and inures to the benefit of the Company, the Subsidiaries and the Trustee and their respective successors and assigns. 10.8 Gender and Number. Words used in one gender apply to the other gender where applicable, and when the context requires, the plural is to be read as the singular and the singular as the plural. 10.9 Headings. Headings in this Trust Agreement are inserted for convenience of reference only and if there is a conflict between the headings and the text, the text controls. 10.10 Counterparts. This Trust Agreement may be executed in an original and any number of counterparts, each of which will be deemed to be an original of one and the same instrument. 10.11 Beneficial Interest. The Company and the Subsidiaries are the true beneficiaries hereunder in that the payment of benefits, directly or indirectly to or for a Participant or Beneficiary by the Trustee, is in satisfaction of the Company's and the Subsidiaries' liability therefor under the Plans. Nothing in this Trust Agreement establishes any beneficial interest in any person other than the Company and the Subsidiaries. 10.12 Effective Date. The effective date of this Trust Agreement is December 1, 1994. 31 1 Schedule 1 1. Ceridian Corporation Directors' Deferred Compensation Plan for benefits payable with respect to Participants who cease to be directors of the Company after December 1, 1994. 32 EX-10.11 9 EXHIBIT 10.11 EXHIBIT 10.11 Amended as of October 21, 1994 CERIDIAN CORPORATION 1993 LONG-TERM INCENTIVE PLAN 1. Purpose of Plan. The purpose of the Ceridian Corporation 1993 Long-Term Incentive Plan (the "Plan") is to advance the interests of Ceridian Corporation (the "Company") and its stockholders by enabling the Company and its Subsidiaries to attract and retain persons of ability to perform services for the Company and its Subsidiaries by providing an incentive to such individuals through equity participation in the Company and by rewarding such individuals who contribute to the achievement by the Company of its economic objectives. 2. Definitions. The following terms will have the meanings set forth below, unless the context clearly otherwise requires: 2.1 "Board" means the Board of Directors of the Company. 2.2 "Broker Exercise Notice" means a written notice pursuant to which a Participant, upon exercise of an Option, irrevocably instructs a broker or dealer to sell a sufficient number of shares or loan a sufficient amount of money to pay all or a portion of the exercise price of the Option and/or any related withholding tax obligations and remit such sums to the Company and directs the Company to deliver stock certificates to be issued upon such exercise directly to such broker or dealer. 2.3 "Change of Control" means an event described in Section 12.1 of the Plan. 2.4 "Code" means the Internal Revenue Code of 1986, as amended. 2.5 "Committee" means the group of individuals administering the Plan, as provided in Section 3 of the Plan. 2.6 "Common Stock" means the common stock of the Company, par value $0.50 per share, or the number and kind of shares of stock or other securities into which such Common Stock may be changed in accordance with Section 4.3 of the Plan. 2.7 "Disability" means the disability of the Participant such as would entitle the Participant to receive disability income benefits pursuant to the long-term disability plan of the Company or Subsidiary then covering the Participant or, if no such plan exists or is applicable to the 1 Participant, the permanent and total disability of the Participant within the meaning of Section 22(e)(3) of the Code. 2.8 "Eligible Recipients" means all employees (including, without limitation, officers and directors who are also employees) of the Company or any Subsidiary. 2.9 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 2.10 "Fair Market Value" means, with respect to the Common Stock, as of any date (or, if no shares were traded or quoted on such date, as of the next preceding date on which there was such a trade or quote), the closing market price per share of the Common Stock as reported on the New York Stock Exchange Composite Tape on that date. 2.11 "Incentive Award" means an Option, Stock Appreciation Right, Restricted Stock Award or Performance Unit granted to an Eligible Recipient pursuant to the Plan. 2.12 "Incentive Stock Option" means a right to purchase Common Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan that qualifies as an "incentive stock option" within the meaning of Section 422 of the Code. ** 2.13 "Non-Statutory Stock Option" means a right to purchase Common Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan that does not qualify as an Incentive Stock Option. 2.14 "Option" means an Incentive Stock Option or a Non-Statutory Stock Option. 2.15 "Participant" means an Eligible Recipient who receives one or more Incentive Awards under the Plan. 2.16 "Performance Unit" means a right granted to an Eligible Recipient pursuant to Section 9 of the Plan to receive a payment from the Company, in the form of stock, cash or a combination of both, upon the achievement of established performance goals. 2.17 "Previously Acquired Shares" means shares of Common Stock that are already owned by the Participant. 2.18 "Restricted Stock Award" means an award of Common Stock granted to an Eligible Recipient pursuant to Section 8 of the Plan that is subject to the restrictions on transferability and the risk of forfeiture imposed by the provisions of such Section 8. 2.19 "Retirement" means the termination (other than for "cause"' as defined in Section 10.3(b) of the Plan) of a Participant's employment or other service on or after the date on which the Participant has attained the age of 55 and has completed 10 years of continuous service to the Company or any Subsidiary (determined in accordance with the retirement/pension plan or practice of the Company or Subsidiary then 2 covering the Participant, provided that if the Participant is not covered by any such plan or practice, the Participant will be deemed to be covered by the Company's plan or practice for purposes of this determination). 2.20 "Securities Act" means the Securities Act of 1933, as amended. 2.21 "Stock Appreciation Right" means a right granted to an Eligible Recipient pursuant to Section 7 of the Plan to receive a payment from the Company, in the form of stock, cash or a combination of both, equal to the difference between the Fair Market Value of one or more shares of Common Stock and the exercise price of such shares under the terms of such Stock Appreciation Right. 2.22 "Subsidiary" means any entity that is directly or indirectly controlled by the Company or any entity in which the Company has a significant equity interest, as determined by the Committee. 2.23 "Tax Date" means the date any withholding tax obligation arises under the Code for a Participant with respect to an Incentive Award. 3.1 Plan Administration. 3.1 The Committee. So long as the Company has a class of its equity securities registered under Section 12 of the Exchange Act, the Plan will be administered by a committee (the "Committee") consisting solely of not less than two members of the Board who are "disinterested persons" within the meaning of Rule 16b-3 under the Exchange Act. To the extent consistent with corporate law, the Committee may delegate to any officers of the Company the duties, power and authority of the Committee under the Plan pursuant to such conditions or limitations as the Committee may establish; provided, however, that only the Committee may exercise such duties, power and authority with respect to Eligible Recipients who are subject to Section 16 of the Exchange Act. Each determination, interpretation or other action made or taken by the Committee pursuant to the provisions of the Plan will be conclusive and binding for all purposes and on all persons, and no member of the Committee will be liable for any action or determination made in good faith with respect to the Plan or any Incentive Award granted under the Plan. 3.2 Authority of the Committee. (a) In accordance with and subject to the provisions of the Plan, the Committee will have the authority to determine all provisions of Incentive Awards as the Committee may deem necessary or desirable and as consistent with the terms of the Plan, including, without limitation, the following: (i) the Eligible Recipients to be selected as Participants; (ii) the nature and extent of the Incentive Awards to be made to each Participant (including the number of shares of Common Stock to be subject to each Incentive Award, any exercise price, the manner in which Incentive Awards will vest or become exercisable and whether Incentive Awards will be granted in tandem with other Incentive Awards) and the form of written agreement, if any, evidencing such Incentive Award; (iii) the time or times when Incentive Awards will be granted; (iv) the duration of each Incentive Award; and (v) the restrictions and other conditions to which the payment 3 or vesting of Incentive Awards may be subject. In addition, the Committee will have the authority under the Plan in its sole discretion to pay the economic value of any Incentive Award in the form of cash, Common Stock or any combination of both. (b) The Committee will have the authority under the Plan to amend or modify the terms and conditions of any outstanding Incentive Award in any manner, including, without limitation, the authority to extend the term of an Incentive Award, accelerate the exercisability or vesting or otherwise terminate any restrictions relating to an Incentive Award, accept the surrender of any outstanding Incentive Award or, to the extent not previously exercised or vested, authorize the grant of new Incentive Awards in substitution for surrendered Incentive Awards; provided, however that the amended or modified terms are permitted by the Plan as then in effect and that any Participant adversely affected by such amended or modified terms has consented to such amendment or modification. No amendment or modification to an Incentive Award, however, whether pursuant to this Section 3.2 or any other provisions of the Plan, will be deemed to be a regrant of such Incentive Award for purposes of this Plan. (c) In the event of (i) any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, extraordinary dividend or divestiture (including a spin-off) or any other change in corporate structure or shares, (ii) any purchase, acquisition, sale or disposition of a significant amount of assets or a significant business, (iii) any change in accounting principles or practices, or (iv) any other similar change, in each case with respect to the Company (or any Subsidiary or division thereof) or any other entity whose performance is relevant to the grant or vesting of an Incentive Award, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) may, without the consent of any affected Participant, amend or modify the grant or vesting criteria of any outstanding Incentive Award that is based in whole or in part on the financial performance of the Company (or any Subsidiary or division thereof) or such other entity so as equitably to reflect such event, with the desired result that the criteria for evaluating such financial performance of the Company or such other entity will be substantially the same (in the sole discretion of the Committee or the board of directors of the surviving corporation) following such event as prior to such event; provided, however, that the amended or modified terms are permitted by the Plan as then in effect. 4. Shares Available for Issuance. 4.1 Maximum Number of Shares Available. Subject to adjustment as provided in Section 4.3 of the Plan, the maximum number of shares of Common Stock that will be available for issuance under the Plan will be 3,000,000 shares. The shares available for issuance under the Plan may, at the election of the Committee, be either treasury shares or shares authorized but unissued, and, if treasury shares are used, all references in the Plan to the issuance of shares will, for corporate law purposes, be deemed to mean the transfer of shares from treasury. 4 4.2 Limitation on Individual Awards in Any Taxable Year. The maximum number of shares of Common Stock that may be the subject of Incentive Awards made to any Eligible Recipient in any one taxable year of the Company shall not exceed 250,000 shares (the "Maximum Annual Grant"). [Amended as of 12/13/93] 4.3 Accounting for Incentive Awards. Shares of Common Stock that are issued under the Plan or that are subject to outstanding Incentive Awards will be applied to reduce the maximum number of shares of Common Stock remaining available for issuance under the Plan. Any shares of Common Stock that are subject to an Incentive Award that lapses, expires, is forfeited or for any reason is terminated unexercised or unvested and any shares of Common Stock that are subject to an Incentive Award that is settled or paid in cash or any form other than shares of Common Stock will automatically again become available for issuance under the Plan. 4.4 Adjustments to Shares and Incentive Awards. In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, divestiture or extraordinary dividend (including a spin- off) or any other change in the corporate structure or shares of the Company, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) will make appropriate adjustments (which determination will be conclusive) as to (i) the number and kind of securities available for issuance under the Plan, (ii) the Maximum Annual Grant, and (iii) in order to prevent dilution or enlargement of the rights of Participants, the number, kind and, where applicable, exercise price of securities subject to outstanding Incentive Awards. [Amended as of 12/13/93] 5. Participation. Participants in the Plan will be those Eligible Recipients who, in the judgment of the Committee, have contributed, are contributing or are expected to contribute to the achievement of economic objectives of the Company or its Subsidiaries. Eligible Recipients may be granted from time to time one or more Incentive Awards, singly or in combination or in tandem with other Incentive Awards, as may be determined by the Committee in its sole discretion. Incentive Awards will be deemed to be granted as of the date specified in the grant resolution of the Committee, which date will be the date of any related agreement with the Participant. 6. Options. 6.1 Grant. An Eligible Recipient may be granted one or more Options under the Plan, and such Options will be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. The Committee may designate whether an Option is to be considered an Incentive Stock Option or a Non-Statutory Stock Option. 6.2 Exercise Price. The per share price to be paid by a Participant upon exercise of an Option will be determined by the Committee in its discretion at the time of the Option grant but will not be less than 100% 5 of the Fair Market Value of one share of Common Stock on the date of grant. Unless otherwise determined by the Committee, the per share purchase price of Options granted under the Plan will be equal to 100% of the Fair Market Value of one share of Common Stock on the date of grant. 6.3 Exercisability and Duration. An Option will become exercisable at such times and in such installments as may be determined by the Committee in its sole discretion at the time of grant; provided, however, that no Option may be exercisable prior to six months (other than Options described in Section 6.6 of the Plan or as provided in Section 10 of the Plan) or after 10 years from its date of grant. Unless the Committee determines otherwise, an Option granted under the Plan will be exercisable for 10 years from its date of grant and will become exercisable on a cumulative basis with respect to one-third of the shares subject to such Option on each January 1 following its date of grant (or, if later, six months following its date of grant with respect to the initial one-third installment). 6.4 Payment of Exercise Price. The total purchase price of the shares to be purchased upon exercise of an Option will be paid entirely in cash (including check, bank draft or money order); provided, however, that the Committee, in its sole discretion and upon terms and conditions established by the Committee, may allow such payments to be made, in whole or in part, by tender of a Broker Exercise Notice, Previously Acquired Shares or a combination of such methods. 6.5 Manner of Exercise. An Option may be exercised by a Participant in whole or in part from time to time, subject to the conditions contained in the Plan and in the agreement evidencing such Option, by delivery in person, by facsimile or electronic transmission or through the mail of written notice of exercise to the Company, Attention: Corporate Treasury, at its principal executive office in Minneapolis, Minnesota and by paying in full the total exercise price for the shares of Common Stock to be purchased in accordance with Section 6.4 of the Plan. 6.6 Options or Stock in Lieu of Bonus. Without limiting in any way the authority of the Committee to establish the terms and conditions of Options or other Incentive Awards, the Committee may allow Eligible Recipients to elect to receive some or all of their annual cash bonus in the form of Non-Statutory Stock Options or shares of Common Stock rather than cash. The Committee will have the sole authority to determine whether to allow such an election and to establish the terms and conditions to such an election, which terms and conditions will be set forth in the agreement evidencing such Options or Incentive Awards. 7. Stock Appreciation Rights. 7.1 Grant. An Eligible Recipient may be granted one or more Stock Appreciation Rights under the Plan, and such Stock Appreciation Rights will be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. 6 7.2 Exercise Price. The exercise price of a Stock Appreciation Right will be determined by the Committee, in its discretion, at the date of grant but will not be less than 100% of the Fair Market Value of one share of Common Stock on the date of grant. 7.3 Exercisability and Duration. A Stock Appreciation Right will become exercisable at such times and in such installments as may be determined by the Committee in its sole discretion at the time of grant; provided, however, that no Stock Appreciation Right may be exercisable prior to six months (other than as provided in Section 10 of the Plan) or after 10 years from its date of grant. Unless the Committee determines otherwise, a Stock Appreciation Right granted under the Plan will be exercisable for 10 years from its date of grant and will become exercisable on a cumulative basis with respect to one-third of the shares subject to such Stock Appreciation Right on each January 1 following its date of grant (or, if later, six months following its date of grant with respect to the initial one-third installment). A Stock Appreciation Right will be exercised by giving notice in the same manner as for Options, as set forth in Section 6.5 of the Plan. 8. Restricted Stock Awards. 8.1 Grant. An Eligible Recipient may be granted one or more Restricted Stock Awards under the Plan, and such Restricted Stock Awards will be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. The Committee may impose such restrictions or conditions, not inconsistent with the provisions of the Plan, to the vesting of such Restricted Stock Awards as it deems appropriate, including, without limitation, that the Participant remain in the continuous employ or service of the Company or a Subsidiary for a certain period, that the Participant or the Company (or any Subsidiary or division thereof) satisfy certain performance goals or criteria; provided, however, that other than as provided in Section 10 of the Plan, no Restricted Stock Award may vest prior to six months from its date of grant. 8.2 Rights as a Stockholder; Transferability. Except as provided in Sections 8.1, 8.3 and 13.3 of the Plan, a Participant will have all voting, dividend, liquidation and other rights with respect to shares of Common Stock issued to the Participant as a Restricted Stock Award under this Section 8 upon the Participant becoming the holder of record of such shares as if such Participant were a holder of record of shares of unrestricted Common Stock. 8.3 Dividends and Distributions. Unless the Committee determines otherwise in its sole discretion (either in the agreement evidencing the Restricted Stock Award at the time of grant or at any time after the grant of the Restricted Stock Award), any dividends or distributions (including regular quarterly cash dividends) paid with respect to shares of Common Stock subject to the unvested portion of a Restricted Stock Award will not be subject to the same restrictions as the shares to which such dividends or distributions relate and will be currently paid to the Participant. In the event the Committee determines not to pay such dividends or distributions currently, the Committee will determine in its sole 7 discretion whether any interest will be paid on such dividends or distributions. In addition, the Committee, in its sole discretion, may require such dividends and distributions to be reinvested (and in such case the Participants consent to such reinvestment) in shares of Common Stock that will be subject to the same restrictions as the shares to which such dividends or distributions relate. 8.4 Enforcement of Restrictions. To enforce the restrictions referred to in this Section 8, the Committee may place a legend on the stock certificates referring to such restrictions and may require Participants, until the restrictions have lapsed, to keep the stock certificates, together with duly endorsed stock powers, in the custody of the Company or its transfer agent or to maintain evidence of stock ownership, together with duly endorsed stock powers, in a certificateless book-entry stock account with the Company's transfer agent for its Common Stock. 9. Performance Units. An Eligible Recipient may be granted one or more Performance Units under the Plan, and such Performance Units will be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. The Committee may impose such restrictions or conditions, not inconsistent with the provisions of the Plan, to the vesting of such Performance Units as it deems appropriate, including, without limitation, that the Participant remain in the continuous employ or service of the Company or any Subsidiary for a certain period or that the Participant or the Company (or any Subsidiary or division thereof) satisfy certain performance goals or criteria. The Committee will have the sole discretion either to determine the form in which payment of the economic value of vested Performance Units will be made to the Participant (i.e., cash, Common Stock or any combination thereof) or to consent to or disapprove the election by the Participant of the form of such payment. 10. Effect of Termination of Employment or Other Service. 10.1 Termination Due to Death or Disability. In the event a Participant's employment or other service with the Company and all Subsidiaries is terminated by reason of death or Disability: (a) All outstanding Options then held by the Participant will become immediately exercisable in full and will remain exercisable for the remainder of their terms; (b) All Restricted Stock Awards then held by the Participant that have not vested as of such termination will be terminated and forfeited; and [Amended as of 10/21/94] (c) All Performance Units and Stock Appreciation Rights then held by the Participant will vest and/or continue to vest and, with respect to Stock Appreciation Rights, will remain exercisable in the manner determined by the Committee and set forth in the agreement evidencing such Incentive Awards. 8 10.2 Termination Due to Retirement. Except as otherwise provided in Section 12 of the Plan, in the event a Participant's employment or other service with the Company and all Subsidiaries is terminated by reason of Retirement: (a) All outstanding Options then held by the Participant will continue to become exercisable in accordance with their terms; All Restricted Stock Awards then held by the Participant (b) that have not vested as of such termination will be terminated and forfeited; and (c) All Performance Units and Stock Appreciation Rights then held by the Participant will vest and/or continue to vest and, with respect to Stock Appreciation Rights, will remain exercisable in the manner determined by the Committee and set forth in the agreement evidencing such Incentive Awards. 10.3 Termination for Reasons Other than Death, Disability or Retirement. (a) Except as otherwise provided in Section 12 of the Plan, in the event a Participant's employment or other service is terminated with the Company and all Subsidiaries for any reason other than death, Disability or Retirement, or a Participant is in the employ or service of a Subsidiary and the Subsidiary ceases to be a Subsidiary of the Company (unless the Participant continues in the employ or service of the Company or another Subsidiary), all rights of the Participant under the Plan and any agreements evidencing an Incentive Award will immediately terminate without notice of any kind, no Options or Stock Appreciation Rights then held by the Participant will thereafter be exercisable and all Restricted Stock Awards then held by the Participant that have not vested will be terminated and forfeited; provided, however, that if such termination is due to any reason other than termination by the Company or any Subsidiary for "cause," all outstanding Options then held by such Participant will remain exercisable to the extent exercisable as of such termination for a period of three months after such termination (but in no event after the expiration date of any such Option) and all Performance Units and Stock Appreciation Rights will vest and/or continue to vest and, with respect to Stock Appreciation Rights, will remain exercisable in the manner determined by the Committee and set forth in the agreement evidencing such Incentive Awards. (b) For purposes of this Section 10.3, "cause" will be as defined in any employment or other agreement or policy applicable to the Participant or, if no such agreement or policy exists, will mean (i) dishonesty, fraud, misrepresentation, embezzlement or material and deliberate injury or attempted injury, in each case related to the Company or any Subsidiary, (ii) any unlawful or criminal activity of a serious nature, (iii) any willful breach of duty, habitual neglect of duty or unreasonable job performance, or (iv) any material breach of any employment, service, confidentiality or noncompete agreement entered into with the Company or any Subsidiary. 9 10.4 Modification of Rights Upon Termination. Notwithstanding the other provisions of this Section 10, upon a Participant's termination of employment or other service with the Company and all Subsidiaries, the Committee may, in its sole discretion (which may be exercised before or following such termination), cause Options or Stock Appreciation Rights (or any part thereof) then held by such Participant to become exercisable and/or remain exercisable following such termination of employment or service and Restricted Stock Awards and Performance Units then held by such Participant to vest and/or continue to vest following such termination of employment or service, in each case in the manner determined by the Committee. 10.5 Date of Termination of Employment or Other Service. Unless the Committee otherwise determines in its sole discretion, a Participant's employment or other service will, for purposes of the Plan, be deemed to have terminated on the date recorded on the personnel or other records of the Company or the Subsidiary for which the Participant provides employment or other service, as determined by the Committee in its sole discretion based upon such records. 11. Payment of Withholding Taxes. 11.1 General Rules. The Company is entitled to (a) withhold and deduct from future wages of the Participant (or from other amounts which may be due and owing to the Participant from the Company or a Subsidiary), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any and all federal, state and local withholding and employment-related tax requirements attributable to an Incentive Award, including, without limitation, the grant, exercise or vesting of, or payment of dividends with respect to, an Incentive Award or a disqualifying disposition of stock received upon exercise of an Incentive Stock Option, or (b) require the Participant promptly to remit the amount of such withholding to the Company before taking any action with respect to an Incentive Award. 11.2 Special Rules. The Committee may, in its sole discretion and upon terms and conditions established by the Committee, permit or require a Participant to satisfy, in whole or in part, any withholding or employment- related tax obligation described in Section 11.1 of the Plan by electing to tender Previously Acquired Shares, a Broker Exercise Notice or a combination of such methods. 12. Change of Control. 12.1 Definitions. For purposes of this Section 12, the following definitions will be applied: (a) "Change of Control" will mean any of the following events: (i) a merger or consolidation to which the Company is a party if the individuals and entities who were stockholders of the Company immediately prior to the effective date of such merger or consolidation have beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of less than 50% of the total combined voting power for election of 10 directors of the surviving corporation following the effective date of such merger or consolidation; (ii) the direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) in the aggregate of securities of the Company representing 25% or more of the total combined voting power of the Company's then issued and outstanding securities by any person or entity, or group of associated person or entities acting in concert; [Amended as of 10/21/94] (iii) the sale of the properties and assets of the Company substantially as an entirety, to any person or entity which is not a wholly-owned subsidiary of the Company; (iv) the stockholders of the Company approve any plan or proposal for the liquidation of the Company; or (v) a change in the composition of the Board at any time during any consecutive 24 month period such that the "Continuity Directors" cease for any reason to constitute at least a 70% majority of the Board. For purposes of this clause, ""Continuity Directors" means those members of the Board who either (1) were directors at the beginning of such consecutive 24 month period, or (2) were elected by, or on the nomination or recommendation of, at least a two-thirds majority of the then-existing Board of Directors. (b) "Change of Control Action" will mean any payment (including any benefit or transfer of property) in the nature of compensation, to or for the benefit of a Participant under any arrangement, which is considered to be contingent on a Change of Control for purposes of Section 280G of the Code. As used in this definition, the term "arrangement" includes, without limitation, any agreement between a Participant and the Company and any and all of the Company's salary, bonus, incentive, restricted stock, stock option, compensation or benefit plans, programs or arrangements, and will include this Plan. (c) "Change of Control Termination" will mean, with respect to a Participant, any of the following events occurring within two years after a Change of Control: (i) Termination of the Participant's employment with the Company and all of its Subsidiaries by the Company or any Subsidiary for any reason, with or without cause, except for conduct by the Participant constituting (1) a felony involving moral turpitude under either federal law or the law of the state of the Company's incorporation or (2) the Participant's willful failure to fulfill his employment duties with the Company or any Subsidiary; provided that for purposes of this clause (2), an act or failure to act by the Participant shall not be "willful" unless done, or omitted to be done, in bad faith and without reasonable belief that the Participant's action or omission was in the best interests of the Company or a Subsidiary; or (ii) Termination of employment with the Company and all of its Subsidiaries by the Participant for Good Reason. A Change of 11 Control Termination shall not include a termination of employment by reason of death, Disability or Retirement. [Amended as of 10/21/94] (d) "Good Reason" will mean a good faith determination by the Participant, in the Participant's sole and absolute judgment, that any one or more of the following events has occurred, without the Participant's express written consent, after a Change of Control: (i) A change in the Participant's reporting responsibilities, titles or offices as in effect immediately prior to the Change of Control, or any removal of the Participant from, or any failure to re-elect the Participant to, any of such positions, which has the effect of diminishing the Participant's responsibility or authority; or (ii) A reduction by the Company or its Subsidiaries in the Participant's base salary as in effect immediately prior to the Change of Control or as the same may be increased from time to time thereafter; or (iii) The Company or its Subsidiaries requiring the Participant to be based anywhere other than within twenty-five miles of the Participant's job location at the time of the Change of Control; or (iv) Without replacement by a plan, program or arrangement providing benefits to the Participant equal to or greater than those discontinued or adversely affected: (1) the failure by the Company or its Subsidiaries to continue in effect, within its maximum stated term, any pension, bonus, incentive, stock ownership, purchase, option, life insurance, health, accident, disability, or any other employee compensation or benefit plan, program or arrangement, in which the Participant is participating immediately prior to a Change of Control; or (2) the taking of any action by the Company or its Subsidiaries that would adversely affect the Participant's participation or materially reduce the Participant's benefits under any of such plans, programs or arrangements; or (v) The taking of any action by the Company or its Subsidiaries that would materially adversely affect the physical conditions existing at the time of the Change of Control in or under which the Participant performs his employment duties; or (vi) If the Participant's primary employment duties are with a Subsidiary of the Company, the sale, merger, contribution, transfer or any other transaction as a result of which the Company no longer directly or indirectly controls or has a significant equity interest in such Subsidiary; or (vii) Any material breach by the Company or one of its Subsidiaries of any employment agreement between the Participant and the Company or such Subsidiary. [Amended as of 10/21/94] 12 12.2 Acceleration of Vesting. Subject to the "Limitation on Change of Control Compensation" contained in Section 12.3 of the Plan, in the event of a Change of Control Termination with respect to a Participant, and without further action of the Committee: (a) Each Option granted to such Participant that has been outstanding at least six months will become immediately exercisable in full and will remain exercisable until the expiration date of such Option. (b) Each Restricted Stock Award granted to such Participan that has been outstanding for at least six months will immediately become fully vested. (c) All Performance Units and Stock Appreciation Rights then held by such Participant will vest and/or continue to vest and, with respect to Stock Appreciation Rights, will remain exercisable in the manner determined by the Committee and set forth in the agreement evidencing such Incentive Awards. [Amended as of 10/21/94] 12.3 Limitation on Change of Control Compensation. A Participant will not be entitled to receive any Change of Control Action which would, with respect to the Participant, constitute a "parachute payment" for purposes of Section 280G of the Code. In the event any Change of Control Action would, with respect to the Participant, constitute a "parachute payment," the Participant will have the right to designate those Change of Control Action(s) which would be reduced or eliminated so that the Participant will not receive a "parachute payment." 12.4 Limitations on Committee's and Board's Actions. Prior to a Change of Control, the Participant will have no rights under this Section 12, and the Board will have the power and right, within its sole discretion to rescind, modify or amend this Section 12 without the consent of any Participant. In all other cases, and notwithstanding the authority granted to the Committee or Board to exercise discretion in interpreting, administering, amending or terminating this Plan, neither the Committee nor the Board will, following a Change of Control, have the power to exercise such authority or otherwise take any action that is inconsistent with the provisions of this Section 12. 13. Rights of Eligible Recipients and Participants; Transferability. 13.1 Employment or Service. Nothing in the Plan will interfere with or limit in any way the right of the Company or any Subsidiary to terminate the employment or service of any Eligible Recipient or Participant at any time, nor confer upon any Eligible Recipient or Participant any right to continue in the employ or service of the Company or any Subsidiary. 13.2 Rights as a Stockholder. As a holder of Incentive Awards (other than Restricted Stock Awards), a Participant will have no rights as a stockholder unless and until such Incentive Awards are exercised for, or paid in the form of, shares of Common Stock and the Participant becomes the holder of record of such shares. Except as otherwise provided in the Plan, 13 no adjustment will be made for dividends or distributions with respect to such Incentive Awards as to which there is a record date preceding the date the Participant becomes the holder of record of such shares, except as the Committee may determine in its discretion. 13.3 Restrictions on Transfer. Except pursuant to testamentary will or the laws of descent and distribution or as otherwise expressly permitted by the Plan, no right or interest of any Participant in an Incentive Award prior to the exercise or vesting of such Incentive Award will be assignable or transferable, or subjected to any lien, during the lifetime of the Participant, either voluntarily or involuntarily, directly or indirectly, by operation of law or otherwise. A Participant will, however, be entitled to designate a beneficiary to receive an Incentive Award upon such Participant's death, and in the event of a Participant's death, payment of any amounts due under the Plan will be made to, and exercise of any Options and Stock Appreciation Rights (to the extent permitted pursuant to Section 10 of the Plan) may be made by, the Participant's legal representatives, heirs and legatees. 13.4 Non-Exclusivity of the Plan. Nothing contained in the Plan is intended to modify or rescind any previously approved compensation plans or programs of the Company or create any limitations on the power or authority of the Board to adopt such additional or other compensation arrangements as the Board may deem necessary or desirable. 14. Securities Law and Other Restrictions. Notwithstanding any other provision of the Plan or any agreements entered into pursuant to the Plan, the Company will not be required to issue any shares of Common Stock under this Plan, and a Participant may not sell, assign, transfer or otherwise dispose of shares of Common Stock issued pursuant to Incentive Awards granted under the Plan, unless (a) there is in effect with respect to such shares a registration statement under the Securities Act and any applicable state securities laws or an exemption from such registration under the Securities Act and applicable state securities laws, and (b) there has been obtained any other consent, approval or permit from any other regulatory body which the Committee, in its sole discretion, deems necessary or advisable. The Company may condition such issuance, sale or transfer upon the receipt of any representations or agreements from the parties involved, and the placement of any legends on certificates representing shares of Common Stock, as may be deemed necessary or advisable by the Company in order to comply with such securities law or other restrictions. 15. Plan Amendment, Modification and Termination. The Board may suspend or terminate the Plan or any portion thereof at any time, and may amend the Plan from time to time in such respects as the Board may deem advisable in order that Incentive Awards under the Plan will conform to any change in applicable laws or regulations or in any other respect the Board may deem to be in the best interests of the Company; provided, however, that no amendments to the Plan will be effective without approval of the stockholders of the Company if stockholder approval of the amendment is then required pursuant to Rule 16b-3 under the Exchange Act, 14 Section 422 of the Code or the rules of the New York Stock Exchange. No termination, suspension or amendment of the Plan may adversely affect any outstanding Incentive Award without the consent of the affected Participant; provided, however, that this sentence will not impair the right of the Committee to take whatever action it deems appropriate under Section 4.3 and Section 12.4 of the Plan. 16. Effective Date and Duration of the Plan. The Plan is effective as of February 3, 1993, the date it was adopted by the Board. The Plan will terminate at midnight on February 3, 1996, and may be terminated prior thereto by Board action, and no Incentive Award will be granted after such termination. Incentive Awards outstanding upon termination of the Plan may continue to vest, or become free of restrictions, in accordance with their terms. 17. Miscellaneous. 17.1 Governing Law. The validity, construction, interpretation, administration and effect of the Plan and any rules, regulations and actions relating to the Plan will be governed by and construed exclusively in accordance with the laws of the State of Minnesota. 17.2 Successors and Assigns. The Plan will be binding upon and inure to the benefit of the successors and permitted assigns of the Company and 15 EX-10.12 10 EXHIBIT 10.12 EXHIBIT 10.12 Amended as of October 21, 1994 CERIDIAN CORPORATION 1990 LONG-TERM INCENTIVE PLAN (1992 RESTATEMENT) ARTICLE I - INTRODUCTION 1.01 Purpose. The purpose of the 1990 Long-Term Incentive Plan (the Plan) is to advance the interests of Ceridian Corporation and its stockholders by affording officers and other key employees of the Corporation and its Subsidiaries, upon whose judgment, initiative and efforts the Company is largely dependent for the successful conduct of its business, a proprietary interest in the growth and performance of the Corporation. ARTICLE II - DEFINITIONS 2.01 "Award" means the grant of any form of Stock Option, Restricted Stock Award, or any number of Business Performance Units, whether granted singly, in combination or in tandem, to a Plan Participant pursuant to the Plan on such terms, conditions and limitations as the Committee may establish in order to fulfill the objectives of the Plan. 2.02 "Award Agreement" means the agreement between the Company and a Participant that sets forth the terms, conditions and limitations applicable to the Award. 2.03 "Board" means, at any particular time, the then duly elected and acting directors of the Corporation. 2.04 "Business Performance Unit" means a unit having a cash equivalent value determined on the basis of achievement by the Company, a specified Subsidiary, or a specified operating unit within the Company of economic business objectives which shall be set forth in the terms of an Award Agreement and which shall not be related to any equity security of the Corporation. 2.05 "Committee" means the Compensation and Executive Personnel Committee of the Board (or any successor to such Committee), a Committee consisting solely of not less than three directors who are "disinterested persons" as defined in Rule 16b-3 of the Securities and Exchange Commission, as amended from time to time. 1 2.06 "Company" means the Corporation and its Subsidiaries. 2.07 "Corporation" means Ceridian Corporation, a Delaware corporation, and any successor in interest by way of consolidation, operation of law, merger or otherwise. 2.08 "Date of Grant" means the date an Award is approved by resolution of the Committee, or such later date as may be specified in such resolution. 2.09 "Disability" means a condition of the Participant, resulting from illness, injury or disease, which, as determined by the Committee, causes the Participant to be unable to perform the normal duties of his employment with the Company and is reasonably expected to be of long and indefinite duration or result in death. 2.10 "Eligible Employee" means an employee of the Company who holds a position of responsibility and whose judgment, initiative and efforts, upon recommendation by the management of the Company, in the judgment of the Committee, has contributed or can significantly contribute to the success of the Company. 2.11 "Employment Termination Date" means the last day of full time active employment, provided that a Participant shall not be deemed to have terminated employment for any period during which he or she is on an approved disability leave of absence unless during such disability leave of absence the business unit or subsidiary in which the Participant was employed at the time the disability leave of absence commenced is divested, its operations are discontinued or it otherwise ceases to be covered by the Plan; and provided further that the Committee may, in its sole discretion, determine that a Participant has not terminated employment for purposes of the Plan for any period during which he or she is on any other type of approved leave. 2.12 "Fair Market Value" means, with respect to shares of Stock on any particular date, the closing market price per share of the Stock as reported by the consolidated tape of the New York Stock Exchange (or such other stock exchange on which the Stock may subsequently be listed) on that date. If there are no transactions on such date, the Fair Market Value shall be determined as of the immediately preceding date on which there were Stock transactions. 2.13 "Participant" means an Eligible Employee to whom an Award has been made under the Plan. 2.14 "Performance Goal" means with respect to a Business Performance Unit Award, a specified initial or cumulative economic business objective not related to any equity security of the corporation, the satisfaction of which shall 2 be a condition precedent to the vesting of all or a portion of that Business Performance Unit Award. 2.15 "Performance Period" means with respect to a Business Performance Unit Award, the designated period set forth in an Award Agreement over which the Business Performance Units may vest. 2.16 "Plan" means the Ceridian Corporation Long-Term Incentive Plan, as set forth herein, as the same may be from time to time amended. 2.17 "Restricted Stock Award" means shares of Stock awarded to a Participant under Article VII of this Plan. 2.18 "Retirement" with respect to a Participant, means the Participant's termination of employment on or after the date on which the Participant has attained the age of fifty-five (55 ). 2.19 "Section 16(b) Participant" means a Participant who is subject to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended (the "1934 Act"). 2.20 "Stock" means the Corporation's Common Stock, par value $0.50 per share and any Preferred Stock Purchase rights attached thereto. 2.21 "Stock Option Award" means a non-qualified stock option awarded to a Participant under Article VI of this Plan. 2.22 "Subsidiary" means any corporation at least a majority of whose securities having ordinary voting power for the election of directors (other than securities having such power only by reason of the occurrence of a contingency) is at the time owned by the Corporation and/or one or more Subsidiaries. 2.23 "Year" means a calendar year. ARTICLE III - ADMINISTRATION 3.01 Administration. Except for those matters expressly reserved to the Board pursuant to any provisions of the Plan, the Committee shall have full responsibility for administration of the Plan, which responsibility shall include, but shall not be limited to the following: (a) The Committee shall review and approve any and all Awards to be made to Eligible Employees recommended by management of the Company in accordance with and subject to the provisions of the Plan; 3 (b) The Committee shall, subject to the provisions of the Plan, establish, adopt and revise such rules and procedures relating to the Plan as it may deem necessary or advisable for the administration of the Plan; (c) The Committee shall determine the terms of Awards; provided that management of the Company shall establish both the Performance Goals and the formula for valuation of Business Performance Units in connection with Business Performance Unit Awards. (d) The Committee shall have the exclusive authority to interpret the provisions of the Plan, and each such interpretation or determination shall be conclusive and binding for all purposes and on all persons, including, without limitation, the Company, the stockholders of the Company, the Committee and each of the members thereof, the directors, officers and employees of the Company, and the Participants and the respective successors-in-interest of all of the foregoing. (e) The Committee shall keep minutes of its meetings regarding the Plan and shall provide copies to the Board. ARTICLE IV - STOCK SUBJECT TO PLAN 4.01 Number. The total number of shares of Stock available for grants to Participants directly or indirectly under all forms of Awards under the Plan shall not exceed two million five hundred thousand (2,500,000), except to the extent adjustments are made pursuant to Section 4.03 of the Plan. Shares of Stock to be awarded may be either treasury or authorized but unissued shares. 4.02 Unused Shares. All or any shares subject to a Restricted Stock Award or a Stock Option Award which for any reason expires or otherwise terminates may again be made subject to a Restricted Stock Award or Stock Option Award under the Plan. 4.03 Capital Adjustments. In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, or extraordinary dividend or divestiture (including a spin-off), or any other change in the corporate structure or shares of the Corporation, the Board (or, if the Corporation is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) shall make adjustments, determined by the Board in its discretion to be appropriate, as to the number 4 and kind of securities subject to and reserved under the Plan and, in order to prevent dilution or enlargement of rights of Participants, the number, kind and, where applicable, the option exercise price, of securities subject to outstanding Awards. Notwithstanding the foregoing, and subject to Section 9.04 of Article IX, the Board, in its discretion, may determine that in connection with any such reorganization, merger or consolidation in which the Corporation is not the surviving corporation, either or any of the following shall occur: (a) subject to Section 6.03(c), all outstanding Stock Options shall be exercisable in full during the thirty calendar days preceding the effective date of such reorganization, merger or consolidation and shall then terminate and be cancelled as of such effective date; (b) Participants, other than Section 16(b) Participants, holding outstanding unexercised Stock Options shall receive, with respect to each share of Stock subject to such options, as of the effective date of any such reorganization, merger or consolidation, cash in an amount equal to the excess of the Fair Market Value of such shares on the day immediately preceding the effective date of such reorganization, merger or consolidation over the exercise price per share of such options. 4.04 Limit on Individual Restricted Stock Awards. Notwithstanding any other provision of the Plan, the total number of shares which may be awarded to a Participant under one or more Restricted Stock Awards pursuant to the Plan shall not exceed three percent (3%) of the total number of shares of Stock initially available for award under the Plan. ARTICLE V - PARTICIPATION 5.01 Participants. Participants in the Plan shall be those Eligible Employees who, in the judgment of the Committee, following recommendation by management of the Company, have performed, are performing, or during the period of their Award will perform, vital services in the management, operation and development of the Company, and have significantly contributed or are significantly contributing or are expected to significantly contribute to the achievement of long-term corporate objectives. Participants may be granted from time to time one or more Restricted Stock, Business Performance Unit, or Stock Option Awards; provided, however, that the grant of each Award shall be separately approved by the Committee, and receipt of one such Award shall not result in automatic receipt of any 5 other Award. Upon determination by the Committee that an Award is to be granted to a Participant, an Award Agreement shall be given to such person, specifying the terms, conditions, rights and duties related thereto. ARTICLE VI - STOCK OPTIONS 6.01 Grant of Stock Options. In accordance with the provisions of the Plan, the Committee shall approve following recommendation by the management of the Company, the Eligible Employees to whom Stock Option Awards shall be granted, shall determine the number of shares to be subject to each Award, the time at which the Award is to be granted, whether the Award shall be granted in exchange for the cancellation and termination of a previously granted Stock Option Award under the Plan or otherwise, the Stock Option exercise price, the Stock Option exercise period and the manner in which the Stock Option becomes exercisable, and shall fix such other provisions of the Stock Option Award as the Committee may deem necessary or desirable, all of which shall be subject to the provisions of Section 6.03. The number, terms and conditions of Stock Option Awards granted to various Participants need not be uniform. The Committee shall determine the form of Award Agreement to evidence each Stock Option Award. Each Participant shall enter into an Award Agreement with the Company with respect to the grant of each Stock Option Award. 6.02 Option Price. The per share Stock Option exercise price to be paid by Participants shall be not less than 100 percent of the Fair Market Value of the optioned Stock on the date the Stock Option Award is granted. 6.03 Duration and Exercise of Options. (a) The Stock Option exercise period shall be fixed by the Committee but in no event shall be more than ten years from the date the Stock Option Award is granted. Stock Options shall become exercisable at such times and in such installments (which may be cumulative) as shall be determined by the Committee, in its discretion, at the Date of Grant and shall be set forth in the Award Agreement, provided that, no Stock Option may be exercised prior to the date of approval of the Plan by the stockholders of the Corporation; and provided further that, unless otherwise determined by the Committee: (1) Except as otherwise provided in Section 6.03(c), upon the date of approval of the Plan by the stockholders, any Stock Option awarded prior to such approval date shall become exercisable with respect to one-sixth of the total shares subject to the Stock Option Award; 6 (2) Except as otherwise provided in Section 6.03(c), upon the January 1 following the Date of Grant of any Stock Option Award, the Stock Option shall become exercisable with respect to a total of one- third of the total shares subject to the Stock Option Award (an additional one-sixth of the total shares subject to the Award with respect to any Award granted prior to approval of the Plan by the stockholders); (3) Upon each succeeding January 1, the Stock Option shall become exercisable with respect to an additional one-third of the total shares subject to the Stock Option. (b) Notwithstanding the foregoing, the Committee may accelerate the time of exercise of any Stock Option in such cases as the Committee in its discretion may deem advisable . (c) Notwithstanding Section 4.03(a), 9.02(a) or any other provision of this Article VI, in no case shall a Stock Option awarded to a Section 16(b) Participant be exercisable prior to the expiration of six months after the Date of Grant, except in the case of death or Disability. (d) If stockholder approval of the Plan is not obtained at the Corporation's first annual meeting of stockholders following adoption of the Plan by the Board, any Stock Option Awards previously granted shall be revoked. 6.04 Manner of Option Exercise. A Stock Option may be exercised by a Participant in whole or in part from time to time, subject to the conditions contained herein and in the Award Agreement, by delivering to the office of the Treasurer of the Corporation written notice of the number of shares with respect to which the Stock Option is being exercised and by paying the purchase price for the shares purchased in full. The exercise of the Stock Option shall be deemed effective upon receipt of such notice by the Corporation's Treasurer or such alternative individual as the Treasurer shall designate in writing, and payment complying with the terms of the Plan and the Award Agreement. As soon as practicable after the effective exercise of the Stock Option, the Participant shall be recorded on the stock transfer books of the Corporation as the owner of the shares purchased and the Corporation shall deliver to the Participant one or more duly issued stock certificates evidencing such ownership. 6.05 Payment of Option Price. In the case of all Stock Option exercises, the purchase price shall be paid in cash; provided that the Committee may, in its discretion and 7 subject to any applicable rule or regulation adopted by the Committee, allow such payments to be made, in whole or in part by transfer from the Participant to the Corporation of previously acquired shares of Stock. The Stock so transferred shall be valued at the Fair Market Value on the day immediately preceding the effective date of exercise. For purposes of this Section 6.05, "previously acquired shares" shall include shares of Stock that are already owned by the Participant at the time of exercise and shall not include shares of Stock that are to be acquired pursuant to the exercise of the Stock Option concerned. No Stock Option shall be exercisable except in respect of whole shares. 6.06 Rights as a Stockholder. The Participant shall have no rights as a stockholder with respect to any shares of Stock covered by a Stock Option Award until the Participant shall have become the holder of record of such shares, and except as provided in Section 4.03, no adjustments shall be made for dividends or other distributions or other rights as to which there is a record date preceding the date the Participant becomes the holder of record of such shares. ARTICLE VII - RESTRICTED STOCK AWARDS 7.01 Grant of Restricted Stock Awards. In accordance with the provisions of the Plan, the Committee shall approve following recommendation by the management of the Company, the Eligible Employees to whom Restricted Stock Awards shall be granted, shall determine the number of shares to be subject to each Restricted Stock Award, the time at which the Restricted Stock Award is to be granted, the manner in which restrictions on the transferability of shares of Stock represented by the Award will lapse, and subject to the provisions of Section 7.03, shall fix such other provisions of the Restricted Stock Award as the Committee may deem necessary or desirable. The number, terms and conditions of Restricted Stock Awards granted to various Participants need not be uniform. The Committee shall determine the form of Award Agreement to evidence each Restricted Stock Award. Each participant shall enter into an Award Agreement with the Company with respect to the grant of each Restricted Stock Award. 7.02 Restrictions on Transfer. The shares of Stock awarded pursuant to a Restricted Stock Award shall be subject to the following restrictions: (a) No such share may be sold, transferred, assigned, pledged, encumbered or otherwise alienated or hypothecated unless, and until the Plan shall have been approved by the stockholders of the Corporation. In the event stockholder approval of the Plan is not obtained at the Corporation's first annual meeting of stockholders following adoption of the Plan by the 8 Board, any Awards previously granted shall be revoked and the shares of Stock awarded pursuant thereto shall be forfeited to the Corporation. (b) No such share may be sold, transferred, assigned, pledged, encumbered or otherwise alienated or hypothecated unless, until and then only to the extent that restrictions shall have lapsed in accordance with the Plan and the Award Agreement. (c) No shares awarded under a Restricted Stock Award which remain subject to the restrictions of Subsections (a) or (b) of this Section 7.02 shall be evidenced by stock certificates. Until such time as these restrictions lapse, ownership of such shares shall be evidenced by means of a book entry in the name of the applicable Participant in the stock ledger of the Corporation. Upon written notification to the Registrar by the Corporation of the lapsing of restrictions with respect to all or part of the shares under a Participant's Restricted Stock Award, a Stock certificate evidencing such unrestricted shares shall be issued in the name of the Participant. 7.03 Lapsing of Restrictions. The Committee shall determine, with respect to each Restricted Stock Award, the times and extent to which restrictions on the transferability of shares under a Restricted Stock Award shall lapse, which schedule shall be set forth in the Award Agreement, provided that, unless otherwise determined by the Committee, restrictions will lapse during the period of a Participant's employment with the Company in accordance with the following schedule: (a) except as otherwise provided in Subsection (c) of this Section 7.03, restrictions on twenty-five percent of the total number of shares under the Award shall lapse on the January 1 immediately following the Date of Grant; (b) restrictions on twenty-five percent of the total number of shares under the Award shall lapse on each succeeding January 1 thereafter. (c) notwithstanding any other provision of this Article VII, restrictions on the transferability of shares awarded to a Section 16(b) Participant shall not lapse prior to the expiration of six months after the effective date of the Restricted Stock Award, except in the case of death or Disability. 7.04 Modification of Lapsing Schedule. Subject to the provisions of Section 7.03(c), the Committee may, in its sole discretion, modify the rate at which restrictions on 9 transferability of shares under a Restricted Stock Award shall lapse. Any such modification shall apply only to those shares of Stock which are restricted as of the effective date of the modification, and shall be reflected in a resolution adopted by the Committee and, if deemed appropriate by the Committee, in an amendment to any Award Agreement with respect to which it applies. ARTICLE VIII - BUSINESS PERFORMANCE UNITS 8.01 Grant of Business Performance Units. In accordance with the provisions of the Plan, the Committee shall: (i) approve, following recommendation by the management of the Company, the Eligible Employees to whom Business Performance Unit Awards shall be granted, (ii) determine the number of Business Performance Units to be subject to each Award and the time at which the Business Performance Unit Award is to be granted, and (iii) fix such other provisions of the Business Performance Unit Award as the Committee may deem necessary or desirable. The number, terms and conditions of Business Performance Unit Awards granted to various Participants need not be uniform. The Committee shall determine the form of Award Agreement to evidence each Business Performance Unit Award. Each participant shall enter into an Award Agreement with the Company with respect to the grant of each Business Performance Unit Award. 8.02 Vesting of Business Performance Units. Each Business Performance Unit Award Agreement shall set forth: (a) the Performance Period over which Business Performance Units may vest; (b) the initial and cumulative Performance Goals which must be satisfied prior to vesting of any portion of the Business Performance Units represented by the Award; (c) the vesting schedule with respect to the Business Performance Units, which, unless otherwise determined by the Committee, shall be as follows: (i) upon the completion of the first full calendar year of the Performance Period and the attainment of the initial threshold Performance Goal, twenty- five percent (25%) of the total number of Business Performance Units comprising the Participant's Award shall vest and become immediately payable to the Participant in accordance with Sections 8.03 and 8.04. In the event such initial Performance Goal is not satisfied, said number of Business Performance Units awarded shall be immediately forfeited and henceforth no longer eligible for vesting and payment to the Participant. 10 (ii) upon completion of the second full calendar year of the Performance Period and attainment of the cumulative threshold Performance Goal for that two year period, twenty-five percent (25%) of the total number of Business Performance Units comprising the Participant's Award shall vest and become immediately payable to the Participant in accordance with Sections 8.03 and 8.04. In the event such cumulative Performance Goal is not satisfied, said number of Business Performance Units awarded shall be immediately forfeited and henceforth no longer eligible for vesting and payment to the Participant. (iii)upon completion of the third full calendar year of the Performance Period and attainment of the cumulative threshold Performance Goal for that three year period, fifty percent (50%) of the total number of Business Performance Units comprising the Participant's Award shall vest and become immediately payable to the Participant in accordance with Sections 8.03 and 8.04. In the event such cumulative Performance Goal is not satisfied, said number of Business Performance Units awarded shall be immediately forfeited and henceforth no longer eligible for vesting and payment to the Participant. 8.03 Valuation of Business Performance Units. The dollar value of each individual Business Performance Unit which becomes vested and payable to a Participant shall be determined on the basis of the graduated valuation scale set forth in the Award Agreement in accordance with the corresponding threshold, target, superior and exceptional Performance Goals. 8.04 Payment of Business Performance Unit Awards. Business Performance Units which have vested shall be paid to the Participant in cash, within sixty calendar days after the determination of the attainment of the applicable Performance Goal. Any payment to be made to a Participant hereunder shall be subject to applicable federal and state wage withholding requirements. ARTICLE IX - CHANGE OF CONTROL 9.01 Definitions. For purposes of this Article IX, the following definitions shall be applied: (a) "Change of Control" shall mean any of the following events: (1) a merger or consolidation to which the Corporation is a party if the individuals and entities who 11 were stockholders of the Corporation immediately prior to the effective date of such merger or consolidation have beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of less than fifty percent (50%) of the total combined voting power for election of directors of the surviving corporation following the effective date of such merger or consolidation; or (2) the direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) in the aggregate of securities of the Corporation representing twenty- five percent (25%) or more of the total combined voting power of the Corporation's then issued and outstanding securities by any person or entity, or group of associated persons or entities acting in concert; or [Amended as of October 21, 1994] (3) the sale of the properties and assets of the Corporation substantially as an entirety, to any person or entity which is not a wholly-owned subsidiary of the Corporation; or (4) the stockholders of the Corporation approve any plan or proposal for the liquidation of the Corporation; or (5) a change in the composition of the Board at any time during any consecutive twenty-four (24) month period such that the "Continuity Directors" cease for any reason to constitute at least a seventy percent (70%) majority of the Board. For purposes of this clause, "Continuity Directors" means those members of the Board who either: (i) were directors at the beginning of such consecutive twenty-four (24) month period; or (ii) were elected by, or on the nomination or recommendation of, at least a two-thirds (2/3) majority of the then-existing Board of Directors. (b) "Change of Control Action" shall mean any payment (including any benefit or transfer of property) in the nature of compensation, to or for the benefit of a Participant under any arrangement, which is considered to be contingent on a Change of Control for purposes of Section 280G of the Internal Revenue Code. As used in this definition, the term "arrangement" includes, without limitation, any agreement between a Participant and the Company and any and all of the Company's 12 salary, bonus, incentive, restricted stock, stock option, compensation or benefit plans, programs or arrangements, and shall include this Plan. (c) "Change of Control Termination" shall mean, with respect to a Participant, any of the following events occurring within two (2) years after a Change of Control: (1) Termination of the Participant's employment by the Company for any reason, with or without cause, except for conduct by the Participant constituting (i) a felony involving moral turpitude under either federal law or the law of the state of the Corporation's incorporation or (ii) the Participant's willful failure to fulfill his employment duties with the Company; provided that for purposes of this clause (ii), an act or failure to act by the Participant shall not be "willful" unless done, or omitted to be done, in bad faith and without reasonable belief that the Participant's action or omission was in the best interests of the Company; or (2) Termination of employment with the Company by the Participant for Good Reason. A Change of Control Termination shall not include a termination of employment by reason of death, Disability or Retirement. (d) "Good Reason" shall mean a good faith determination by the Participant, in the Participant's sole and absolute judgment, that any one or more of the following events has occurred, without the Participant's express written consent, after a Change of Control: (1) A change in the Participant's reporting responsibilities, titles or offices as in effect immediately prior to the Change of Control, or any removal of the Participant from, or any failure to re-elect the Participant to, any of such positions, which has the effect of diminishing the Participant's responsibility or authority; or (2) A reduction by the Company in the Participant's base salary as in effect immediately prior to the Change of Control or as the same may be increased from time to time thereafter; or (3) The Company requiring the Participant to be based anywhere other than within twenty-five (25) miles of the Participant's job location at the time of the Change of Control; or 13 (4) Without replacement by a plan, program or arrangement providing benefits to the Participant equal to or greater than those discontinued or adversely affected: (a) the failure by the Company to continue in effect, within its maximum stated term, any pension, bonus, incentive, stock ownership, purchase, option, life insurance, health, accident, disability, or any other employee compensation or benefit plan, program or arrangement, in which the Participant is participating immediately prior to a Change of Control; or (b) the taking of any action by the Company that would adversely affect the Participant's participation or materially reduce the Participant's benefits under any of such plans, programs or arrangements; or (5) The taking of any action by the Company that would materially adversely affect the physical conditions existing at the time of the Change of Control in or under which the Participant performs his employment duties; or (6) If the Participant's primary employment duties are with a Subsidiary of the Corporation, the sale, merger, contribution, transfer or any other transaction in conjunction with the Corporation's ownership interest in such Subsidiary decreases below the level specified in Section 2.21; or (7) Any material breach by the Company of any employment agreement between the Recipient and the Company or a Subsidiary. (e) "Internal Revenue Code" shall mean the Internal Revenue Code of 1986 as from time to time amended. 9.02 Acceleration of Vesting/Put Option. Subject to the "Limitation on Change of Control Compensation" contained in Section 9.03, in the event of a Change of Control Termination with respect to a Participant, and without further action of the Board, Committee or otherwise: (a) subject to Section 6.03(c), each Stock Option granted to such Participant pursuant to this Plan shall become immediately exercisable in full and shall remain exercisable until expiration of the option according to its terms; (b) subject to Section 7.03(c), all restrictions with respect to each Restricted Stock Award granted to such 14 Participant shall immediately lapse and be of no further force or effect. (c) within thirty days following the Change of Control Termination, the Participant may, by written election delivered to an officer of the Corporation, require the Corporation to purchase, within five days following delivery of the election, the shares of the Participant's Stock with respect to which restrictions have lapsed in accordance with clause (b) of this Section 9.02, at a price equal to the Fair Market Value of such shares of Stock on the day prior to the Change of Control; provided that, the election described in this clause (c) shall be null and void in the event that: (i) the honoring of such election by the Corporation would constitute a default by the Company under any material contract (including, but not limited to, its public debt indenture covenants or bank debt covenants) as in existence on the day immediately preceding the Change of Control; and (ii) the Corporation has exercised all reasonable efforts to take such actions (including, but not limited to, the issuance of additional stock) as are necessary and practicable to avoid having the honoring of such election constitute a default. and further provided that, if a Participant is a Section 16(b) Participant and if the Change of Control Termination occurs within the six-month period following the later of the Participant's most recent purchase of Stock which is subject to Section 16(b) of the 1934 Act or the grant of the Applicable Restricted Stock Award, then the Participant shall be entitled to deliver the written election specified herein within thirty days following the expiration of such six-month period, and the thirty-five day period referenced in clause (d) shall commence upon the expiration of such six-month period. For purposes of this Section 9.02(c), a "purchase of Stock which is subject to Section 16(b) of the 1934 Act" shall be deemed to include the establishment of or increase in a call equivalent position or the liquidation of or decrease in a put equivalent position with respect to such Stock. (d) To the extent a Participant has not sold shares of Stock to the Corporation pursuant to Subsection (c) above, certificates for such shares of Stock, with no restrictive language, shall be delivered to the Participant within thirty-five days following the Change of Control Termination. 15 9.03 Limitation on Change of Control Compensation. A Participant shall not be entitled to receive any Change of Control Action which would, with respect to the Participant, constitute a "parachute payment" for purposes of Section 280G of the Internal Revenue Code. In the event any Change of Control Action would, with respect to the Participant, constitute a "parachute payment," the Participant shall have the right to designate those Change of Control Action(s) which would be reduced or eliminated so that the Participant will not receive a "parachute payment." 9.04 Limitations on Committee's and Board's Actions. Prior to a Change of Control, the Participant shall have no rights under this Article IX, and the Board shall have the power and right, within its sole discretion by a resolution adopted by a two-thirds majority (consisting of at least five directors) to rescind, modify or amend this Article IX without any consent of the Participant; provided, however, that the Board shall not have the right to make any change in the Plan which would constitute a "modification" within the meaning of Section 425(h) of the Internal Revenue Code. In all other cases, and notwithstanding the authority granted to the Committee or Board to exercise discretion in interpreting, administering, amending or terminating this Plan, neither the Committee nor the Board shall, following a Change of Control, have the power to exercise such authority or otherwise take any action which is inconsistent with the provisions of this Article IX. ARTICLE X - EFFECT OF TERMINATION OF EMPLOYMENT 10.01 Termination of Employment Due to Death. In the event a Participant's employment by the Company is terminated by reason of death: (a) all outstanding Stock Options shall become immediately exercisable in full and remain exercisable for the life of the Stock Option; (b) restrictions on the transferability of shares of Stock represented by a Restricted Stock Award shall fully lapse. (c) A fraction of the Business Performance Units which would otherwise vest upon attainment of the applicable Performance Goal on the January 1 following the date of termination of employment will vest on such January 1 in the event the applicable goal is attained. The numerator of the fraction of Business Performance Units that will vest will be the number of full months of employment completed by the Participant in the year of death and the denominator will be 12. Any remaining Business Performance Units under the Award not vested will be forfeited. 16 10.02 Termination of Employment For Any Other Reason. Except as otherwise provided in Article IX, in the event that a Participant's employment by the Company is terminated for any reason other than the Participant's death: (a) all rights of the Participant under any Stock Option Award not yet exercisable as of the Employment Termination Date shall be forfeited in full; provided that, the Committee may, in its sole discretion, provide for exercisability of any rights under the Stock Option not yet exercisable in full or in part as it may determine; and the Participant shall have ninety days following the Employment Termination Date to exercise the Option to the extent that the Participant was entitled to exercise it as of the Employment Termination Date (but in no event after it expires); (b) the Participant shall forfeit any shares of Stock under a Restricted Stock Award with respect to which restrictions on the transferability of the shares have not lapsed as of the Employment Termination Date; provided that, the Committee may, in its sole discretion, grant such additional lapsing of such restrictions as it may determine; and (c) A fraction of the Business Performance Units which would otherwise vest upon attainment of the applicable Performance Goal on the January 1 following the date of termination of employment will vest on such January 1 in the event the applicable goal is attained. The numerator of the fraction of Business Performance Units that will vest will be the number of full months of employment completed by the Participant in the year of termination of employment and the denominator will be 12; provided that, in the event of a voluntary termination, all Business Performance Units not vested as of the termination date will be forfeited upon termination. In all other cases, non-vested Business Performance Units as of the January 1 following the termination date will be forfeited. ARTICLE XI - RIGHTS OF ELIGIBLE EMPLOYEES AND PARTICIPANTS 11.01 Relationship to Employment. Nothing contained in the Plan, nor in any Award granted pursuant to the Plan, shall confer upon any Participant any right with respect to continuance of employment by the Company, nor interfere in any way with the right of the Company to terminate the Participant's employment at any time. 11.02 Nontransferability of Award. No Award granted under the Plan or any shares of Stock or Stock Options forming a part thereof shall be transferable by the 17 Participant, either voluntarily or involuntarily, except by will or the laws of descent and distribution, and any attempt to so do shall void the Award. A Stock Option shall be exercisable during the Participant's lifetime only by the Participant or by the Participant's guardian or other legal representative. ARTICLE XII - AMENDMENT, MODIFICATION, OR TERMINATION 12.01 Authority to Amend and Procedure. Subject to the provisions of Article IX, the Board or the Committee may, at any time and without further action on the part of the stockholders of the Corporation, terminate this Plan or make such amendments thereto as it deems advisable and in the best interests of the Company; provided that, no such termination or amendment shall, without the consent of a Participant, materially adversely affect or impair the right of a Participant with respect to an Award already granted; and further provided that, unless the stockholders of the Corporation shall have approved the same, no amendment shall, either directly or indirectly: (a) increase the total number of shares of Stock that may be awarded under this Plan to all Participants, except for adjustments described in Section 4.03 of this Plan; (b) withdraw the administration of the Plan from the Committee; (c) permit any person, while a member of the Committee, to be eligible to participate in this Plan; or (d) permit any person who has theretofore received a Restricted Stock Award or Stock Option Award under this Plan or any person who is not a disinterested person to become a member of the Committee. ARTICLE XIII - EFFECTIVE DATE OF PLAN 13.01 Effective Date of Plan. The Plan shall be deemed effective upon its adoption by the Board; subject, however, to the approval of the stockholders of the Corporation at the first annual meeting of the stockholders of the Corporation following adoption of the Plan by the Board; and provided further that in the event the Plan is not approved by the stockholders of the Corporation, the provisions of Article VIII and any other applicable provisions (solely to the extent they relate to Article VIII) shall continue in full force and effect. Stock Option and Restricted Stock Awards may be granted under the Plan prior to stockholder approval if the grant is made subject to stockholder 18 approval of the Plan. Business Performance Unit Awards may be granted under the Plan immediately upon adoption of the Plan by the Board. 13.02 Duration of the Plan. The Plan shall terminate at midnight on December 31, 1994, except as to Awards previously granted and outstanding under the Plan at that time and no Awards shall be granted after that time. The Plan may be abandoned or terminated at any earlier time by the Board or the Committee, except with respect to any Awards then outstanding under the Plan. ARTICLE XIV - GENERAL PROVISIONS 14.01 Construction and Headings. The headings of the Articles, Sections and their subparts in the Plan are for the convenience of reading only and are not meant to be of substantive significance and shall not add to or detract from the meaning of such Article, Section or subpart. 14.02 Governing Law. The Plan and all rights and obligations thereunder shall be construed in accordance with and governed by the laws of the State of Minnesota, without regard to the conflict of laws provisions of any jurisdiction. 14.03 Successor and Assigns. This Plan shall be binding upon and inure to the benefit of the successors and assigns of the Company, including, without limitation, whether by way of merger, consolidation, operation of law, assignment, purchase or other acquisition of substantially all of the assets or business of the Company, and any and all such successors and assigns shall absolutely and unconditionally assume all of the Company's obligations hereunder; provided, however, that this provision shall not apply with respect to the successors or assigns of a Subsidiary in the event that, prior to a Change of Control the Subsidiary is sold, merged, contributed or in any other manner transferred or for any other reason ceases to be a Subsidiary of the Corporation. 14.04 Survival of Provisions. The rights, remedies, agreements, obligations and covenants of the parties contained in or made pursuant to the Plan, any Award Agreement and any other notices or agreements in connection therewith, including, without limitation, any notice of exercise of a Stock Option, shall survive the execution and delivery of such notices and agreements and the exercise of any Stock Option, the payment of the Stock Option exercise price and the delivery and receipt of the Stock Option shares, and shall remain in full force and effect. 19 14.05 Absence of Liability of Directors and Committee Members. No member of the Board of Directors or of the Committee shall be liable, with respect to this Plan, for any act, whether of commission or omission, taken by any other member or officer, agent, or employee of the Company nor, except in circumstances involving such person's own bad faith, for anything done or omitted to be done by such person in connection with this Plan. 14.06 Withholding Taxes. The Company is entitled to: (a) withhold and deduct from future wages of the Participant (or from other amounts which may be due and owing from the Participant to the Company or any Subsidiary), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any and all federal, state and local withholding and employment-related tax requirements attributable to the Participant's exercise of a Stock Option or the lapse of restrictions on a Restricted Stock Award or otherwise incurred with respect to any other provisions of the Plan; or (b) require the Participant promptly to remit the amount of such tax requirements to the Company before acting on the Participant's notice of exercise of a Stock Option or before taking any further action with respect to the Stock Option or the issuance of any certificate with respect to any shares awarded under a Restricted Stock Award or a Stock Option Award. 20 EX-10.13 11 EXHIBIT 10.13 Exhibit 10.13 Description of the Ceridian Corporation Annual Executive Incentive Plan The Company's Annual Executive Incentive Plan provides yearly cash bonuses to Company executives, although the Board's Compensation and Human Resources Committee (the "Committee" ) may, in its discretion, permit individuals to elect to receive part or all of their annual bonus in the form of stock options rather than cash. The annual determination of an individual executive's target bonus, expressed as a percentage of base salary, is based on a subjective assessment by the Committee of the responsibilities of the position, competitive practice and the Committee's desire to give greater weight to performance-based compensation at higher levels of responsibility within the Company. For 1994, target bonus percentages for executives ranged from 20% to 65% of base salary, with the maximum possible bonus generally one and one- half times the target amount. Of the total potential bonus, 80% consisted of a financial component, and 20% was based on a subjective assessment of the executive's individual performance in the areas of quality improvement and fostering work force diversity. The financial component consisted of a requirement that the Company achieve a specified level of earnings per share ("EPS") during 1994 and, for executives assigned to operating units, a requirement that the operating unit achieve specified financial goals, generally a specified level of pre-tax earnings. With respect to the financial component, bonus payments at, above or below the target percentages could be made depending on whether the financial performance of the Company (and, if applicable, the business unit to which the executive is assigned) met, exceeded or fell short of the applicable targeted financial goal. The targeted financial component of the bonus would be payable if budgeted earnings were achieved, but no bonus would be payable if an earnings threshold amount were not achieved. For 1994, both the financial and non-financial components of the annual incentive program were paid at or slightly above the superior level for executives, resulting in bonus payments for executives ranging between 30% and 97.5% of base salary. The Committee retains discretion to adjust upward the annual incentive if, in its judgment, such an action is warranted under the circumstances. EX-10.14 12 EXHIBIT 10.14 EXHIBIT 10.14 As Amended Effective Generally as of January 1, 1994 CERIDIAN CORPORATION BENEFIT EQUALIZATION PLAN Table of Contents ARTICLE 1 Description...................................... 1 1.1 Structure and Name............................... 1 1.2 Purpose.......................................... 1 1.3 Type............................................. 1 ARTICLE 2 Benefits......................................... 2 2.1 Amount........................................... 2 2.2 Form and Time of Payment......................... 3 2.3 Entitlement, Reductions.......................... 3 2.4 Payment in the Event of Incapacity............... 4 ARTICLE 3 Source of Payments; Nature of Interest........... 5 3.1 Establishment of Trust........................... 5 3.2 Source of Payments............................... 5 3.3 Status of Plan................................... 5 3.4 Non-assignability of Benefits.................... 5 ARTICLE 4 Adoption, Amendment And Termination.............. 6 4.1 Adoption ........................................ 6 4.2 Amendment........................................ 6 4.3 Termination of Participation..................... 6 4.4 Termination...................................... 7 ARTICLE 5 Definitions...................................... 9 5.1 Administrator.................................... 9 5.2 Affiliated Organization.......................... 9 5.3 Board............................................ 9 5.4 Code............................................. 9 i 5.5 Company.......................................... 9 5.6 Compensation Equalization Plan................... 9 5.7 Deferred Compensation Plan....................... 9 5.8 ERISA............................................ 9 5.9 Excess Benefit Plan.............................. 9 5.10 Governing Law................................. 9 5.11 Headings......................................... 10 5.12 Number and Gender................................ 10 5.13 Participant...................................... 10 5.14 Participating Employer........................... 10 5.15 Pension Plan..................................... 10 5.16 Plan............................................. 10 ARTICLE 6 Administration................................... 11 6.1 Administrator.................................... 11 6.2 Rules and Regulations............................ 11 6.3 Administrator's Discretion....................... 11 6.4 Specialist's Assistance.......................... 11 6.5 Indemnification.................................. 11 6.6 Benefit Claim Procedure.......................... 11 ARTICLE 7 Miscellaneous.................................... 13 Withholding and Offsets 7.1 .......................... 13 7.2 Other Benefits................................... 13 7.3 No Warranties Regarding Tax Treatment............ 13 7.4 No Employment Rights Created..................... 13 ii ARTICLE 1 Description 1.1 Structure and Name. The Plan consists of two separate component plans which, for administrative convenience, have been incorporated in one instrument. One such component plan is the Excess Benefit Plan and the other such component plan is the Compensation Equalization Plan. Together, the two component plans are referred to as the "Ceridian Corporation Benefit Equalization Plan." 1.2 Purpose. The purpose of the Excess Benefit Plan is to ensure that Pension Plan participants will not be deprived of benefits that would otherwise be payable under a Pension Plan but for the operation of the provisions of Code section 415. The purpose of the Compensation Equalization Plan is to ensure that Pension Plan participants will not be deprived of benefits that would otherwise be payable under a Pension Plan but for the operation of the provisions of Code section 401(a)(17) or certain elections relative to the form of bonus payments or the deferral of compensation pursuant to the Deferred Compensation Plan. 1.3 Type. The Excess Benefit Plan is an unfunded "excess benefit plan" within the meaning of section 3(36) of ERISA and, as such, is exempt from ERISA by operation of sections 4(b)(5) and 4021(b)(8) thereof. The Compensation Equalization Plan is an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees and, as such, is exempt from Parts 2, 3 and 4 of Subtitle B of Title I of ERISA by operation of sections 201(2), 302(a)(3) and 401(a)(4) thereof, respectively, and from Title IV of ERISA by operation of section 4021(a)(6) thereof. The Excess Benefit Plan and Compensation Equalization Plan are also intended to be unfunded for tax purposes. The Plan will be construed and administered in a manner that is consistent with and gives effect to the foregoing. 1 ARTICLE 2 Benefits 2.1 Amount (A) As of the date on which a Participant's Pension Plan benefit is scheduled to commence, the Administrator will determine the amount of the benefit to which the Participant is entitled pursuant to the Plan in accordance with Subsection (B). (B) Subject to Sections 2.2 and 2.3, the amount of a Participant's benefit will be computed in the following manner: (1) The Administrator will determine a monthly benefit amount equal to the amount by which the monthly benefit determined pursuant to clause (a) exceeds the monthly benefit determined pursuant to clause (b), in each case based on a benefit payable in the normal form under the Pension Plan in question commencing at the later of the Participant's normal retirement date under the Pension Plan or his or her age on the date on which benefits under the Pension Plan are scheduled to commence. (a) The monthly benefit to which the Participant would be entitled under the Pension Plan determined (i) without regard to any limitations imposed under the Pension Plan to satisfy the provisions of Code sections 401(a)(17) and 415, (ii) by including as annual compensation for a plan year any amount that would have otherwise been paid to the Participant as a base salary or a cash bonus during the plan year but for the Participant's election pursuant to the Deferred Compensation Plan (but only to the extent such amount would have been taken into account under the Pension Plan for such plan year but for the election and is not otherwise taken into account under the Pension Plan for such plan year notwithstanding such election), and (iii)if and only if the Administrator determines that the Participant is a member of a select group of management or highly compensated employees, by including as annual compensation for a plan year any amount that would have 2 been paid to the Participant as a cash bonus during the plan year but for the Participant's election to receive such amount in the form of common stock of the Company or an option to purchase such stock (but only to the extent such amount is not otherwise taken into account under the Pension Plan for such plan year). (b) The actual amount of the monthly benefit to which the Participant is entitled under the Pension Plan. (2) The amount determined pursuant to clause (1) will be adjusted in the same manner as the Participant's benefit under the Pension Plan to reflect any early or late commencement of the benefit. (C) If a Participant dies before his or her "annuity starting date," within the meaning of Code section 417(f)(2), and the Participant's surviving spouse is entitled to a "qualified preretirement survivor annuity," within the meaning of Code section 417(c), from a Pension Plan or a Pension Plan provides for the payment of any other death benefit to the surviving spouse or any other person, the amount of the benefit to which the surviving spouse or other person is entitled pursuant to the Plan will be determined in accordance with Subsection (B) but based, for the purpose of clause (1), on the difference between the normal form of the death benefit determined under items (a) and (b). 2.2 Form and Time of Payment (A) Payment of a benefit to any Participant determined pursuant to Section 2.1(B) or surviving spouse or other person determined pursuant to Section 2.1(C) will be made or commence, as the case may be, at the same time and in the same form as his or her benefit under the Pension Plan. (B) If a Participant, surviving spouse or other person entitled to receive a benefit under the Plan elects to receive his or her benefit under the Pension Plan in a form other than the normal form, the benefit under the Plan will be actuarially adjusted to reflect the form in which it is paid in the same manner as the benefit under the Pension Plan. (C) If a Participant dies following the commencement of monthly benefit payments, any death benefits payable 3 under the form of payment applicable to the Participant's benefit under the Plan will be paid to the same beneficiary or joint or contingent annuitant, as the case may be, as his or her benefit under the Pension Plan. 2.3 Entitlement, Reductions. Notwithstanding the foregoing provisions of this Article 2 - (A) A Participant who has elected to participate in a Pension Plan on an after-tax basis is not entitled to a benefit under the Plan attributable to annual compensation in excess of the limitation in effect under Code section 401(a)(17) or deferred under the Deferred Compensation Plan unless, prior to a date specified by the Administrator, the Participant makes an irrevocable election, applicable to any period of future employment with respect to which his or her Pension Plan after-tax participation election applies, to forego four percent of that portion of his or her compensation that is (1) attributable to services performed after the date of the election and (2) not taken into account under the Pension Plan solely by reason of the Code section 401(a)(17) limitation or the Participant's election pursuant to the Deferred Compensation Plan. (B) If, after commencement of monthly benefit payments under the Plan, the amount of monthly payments to which the Participant is entitled under the Pension Plan is increased by reason of an increase in the limitations under Code section 415, the amount of the monthly payments to which he or she is entitled under the Plan will be decreased by the amount of monthly payment increase under the Pension Plan. (C) A former Participant is not entitled to a benefit under the Plan to the extent the liability for such benefit has been transferred to or assumed by a successor to all or any portion of the business of the Participating Employer. (D) If a Participant who is receiving or entitled to receive a benefit pursuant to the Plan is reemployed with a Participating Employer or an affiliate of a Participating Employer and, in connection with such reemployment, his or her Pension Plan benefit payment is suspended, his or her benefit under the Plan will be suspended for the same period. The Participant's benefit under the Plan will recommence at the same time as his or her benefit under the Pension Plan and the amount of the benefit at recommencement will be adjusted in accordance with Plan Rules to reflect any 4 additional benefits earned and benefits previously paid. 2.4 Payment in the Event of Incapacity. If any person entitled to receive any payment under the Plan is physically, mentally, or legally incapable of receiving or acknowledging receipt thereof, and no legal representative has been appointed for such person, the Administrator, in his or her discretion, may (but is not required to) cause any sum otherwise payable to such person to be paid to any one or more of the following (as may be chosen by the Administrator): the person's beneficiary or joint or contingent annuitant for purposes of his or her benefit under the Plan, if any, the institution maintaining such person, a custodian for such person under the Uniform Transfers to Minors Act of any state, or such person's spouse, children, parents or other relatives by blood or marriage. Any payment so made completely discharges all liability under the Plan to the extent of such payment. ARTICLE 3 Source of Payments; Nature of Interest 3.3 Establishment of Trust. The Company may establish a Trust with an independent corporate trustee. The Trust must be a grantor trust that conforms substantially with the model trust described in Revenue Procedure 92-64. The Participating Employers may from time to time transfer to the Trust cash, marketable securities or other property acceptable to the Trustee in accordance with the terms of the Trust. 3.2 Source of Payments (A) Subject to Subsections (B) and (C), a Participant's benefit will be paid by the Participating Employer with whom the Participant was last employed. (B) If a Participant has participated in a Pension Plan as an employee of more than one Participating Employer, the Administrator will determine the portion of the benefit to which the Participant is entitled under the Plan allocable to each such Participating Employer. (C) The Trustee will make distributions to Participants and Beneficiaries from the Trust in satisfaction of a Participating Employer's obligations under the Plan in accordance with the terms of the Trust. The Participating Employer is responsible for paying any benefits attributable to a Participant's Account with respect to that Participating Employer that are not paid by the Trust. 5 3.3 Status of Plan. Nothing contained in the Plan or Trust is to be construed as providing for assets to be held for the benefit of any Participant or any other person or persons to whom benefits are to be paid pursuant to the terms of this Plan, the Participant's or other person's only interest under the Plan being the right to receive the benefits set forth herein. The Trust is established only for the convenience of the Participating Employers and the Participants, and no Participant has any interest in the assets of the Trust prior to distribution of such assets pursuant to the Plan. To the extent the Participant or any other person acquires a right to receive benefits under this Plan or the Trust, such right is no greater than the right of any unsecured general creditor of the Participating Employer. 3.4. Non-assignability of Benefits. The benefits payable under the Plan and the right to receive future benefits under the Plan may not be anticipated, alienated, sold, transferred, assigned, pledged, encumbered, or subjected to any charge or legal process. ARTICLE 4 Adoption, Amendment And Termination Adoption. With the prior approval of the Administrator, an Affiliated Organization may adopt the Plan and become a Participating Employer by furnishing to the Administrator a certified copy of a resolution of its Board adopting the Plan. 4.2 Amendment (A) The Company reserves the right to amend the Plan at any time to any extent that it may deem advisable. To be effective, an amendment must be stated in a written instrument approved in advance or ratified by the Company's Board and executed in the name of the Company by its President or a Vice President and attested by the Secretary or an Assistant Secretary. (B) An amendment adopted in accordance with Subsection (A) is binding on all interested parties as of the effective date stated in the amendment; provided, however, that no amendment will have any retroactive effect so as to deprive any Participant, or the beneficiary or joint or contingent annuitant of a deceased Participant, of any benefit to which he or she is entitled under the terms of the Plan in effect immediately prior to the effective date of the amendment, determined in the case of a Participant who is employed by an Affiliated Organization, as if he or she had terminated employment immediately prior to the effective date of the amendment. 6 (C) The provisions of the Plan in effect at the termination of a Participant's employment will, except as otherwise expressly provided by a subsequent amendment, continue to apply to such Participant. 4.3 Termination of Participation. (A) Notwithstanding any other provision of the Plan to the contrary, if determined by the Administrator to be necessary to ensure that the Plan is exempt from ERISA to the extent contemplated by Section 1.3 or upon the Administrator's determination that a Participant's interest in the Plan has been or is likely to be includable in the Participant's gross income for federal income tax purposes prior to the actual payment of benefits pursuant to the Plan, the Administrator may take any or all of the following steps: (1) terminate the Participant's future participation in the Plan; (2) cause the Participant's entire interest in the Plan to be distributed to the Participant in the form of an immediate lump sum; and/or (3) transfer the benefits that would otherwise be payable pursuant to the Plan for all or any of the Participants to a new plan that is similar in all material respects (other than those which require the action in question to be taken.) (B) For the purpose of Subsection(A)(2), the lump sum value of a Participant's interest in the Plan will be determined (1) in the case of a Participant whose benefit under the Plan is not then in pay status, in accordance with Article 2 but assuming that the Participant had terminated employment and elected to receive his or her Pension Plan benefit in the form of an immediate lump sum, or (2) in the case of a Participant or beneficiary or joint or contingent annuitant of a beneficiary whose benefit under the Plan is then in pay status, by converting the expected future benefit from the form in which it is being paid to an actuarially equivalent lump sum benefit using actuarial assumptions specified in the Pension Plan to which the benefit relates. 7 4.4 Termination (A) The Company reserves the right to terminate the Plan in its entirety at any time. Each Participating Employer reserves the right to cease its participation in the Plan or terminate the Plan with respect to any group of similarly situated current or former employees of the Participating Employer at any time. The Plan will terminate in its entirety or with respect to a particular Participating Employer or group of current or former employees as of the date specified by the Company or such Participating Employer in a written instrument by its authorized officers to the Administrator, adopted in the manner of an amendment. (B) Upon the termination of the Plan in its entirety or with respect to any Participating Employer or group of current or former employees, the Company or Participating Employer, as the case may be, will either (1) cause any benefits to which Participants have become entitled prior to the effective date of the termination to continue to be paid in accordance with the provisions of Article 2 or (2) subject to Subsection (C), cause the entire interest in the Plan of any or all Participants, or the beneficiaries or joint or contingent annuitants of any or all deceased Participants, to be distributed in the form of an immediate lump sum payment calculated in accordance with the provisions of Section 4.3(B). (C) If the Compensation and Human Resources Committee of the Company's Board of Directors (or any successor committee) determines in good faith that there is a reasonable likelihood that any compensation paid to a Participant by an Affiliated Organization for a taxable year of the Affiliated Organization would not be deductible by the Affiliated Organization solely by reason of the limitation under Code section 162(m), to the extent deemed necessary by such Committee to ensure that the entire amount of any distribution pursuant to clause (2) of Subsection (B) is deductible, such Committee may defer all or any portion of the distribution. The deferred amounts and interest thereon from the date on which the payment would have been made but for this subsection and the date on which the payment is actually made at the rate then used under the Pension Plan for the purpose of computing lump sum distributions will be distributed to the Participant, or to his or her beneficiary in the case of the Participant's death, at the earliest possible date, as determined by such Committee in good faith, on which the deductibility of compensation paid or payable to the Participant for the taxable year of the Affiliated Organization during which the distribution is made will not be limited by Code section 162(m). 8 ARTICLE 5 Definitions, Construction and Interpretation The definitions and rules of construction and interpretation set forth in this article apply in construing the Plan unless the context otherwise indicates. 5.1 Administrator. "Administrator" of the Plan is the Company, or the person to whom administrative duties are delegated pursuant to the provisions of Section 6.1, as the context requires. 5.2 Affiliated Organization. "Affiliated Organization" is the Company and any corporation that is a member of a controlled group of corporations within the meaning of Code section 414(b). 5.3 Board. "Board" is the board of directors of the Affiliated Organization in question or any individual or committee authorized to act on behalf of such board of directors pursuant to a proper delegation. 5.4 Code. "Code" is the Internal Revenue Code of 1986, as amended from time to time, and any reference to a section of the Code refers to that section or to the corresponding section of the Code as amended. 5.5 Company. "Company" is Ceridian Corporation or any successor thereto. 5.6 Compensation Equalization Plan. "Compensation Equalization Plan" means the component plan incorporated in this instrument for the purpose of ensuring that Participants in the Pension Plans will not be deprived of benefits otherwise due them under the Pension Plans by operation of the provisions of Code section 401(a)(17) or certain elections relative to the form of bonus payments or the deferral of compensation pursuant to the Deferred Compensation Plan. 5.7 Deferred Compensation Plan. "Deferred Compensation Plan" means the Ceridian Corporation Deferred Compensation Plan, as adopted effective January 1, 1995 and as thereafter amended from time to time. 5.8 ERISA. "ERISA" is the Employee Retirement Income Security Act of 1974, as amended, and any reference to a section of ERISA refers to that section or to the corresponding section of ERISA as amended. 5.9 Excess Benefit Plan. "Excess Benefit Plan" means the component plan incorporated in this instrument for the purpose of ensuring that Participants in the Pension Plans will not be deprived of benefits otherwise due them under 9 such plans by operation of the provisions of Code section 415. 5.10 Governing Law. To the extent state law is not preempted by the provisions of the ERISA or any other laws of the United States, this Plan will be administered, construed and enforced according to the internal laws of the State of Minnesota without regard to the conflict of law principles of the State of Minnesota or any other jurisdiction. 5.11 Headings. The headings of articles, sections, subsections and clauses are included solely for convenience and, if there is a conflict between such headings and the text of the Plan, the text will control. 5.12 Number and Gender. Wherever appropriate, the singular may be read as the plural, the plural may be read as the singular and one gender may be read as the other gender. 5.13 Participant. "Participant" is an employee of a Participating Employer who is (a) a participant under any Pension Plan, (b) entitled to a benefit pursuant to the provisions of Article 2 and (c) not a party to an agreement with the Participating Employer pursuant to which he or she is not eligible to participate in the Plan. 5.14 Participating Employer. "Participating Employer" is the Company and any other Affiliated Organization that has adopted the Plan, or all of them collectively, as the context requires, and their respective successors. A Participating Employer will cease to be such upon a termination of the Plan as to its employees and the satisfaction in full of all of its obligations under the Plan or upon its ceasing to be an Affiliated Organization. 5.15 Pension Plan. "Pension Plan" is a defined benefit pension plan which is qualified under the provisions of Code section 401(a) and which is sponsored by a Participating Employer. 5.16 Plan. The "Plan" is the Compensation Equalization Plan or the Excess Benefit Plan or both of them, as the context requires. 5.17 Trust. "Trust" means any trust or trustee established by the Company pursuant to Section 3.1. 5.18 Trustee. "Trustee" means the independent corporate trustee or trustees that at the relevant time has or have been appointed to act as Trustee of the Trust. ARTICLE 6 Administration 10 6.1 Administrator. The general administration of the Plan and the duty to carry out its provisions is vested in the Company. The Company's Vice President, Human Resource Services, or his or her functional equivalent in the event of a material change in the duties or title of such position, will perform such duty on behalf of the Company. Such Vice President may delegate such duty or any portion thereof to a named person and may from time to time revoke such authority and delegate it to another person. 6.2 Rules and Regulations. The Administrator has the discretionary power and authority to make such rules and regulations as the Administrator determines to be consistent with the terms, and necessary or advisable in connection with the administration, of the Plan and to modify or rescind any such rules or regulations. 6.3 Administrator's Discretion. The Administrator has the discretionary power and authority to make all determinations necessary for administration of the Plan, except those determinations that the Plan requires others to make, and to construe, interpret, apply and enforce the provisions of the Plan and Plan rules and regulations whenever necessary to carry out its intent and purpose and to facilitate its administration, including, without limitation, the discretionary power and authority to remedy ambiguities, inconsistencies, omissions and erroneous benefit calculations. In the exercise of its discretionary power and authority, the Administrator will treat all similarly situated persons uniformly. 6.4 Specialist's Assistance. The Administrator may retain such actuarial, accounting, legal, clerical and other services as may reasonably be required in the administration of the Plan, and may pay reasonable compensation for such services. All costs of administering the Plan will be paid by the Participating Employers. 6.5 Indemnification. The Participating Employers jointly and severally agree to indemnify and hold harmless, to the extent permitted by law, each director, officer, and employee of any Affiliated Organization against any and all liabilities, losses, costs and expenses (including legal fees) of every kind and nature that may be imposed on, incurred by, or asserted against such person at any time by reason of such person's services in connection with the Plan, but only if such person did not act dishonestly or in bad faith or in willful violation of the law or regulations under which such liability, loss, cost or expense arises. The Participating Employers have the right, but not the obligation, to select counsel and control the defense and settlement of any action for which a person may be entitled to indemnification under this provision. 11 6.6 Benefit Claim Procedure. (A) If a request for a benefit by a Participant or beneficiary of a deceased Participant is denied in whole or in part, he or she may, not later than 30 days after the denial, file with the Administrator a written claim objecting to the denial. (B) The Administrator, not later than 90 days after receipt of such claim, will render a written decision to the claimant on the claim. If the claim is denied, in whole or in part, such decision will include the reason or reasons for the denial; a reference to the Plan provisions on which the denial is based; a description of any additional material or information, if any, necessary for the claimant to perfect his or her claim; an explanation as to why such information or material is necessary; and an explanation of the Plan's claim procedure. (C) The claimant may file with the Administrator, not later than 60 days after receiving the Administrator's written decision, a written notice of request for review of the Administrator's decision, and the claimant or his or her representative may thereafter review relevant Plan documents which relate to the claim and may submit written comments to the Administrator. (D) Not later than 60 days after receipt of such review request, the Administrator will render a written decision on the claim, which decision will include the specific reasons for the decision, including a reference to the Plan's specific provisions where appropriate. (E) The foregoing 90 and 60-day periods during which the Administrator must respond to the claimant may be extended by up to an additional 90 or 60 days, respectively, if special circumstances beyond the Administrator's control so require and notice of such extension is given to the claimant prior to the expiration of such initial 90 or 60-day period, as the case may be. ARTICLE 7 Miscellaneous 7.1 Withholding and Offsets. The Participating Employers and the Trustee retain the right to withhold from any compensation or benefit payment pursuant to the Plan any and all income, employment, excise and other tax as the Participating Employers or Trustee deem necessary in connection with any benefits earned or paid pursuant to the 12 Plan and the Participating Employers may offset against amounts payable to any person under the Plan any amounts then owing to the Participating Employers by such persons. 7.2 Other Benefits. No amounts paid pursuant to the Plan constitute salary or compensation for the purpose of computing benefits under any other benefit plan, practice, policy or procedure of a Participating Employer unless otherwise expressly provided thereunder. 7.3 No Warranties Regarding Tax Treatment. The Participating Employers make no warranties regarding the tax treatment to any person of participation in the Plan or any action or omission of the Participating Employer or Participant in connection therewith and each Participant will hold the Administrator and the Participating Employers and their officers, directors, employees, agents and advisors harmless from any liability resulting from any tax position taken in good faith in connection with the Plan. 7.4 No Employment Rights Created. Neither the establishment of or participation in the Plan gives any employee a right to continued employment or limits the right of any Affiliated Organization to discharge, transfer, demote or modify the terms and conditions of employment or otherwise deal with any employee without regard to the effect such action might have on his or her with respect to the Plan. 13 CERIDIAN CORPORATION BENEFIT EQUALIZATION PLAN Exhibit A This exhibit sets for the provisions of Article V of the Plan as in effect immediately prior to January 1, 1994. These provisions continue to apply to Participants who terminated employment before January 1, 1994 with an entitlement to benefits pursuant to the provision of Article V as set forth in the exhibit. The provisions of Articles 4, 6 and 7 of the Plan as currently in effect are applicable to such Participants. 5.01 Each participant shall be entitled to receive, from the employer, a defined contribution plan equalization payment or payments, in accordance with the remaining provisions of this Article V. The aggregate amount of such payment or payments shall be the amount credited to a bookkeeping reserve account that the employer shall establish in the name of the participant, in accordance with the following provisions: (a) There shall be credited to each participant's reserve account, during each plan year, an amount elected by the participant, but not exceeding the amount equal to the excess of - (1) the maximum amount that could have been contributed by the employer to such participant's account under the defined contribution plan for such plan year without regard to any limitations imposed thereunder to satisfy the provisions of section 415 of the Internal Revenue Code, over (2) the amount actually contributed by the employer to such participant's account under the defined contribution plan for such plan year. (b) Each participant shall file with the administrator a written election to have credited to his reserve account hereunder a percentage of his "compensation" (as that, or the corresponding, term is defined in the defined contribution plan). Subject to the limitation specified at clause (a) above, the percentage elected may be any whole percentage from one percent to ten percent, or the full and fractional percentage by which participant directed contributions which would otherwise have been made on his behalf under the Control Data Corporation Savings and Stock Ownership Plan are deceased by operation of the 14 provision thereunder which limits contributions in order to satisfy the requirements of Section 415 of the Internal Revenue Code. After such election has been made, the participant's compensation for each payroll period of the employer shall be reduced by the percentage so elected. At the end of each month, there shall be credited to the participant's reserve account hereunder the amount by which the participant's compensation for such month has been so reduced. (c) A participant may, at any time upon thirty days' prior written notice to the administrator, suspend the compensation reductions previously elected. A participant may, on January 1 or July 1 of any year, upon thirty days prior written notice to the administrator and subject to the limitation specified at clause (a) above, change the percentage of compensation reductions previously elected (to any whole percentage from one percent to ten percent), or reinstate compensation reductions previously suspended. (d) The employer shall also credit to the reserve account of each participant, as of the end of each month, an imputed investment return. The imputed investment return shall be the amount which the balance of the participant's reserve account, as of the beginning of such month, would have earned had it been invested in the money market fund maintained under the Control Data Corporation Savings and Stock Ownership Plan during such month. (e) As of the date of each payment to the participant or his beneficiary pursuant to the provisions of Section 5.02, the participant's reserve account shall be debited with the amount of such distribution. 5.02 (A) Payment of defined contribution plan equalization benefits shall be made to the participant or, in the event of his death, to his beneficiary only after an event of maturity. Any termination of the participant's employment with the employer. including termination by reason of his death, shall constitute an event of maturity. (B) Upon the occurrence of an event of maturity with respect to a participant, the employer shall pay to him or, in the event of his death, to his beneficiary, an amount equal to such participant's bookkeeping reserve account. Pursuant to the participant's election in the manner hereinafter 15 provided, such payment shall be made either (1) in ten substantially equal annual installments; (provided that, if the administrator, in his sole discretion determines, that such form of payment will result in hardship to the participant, he may cause the payment of one or more such installments to be accelerated), or (2) in a lump sum. For purposes of implementing the foregoing, each participant shall, within sixty days after an amount is first credited to his reserve account, file an irrevocable written election with the administrator, selecting one of the foregoing methods of payment. If he fails to make such election within such period or if his election is for any reason ineffective. he shall be deemed to have elected to receive benefits hereunder in the for:n of a lump sum. 5.03 The undistributed portion of a matured reserve account shall continue to be credited with an imputed investment return in accordance with clause (d) of Section 5.01, based on the lowest balance of such account during the month for which such return is determined. 5.04 Each participant shall designate, in the manner prescribed by the administrator, the beneficiary or beneficiaries to whom undistributed benefits hereunder shall be paid in the event of his death. Such designation may be changed from time to time by written notice to the administrator in such form as he may prescribe. Any such designation shall be effective only if it is received by the administrator prior to the participant's death. If, upon the death of the participant, no beneficiary designation has been filed with the administrator or if the designated beneficiaries have predeceased the participant, the participant shall be deemed to have designated as his beneficiary the first of the following categories that is applicable in his case: (1) The participant's surviving spouse; or, if none, (2) The participant's descendants, per stirpes; or, if none, (3) The participant's estate. The administrator's good faith distribution based on his actual knowledge of the existence of a participant's beneficiaries shall be conclusive and binding on all beneficiaries of a participant. 16 EX-10.15 13 EXHIBIT 10.15 EXHIBIT 10.15 CERIDIAN CORPORATION EMPLOYEES' BENEFIT PROTECTION TRUST AGREEMENT Table of Contents Page PREAMBLE 1 ARTICLE 1 Description and Definitions 1.1 Name 1.2 Intentions 1.3 Irrevocability; Creditor Claims 2 1.4 Additional Definitions 2 1.5 Grantor Trust 3 1.6 Benefits Implemented Through Trust 4 ARTICLE 2 General Administration 5 2.1 Committee Directions 5 2.2 Contributions 5 2.3 Separate Accounting for Each Plan 6 2.4 Interest of Plans in Trust Fund 6 2.5 Excess Accumulations 7 2.6 Substitution 7 2.7 Transfer to Successor Trust 7 2.8 Merger or Split-up of Plans 8 ARTICLE 3 Duties and Powers of Trustee 9 3.1 General Responsibility 9 3.2 General Powers 9 3.3 Distributions 13 3.4 Trustee Responsibility Regarding Payments on Insolvency 16 3.5 Records 18 3.6 Quarterly Accounting; Final Accounting 18 3.7 Valuation 18 3.8 Delegation of Duties 19 ARTICLE 4 Directed Investments 20 4.1 Appointment of Insurance Company as Investment Manager 20 4.2 Appointment of Investment Adviser as Investment Manager 20 4.3 Directions of Committee 22 i ARTICLE 5 Compensation, Indemnification 24 5.1 Compensation and Expenses 24 5.2 Indemnification 24 ARTICLE 6 Resignation or Removal of Trustee 25 6.1 Resignation; Removal 25 6.2 Successor Trustee 25 6.3 Settlement of Accounts 25 SECTION 7 Controversies, Legal Actions 26 7.1 Controversy 26 7.2 Joinder of Parties 26 ARTICLE 8 Insurers 27 8.1 Insurer Not a Party 27 8.2 Authority of Trustee 27 8.3 Contract Ownership 27 8.4 Limitation of Liability 27 8.5 Change of Trustee 27 ARTICLE 9 Amendment and Termination 28 9.1 Amendment28 9.2 Final Termination 29 ARTICLE 10 Miscellaneous 30 10.1 Taxes 30 10.2 Third Persons 30 10.3 Nonassignability; Nonalienation 30 10.4 The Plans 30 10.5 Applicable Law 30 10.6 Notices and Directions 31 10.7 Successors and Assigns 31 10.8 Gender and Number 31 10.9 Headings 31 10.10 Counterparts 31 10.11 Beneficial Interest 31 10.12 Effective Date 31 CERIDIAN CORPORATION EMPLOYEES' BENEFIT PROTECTION TRUST AGREEMENT This Trust Agreement is made and entered into as of December 1, 1994, between Ceridian Corporation, a Delaware corporation (the "Company"), and First Trust National Association, a national banking association with trust powers (the "Trustee"). RECITALS The Company desires to establish a trust to be used in conjunction with certain agreements and plans which provide deferred or supplemental compensation to current or former employees of the Company or a Subsidiary, including such agreements or plans entered into or established after the effective date of this Trust Agreement. The Company desires to appoint the Trustee to act as trustee of the Trust and the Trustee desires to accept the appointment. The Company and the Trustee enter into this Trust Agreement to establish the Trust and to set forth their respective rights and obligations in connection with the Trust. Therefore, in consideration of the mutual undertakings contained in this Trust Agreement, the Company and Trustee agree as follows: ARTICLE 1 Description and Definition 1.1 Name. The name of the Trust is the "Ceridian Corporation Employees' Benefit Protection Trust." 1.2 Intentions. It is the intention of the parties that this Trust constitute an unfunded arrangement and not affect the status of the Plans as unfunded for purposes of the Code and Title I of ERISA. In addition, it is the intention of the Company and the Subsidiaries to make contributions to the Trust to provide a source of funds to assist in meeting their liabilities under the Plans, subject to the claims of the Company's and the Subsidiaries' creditors in the event of their Insolvency, until paid to Participants and their Beneficiaries in such manner and at such times as specified in the Plans. 1.3 Irrevocability; Creditor Claims. The Trust established pursuant to this Trust Agreement is irrevocable. The principal of the Trust, and any earnings thereon, will be held separate and apart from other funds of the Company and the Subsidiaries and will be used exclusively for the uses and purposes of the Participants, Beneficiaries and general creditors of the Company and the Subsidiaries as herein set forth. The Participants and their Beneficiaries have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plans and this Trust Agreement are mere unsecured contractual rights of the Participants and their Beneficiaries against the Company and the Subsidiaries. Any assets held by the Trust will be subject to the claims of the Company's and the Subsidiaries' general creditors under federal and state law in the event of Insolvency. 1.4 Additional Definitions. In addition to the definitions set forth above, for purposes hereof, unless otherwise clearly apparent from the context, the following terms have the following indicated meanings: (a) "Account" has the meaning set forth in Section 2.3(a). (b) "Beneficiary" means one or more persons, trusts, estates or other entities, designated in accordance with a Plan, that are entitled to receive benefits under a Plan upon the death of a Participant. (c) "Board" means the board of directors of the Company. When this Trust Agreement provides for an action to be taken by the Board, the action may be taken by any committee or individual authorized to take such action pursuant to a proper delegation of the Company's board of directors which remains in effect at the time in question. (d) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (e) "Committee" means the administrative committee appointed by the Company's Chief Executive Officer to administer the Trust. (f) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. (g) "Insolvent" has the meaning set forth in Section 3.4(a). (h) "Insolvent Entity" has the meaning set forth in Section 3.4(a). (i) "IRS" means the Internal Revenue Service. (j) "Participant" means a current or former employee of the Company or a Subsidiary who is a party to, or a participant under, one or more of the Plans in accordance with their terms and conditions. (k) "Payment Schedule" has the meaning set forth in Section 3.3(b). (l) "Plan" means any plan, program, policy or agreement pursuant to which the Company or a Subsidiary is required to provide deferred or supplemental compensation to a current or former employee which is listed on Schedule 1, as such schedule may be amended from time to time by the Board. (m) "Subaccount" has the meaning set forth in Section 2.3(b). (n) "Subsidiary" means any corporation that is a member of a controlled group of corporations within the meaning of Code section 414(b) that includes the Company. (o) "Trust" means the trust established pursuant to this Trust Agreement as amended from time to time. (p) "Trust Fund" means the assets held by the Trustee pursuant to the terms of this Trust Agreement and for the purposes of the Plans. 1.5 Grantor Trust. The Trust is intended to be a "grantor trust," of which the Company and the Subsidiaries are the grantors, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Code, and the Trust will be construed accordingly. 1.6 Benefits Implemented Through Trust. Simultaneously with the execution of this Trust Agreement, the Company will deliver to the Trustee true, correct and complete copies of all Plans listed on Schedule 1. If so specified on Schedule 1, benefits implemented through the Trust with respect to a Plan may be limited to any individual Participant or Beneficiary or group of Participants or Beneficiaries and to less than all of the benefits payable under the Plan. The Board may, from time to time, without the consent of the Trustee, add Plans to Schedule 1, expand the scope of Plan benefits implemented through the Trust or amend or modify any Plan listed on Schedule 1 and no such action will be deemed to be an amendment subject to Section 9.1; provided, however, that the effect of such action may not unreasonably increase the Trustee's responsibilities hereunder without the Trustee's consent. The Company will promptly deliver to the Trustee a true, correct and complete copy of any new Plan, or modifications or amendments to such Plan. Any special provisions of this Trust Agreement applicable to a specific Plan listed on Schedule 1 will be set forth on an exhibit to this Trust Agreement and in the event of any inconsistencies between the provisions of any such exhibit and the other provisions of this Trust Agreement, the provisions of the exhibit control. A Plan may be deleted from Schedule 1 by action of the Board and such action will not be deemed to be an amendment subject to Section 9.1 only (a) in the case of a transfer to a successor trust pursuant to Section 2.7 or (b) if the Committee establishes to the reasonable satisfaction of the Trustee that the Plan has been (1) merged with another Plan pursuant to Section 2.8, (2) assumed by (A) a Subsidiary in connection with a transaction pursuant to which it ceases to be such or (B) a successor to all or any portion of the business of the Company or a Subsidiary or (3) terminated but only if all liabilities to Participants and Beneficiaries pursuant to the Plan have been fully satisfied. Any other deletion of a Plan from Schedule 1 is an amendment subject to Section 9.1. ARTICLE 2 General Administration 2.1 Committee Directions. (a) The Secretary or an Assistant Secretary of the Company will certify to the Trustee the names of the Committee members. Persons authorized to give directions to the Trustee on behalf of the Committee will be identified to the Trustee by written notice from the Committee, and such notice will contain specimens of the authorized signatures. The Trustee may rely on such written notice as evidence of the identity and authority of the persons appointed until a written cancellation of the appointment, or the written appointment of a successor, is received by the Trustee. (b) Directions by the Committee, or its delegate, to the Trustee must be in writing and signed by the Committee or persons authorized by the Committee, or may be made by such other method as is acceptable to the Trustee. (c) The Trustee may conclusively rely on written directions from the Committee in taking any action with respect to the Trust, including the making of payments from the Trust Fund and the investment of the Trust Fund pursuant to this Trust Agreement. (d) The Trustee may request directions from the Committee and has no duty to act if such directions are not provided by the Committee. If requested directions are not received within a reasonable time, the Trustee may, but is under no duty to, act on its own discretion to administer the Trust in accordance with this Trust Agreement and the Plans. 2.2 Contributions. The Company and the Subsidiaries, in their sole discretion, may at any time, or from time to time, make deposits of cash or other property acceptable to the Trustee in trust with the Trustee to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. In connection with any deposit, the Committee will designate in writing to the Trustee the portion of the deposit attributable to each Account and, if applicable, Subaccount. Neither the Trustee nor any Participant or Beneficiary has any right to compel such additional deposits. The Trustee has no duty to (a) collect or enforce payment to it of any contributions, (b) require that any contributions be made, (c) compute any amount to be paid to it or (d) determine whether amounts paid comply with the terms of the Plans. 2.3 Separate Accounting for Each Plan. a) The Trustee will maintain separate Accounts to reflect the interest of each Plan in the Trust Fund. Not less frequently than monthly, the Account of each Plan will be debited or credited, as the case may be, (1) for the entire amount of every contribution received by the Trustee on behalf of such Plan, every benefit payment or expense or other charge properly allocable to such Plan and every transaction relating solely to such Plan, and (2) for the Plan's equitable share of every item of allocated or accrued income, gain or loss of general expenses and other transactions allocable to the Trust Fund as a whole. (b) If contributions are made with respect to a Plan by the Company and one or more other Subsidiaries or two or more Subsidiaries, the Trustee will maintain within the Account with respect to the Plan separate Subaccounts to reflect the portion of the total Account balance attributable to each contributing entity. (c) Except as provided in Section 2.5, (1) in no event will a Plan or the Participants or Beneficiaries covered by that Plan be entitled to payments from the Trust Fund in excess of the value of the Account maintained for that Plan, and (2) if Subaccounts are maintained with respect to a Plan, in no event will Participants or Beneficiaries covered by that Plan be entitled to payments pursuant to the Plan with respect to service with the Company or a Subsidiary in excess of the value of the Subaccount maintained for the Company or Subsidiary with respect to the Plan. 2.4 Interest of Plans in Trust Fund. The Committee may specify in writing to the Trustee that all or part of a Plan's interest in the Trust Fund be held in a segregated account for the Plan and invested separately from the remainder of the Trust Fund. In such event, assets of such segregated account will be held and administered solely for that Plan. Except in cases of such segregation, the contributions received by the Trustee from the Company and the Subsidiaries with respect to all Plans will be held and administered pursuant to the terms of this Trust Agreement as a single fund without distinction between income and principal and without liability for the payment of interest thereon except as expressly provided in this Trust Agreement. During the term of this Trust, except as otherwise expressly provided in this Trust Agreement, all income received by the Trust, net of expenses and taxes, will be accumulated and reinvested. 2.5 Excess Accumulations. (a) If the Trustee determines that the fair market value of an Account or Subaccount exceeds 125 percent of the benefit obligations accrued through the date of the determination chargeable to the Account or Subaccount, at the direction of the Committee, the Trustee will distribute to the Company or Subsidiary all or any portion of the excess. (b) If the Trustee determines that the fair market value of an Account or Subaccount exceeds 125 percent of the benefit obligations accrued through the date of the determination chargeable to the Account or Subaccount, at the direction of the Committee or pursuant to Section 3.3(d)(2), the Trustee will transfer all or any portion of the excess to another Account or another Subaccount maintained for the same entity. (c) For purposes of this section the value of benefit obligations as of a given date is, (1) in the case of a Plan which is a defined contribution plan, the aggregate balance the accounts of all Participants and Beneficiaries as of the most recent Plan valuation date, and (2) in the case of a Plan which is a defined benefit plan, the present value (based on actuarial assumptions determined by the Trustee to be reasonable) of Plan benefits based on service, compensation and other appropriate factors as of the determination date and applying the provisions of the Plan then in effect. 2.6 Substitution. Notwithstanding any provision of any Plan or this Trust Agreement to the contrary, the Company or any Subsidiary that has made contributions to the Trust has the power to reacquire the Trust Fund by substituting readily marketable securities (other than a security issued by the Company or any Subsidiary) acceptable to the Trustee and/or cash of an equivalent fair market value and such other property will, following such substitution, constitute the Trust Fund. 2.7 Transfer to Successor Trust. The Company, by written direction delivered to the Trustee, may direct the withdrawal and transfer of assets constituting all or a part of the interest of a Plan in the Trust Fund to a successor trust, which may be the Trustee acting under a separate trust agreement. The Trustee will be required to effect the direction only if it determines that (a) the trustee of the successor trust would qualify to act as a successor trustee of the Trust pursuant to Section 6.2 and (b) the transfer could not reasonably be expected to result in (1) any material decrease in the rights of Participants and Beneficiaries or (2) Participants and/or Beneficiaries being taxed on benefits under a Plan or successor plan in a year other than the year of actual receipt of benefits. The Trustee will make the transfer as soon as practicable after making such determination, either in cash, or at the direction of the Committee, in other property or partly in cash and partly in other property. 2.8 Merger or Split-up of Plans. If two or more Plans are merged into a single Plan, or if a Plan is divided into two or more Plans, the resulting Plan or Plans will continue to participate in this Trust unless the Company directs the Trustee to make a transfer of assets with respect to such Plan or Plans to a successor trust pursuant to Section 2.7. The Trustee will make such adjustments of the Accounts or Subaccounts as are appropriate to reflect any such merger or split-up of Plans. ARTICLE 3 Duties and Powers of Trustee 3.1 General Responsibility. The general responsibilities of the Trustee are as follows: (a) Except as expressly otherwise provided in this Trust Agreement, the Trustee has exclusive authority and discretion to manage and control the assets comprising the Trust Fund. (b) The Trustee will hold, administer, invest and reinvest, and disburse the Trust Fund in accordance with the powers and subject to the restrictions stated in this Trust Agreement. Investments will be consistent with any funding policy communicated to the Trustee in writing by the Committee. The Trustee may rely on the latest such communication received by it without further inquiry or verification. (c) The Trustee will disburse monies and other properties from the Trust Fund in accordance with the terms of this Trust Agreement. The Trustee is not liable for any distribution made by it pursuant to such directions and has no duty to make inquiry as to whether any distribution made by it pursuant to any such direction is made pursuant to the provisions of the Plans. The receipt by the payee will constitute a full acquittance to the Trustee. (d) The Trustee has the responsibilities, if any, expressly allocated to it by the Plans. Except as responsibilities may be expressly so allocated, the Trustee, in its capacity as such, has no responsibility or authority with respect to the operation and administration of the Plans, and the rights, powers, and duties of the Trustee are governed solely by the terms of this Agreement without reference to the provisions of the Plans. (e) The Trustee will reimburse the Company from the Trust Fund for expenses incurred by the Company or any employee or agent thereof in connection with the administration of the Plans upon its receipt of written statements therefor in form acceptable to the Trustee. 3.2 General Powers. The Trustee has, without exclusion, all powers conferred on the Trustee by applicable law, unless otherwise expressly provided in this Trust Agreement, and all rights associated with the Trust Fund will be exercised by the Trustee or the person designated by the Trustee, and in no event by Participants or Beneficiaries. Except as otherwise expressly provided in this Trust Agreement, the Trustee has exclusive authority and discretion to invest and reinvest the principal and income of the Trust Fund in real or personal property of any kind and will do so with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. The Trustee will diversify the investments of the Trust Fund so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so. The Trustee is not limited by the laws of any state proscribing or limiting the investment of trust funds by corporate or individual trustees in or to certain kinds, types, or classes of investments or limiting the value or proportion of the trust assets that may be invested in any one property or kind, type, or class of investment. Without limiting the generality of the foregoing, investments and reinvestments are also subject to the following: (a) To invest and reinvest the Trust Fund, together with the income therefrom, in common stock, preferred stock, convertible preferred stock, mutual funds, bonds, debentures, convertible debentures and bonds, mortgages, notes, time certificates of deposit, commercial paper and other evidences of indebtedness (including those issued by the Trustee or any of its affiliates), financial futures contracts, other securities, policies of life insurance, annuity contracts, options to buy or sell securities or other assets, and other property of any kind (personal, real, or mixed, and tangible or intangible); provided, however, that in no event may the Trustee invest in securities (including stock or rights to acquire stock) or obligations issued by the Company or the Subsidiaries, other than a de minimis amount held in common investment vehicles in which the Trustee invests. (b) To hold securities and other properties in bearer form or in the name of a nominee or nominees without disclosing any fiduciary relationship; provided, however, that on the books and records of the Trustee such securities and properties will constantly be shown to be a part of the Trust Fund, and no such registration or holding by the Trustee relieves it from liability for the safe custody and proper disposition of such securities and properties in accordance with the terms and provisions of this Trust Agreement. (c) To sell, grant options to buy, transfer, assign, convey, exchange, mortgage, pledge, lease or otherwise dispose of any of the properties comprising the Trust Fund at such prices and on such terms and in such manner as it may deem proper, and for terms within or extending beyond the duration of the Trust. (d) To manage, administer, operate, lease for any number of years, regardless of any restrictions on leases made by fiduciaries, develop, improve, repair, alter, demolish, mortgage, pledge, grant options with respect to, or otherwise deal with any real property or interest therein at any time held by it; and to cause to be formed a corporation or trust to hold title to any such real property with such powers, all upon such terms and conditions as may be deemed advisable. (e) To renew or extend or participate in the renewal or extension of any note, bond or other evidence of indebtedness, or any other contract or lease, or to exchange the same, or to agree to a reduction in the rate of interest or rent thereon or to any other modification or change in the terms thereof, or of the security therefor, or any guaranty thereof, in any manner and to any extent that it may deem advisable in its absolute discretion; to waive any default, whether in the performance of any covenant or condition of any such note, bond or other evidence of indebtedness, or any other contract or lease, or of the security therefor, and to carry the same past due or to enforce any such default as it may in its absolute discretion deem advisable; to exercise and enforce any and all rights to foreclose, to bid in property on foreclosure; to exercise and enforce in any action, suit, or proceeding at law or in equity any rights or remedies in respect to any such note, bond or other evidence of indebtedness, or any other contract or lease, or the security therefor; to pay, compromise, and discharge with the funds of the Trust Fund any and all liens, charges, or encumbrances upon the same, in its absolute discretion, and to make, execute, and deliver any and all instruments, contracts, or agreements necessary or proper for the accomplishment of any of the foregoing powers. (f) To borrow such sums of money for the benefit of the Trust Fund from any lender upon such terms, for such period of time, at such rates of interest, and upon giving such collateral as it may determine; to secure any loan so made by pledge or mortgage of the trust property; and to renew existing loans. (g) To use the assets of the Trust Fund, whether principal or income, for the purpose of improving, maintaining, or protecting property acquired by the Trust Fund, and to pay, compromise, and discharge with the assets of the Trust Fund any and all liens, charges, or encumbrances at any time upon the same. (h) To hold uninvested such cash funds as may appear reasonably necessary to meet the anticipated cash requirements of the Plans from time to time and to deposit the same or any part thereof, either separately or together with other trust funds under the control of the Trustee, in its own deposit department or to deposit the same in its name as Trustee in such other depositories as it may select. (i) To receive, collect, and give receipts for every item of income or principal of the Trust Fund. (j) To institute, prosecute, maintain, or defend any proceeding at law or in equity concerning the Trust Fund or the assets thereof, at the sole cost and expense of the Trust Fund, and to compromise, settle, and adjust any claims and liabilities asserted against or in favor of the Trust Fund or of the Trustee; but the Trustee is under no duty or obligation to institute, maintain, or defend any action, suit, or other legal proceeding unless it has been indemnified to its satisfaction against any and all loss, cost, expense, and liability it may sustain or anticipate by reason thereof. (k) To vote all stocks and to exercise all rights incident to the ownership of stocks, bonds, or other securities or properties held in the Trust Fund and to issue proxies to vote such stocks; to enter into voting trusts for such period and upon such terms as it may determine; to give general or special proxies or powers of attorney, with or without substitution; to sell or exercise any and all subscription rights and conversion privileges; to sell or retain any and all stock dividends; to oppose, consent to, or join in any plan of reorganization, readjustment, merger, or consolidation in respect to any corporation whose stocks, bonds, or other securities are a part of the Trust Fund, including becoming a member of any stockholders' or bondholders' committee; to accept and hold any new securities issued pursuant to any plan of reorganization, readjustment, merger, consolidation, or liquidation; to pay any assessments on stocks or securities or to relinquish the same; and to otherwise exercise any and all rights and powers to deal in and with the securities and properties held in the Trust Fund in the same manner and to the same extent as any individual owner and holder thereof might do. (l) To make application for any contract issued by an insurance company to be purchased under a Plan, to accept and hold any such contract, and to assign and deliver any such contract. (m) To lend any securities or security from time to time constituting a part of the Trust Fund in exchange for such consideration and upon such terms and conditions as the Trustee deems appropriate. In any such transaction the Trustee may transfer legal title to the securities being loaned to the obligor, and may permit the obligor to return to the Trust Fund securities that are identical (but not necessarily evidenced by the same certificates) to those transferred to it by the Trustee under this Trust Agreement. (n) To employ such agents, experts, counsel, and other persons (any of whom may also be employed by or represent the Company or a Subsidiary) deemed by the Trustee to be necessary or proper for the administration of the Trust; to rely and act on information and advice furnished by such agents, experts, counsel, and other persons; and to pay their reasonable expenses and compensation for services to the Trust from the Trust Fund. (o) To pay out of the Trust Fund all real and personal property taxes, income taxes, and other taxes of any and all kinds levied or, assessed under existing or future laws against the Trust Fund, without any approval or direction of the Committee. (p) To pay any estate, inheritance, income, or other tax, charge, or assessment attributable to any benefit which, in the Trustee's opinion, it is or may be required to pay out of such benefit; and to require, before making any payment, such release or other document from any taxing authority and such indemnity from the intended payee as the Trustee deems necessary for its protection. (q) To retain any funds or property subject to any dispute without liability for the payment of interest, and to decline to make payment or delivery thereof until final adjudication is made by a court of competent jurisdiction. (r) To serve not only as Trustee but also in any other capacity with respect to the Plans pursuant to such agreements or practices as the Trustee considers necessary or appropriate under the circumstances. (s) To participate in and use the Federal Book-entry Account System (a service provided by the Federal Reserve Bank for its member banks for deposit of Treasury securities), or to use the Depository Trust Company, Midwest Trust Company or other generally accepted central depositories. (t) To make, execute, acknowledge, and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted to the Trustee. (u) To bring action before any court of competent jurisdiction for instructions with respect to any matter pertaining to the interpretation of this Trust Agreement or the administration of the Trust Fund. Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or to applicable law, the Trustee has no power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Code. 3.3 Distributions. (a) The establishment of the Trust and the payment or delivery to the Trustee of money or other property does not vest in any Participant or Beneficiary any right, title or interest in and to any of the assets comprising the Trust Fund. To the extent that any Participant or Beneficiary acquires the right to receive payments under any of the Plans, such right is no greater than the right of an unsecured general creditor of the Company or the Subsidiary that is obligated to make the payments pursuant to the terms of the Plan in question and such Participant or Beneficiary will have only the unsecured promise of the Company or Subsidiary that such payments will be made. (b) Concurrent with the establishment of this Trust, the Company will deliver to the Trustee a schedule (the "Payment Schedule") that specifies (1) the benefit payable in respect of each Participant (and his or her Beneficiaries) on a Plan by Plan basis, the formula or formulas or other instructions acceptable to the Trustee for determining the amounts so payable, (2) the form in which such amount is to be paid (as provided for or available under the applicable Plans), (3) the time of commencement for payment of such amounts and (4) the Account and, if applicable, the Subaccount to which the benefit is chargeable. If the Payment Schedule indicates that benefits are payable following the occurrence of a contingent event (e.g., death or termination of employment), the Company will provide the Trustee with notice of the occurrence of such event within three business days after the Company has knowledge thereof. The Company will update the Payment Schedule on at least a monthly basis. The Company will also update the Payment Schedule at any other time within three business days after the Trustee submits a written request to the Company for an update. The Trustee will make payments to the Participants and their Beneficiaries in accordance with such Payment Schedule. If, however, a Participant or Beneficiary submits to the Trustee a written claim which establishes to the Trustee's reasonable satisfaction that the Payment Schedule specifies or is based on incorrect information or is not consistent with the Plan, the Trustee may review any information provided to it by the Company, the Participant or Beneficiary or any other person and adjust the benefit as appropriate on the basis of such information. The Trustee has discretionary power and authority to construe, interpret and apply the terms of the Plan and to remedy any ambiguities in connection with such review and adjustment. The Trustee will promptly notify the Committee of any such written claim. (c) The Trustee may make any distribution required to be made by it hereunder by delivering: (1) Its check payable to the person to whom such distribution is to be made, to the person; or (2) Its check payable to an insurer for the benefit of such person, to the insurer; or (3) Contracts held on the life of the Participant to whom or with respect to whom the distribution is being made, to the Participant or Beneficiary; or (4) If a distribution is being made, in whole or in part, of other assets, assignments or other appropriate documents or certificates necessary to effect a transfer of title, to the Participant or Beneficiary. Payments by the Trustee will be delivered or mailed to addresses supplied by the Committee and the Trustee may rely on such addresses unless it has actual knowledge of a change. (d) (If the Trustee determines that the balance of any Account or, if applicable, Subaccount is not sufficient or is not expected to be sufficient to make benefit payments that are then either due or expected to become due within 90 days after the determination (the "expected short-term benefit obligations"), the Trustee will promptly provide written notice to the Committee of the deficiency or expected deficiency. Only one such notice is required with respect to any continuous period of deficiency. Upon receipt of such notice, the Committee will promptly take one or both of the following steps. (1) The Committee may cause the Company or a Subsidiary to make an additional contribution to the Trust attributable to the Account or Subaccount. (2) The Committee may instruct the Trustee in writing that the Company or Subsidiary intends to make benefit payments directly pursuant to Section 3.3(e), in which case the Trustee will make a transfer to the deficient Account or Subaccount pursuant to Section 2.5(b) if such a transfer may then be made. During any period in which the balance of the Account or Subaccount is not sufficient or is not expected to be sufficient to satisfy the expected short-term benefit obligations, each benefit payment from the Trust Fund chargeable to the Account or Subaccount will be reduced on a pro rata basis to reflect the deficiency. The Company or Subsidiary, as the case may be, will make the balance of each such payment as it falls due. (e) The Company and the Subsidiaries may make payment of benefits directly to Participants or their Beneficiaries as they become due under the terms of the Plans. The Company and the Subsidiaries will notify the Trustee of their decision to make payment of benefits directly not less than three business days prior to the time amounts are payable to Participants or their Beneficiaries. (f) Notwithstanding anything contained in this Trust Agreement to the contrary, if at any time the Trust is finally determined by the IRS not to be a "grantor trust" with the result that the income of the Trust Fund is not treated as income of the Company or the Subsidiaries pursuant to Code sections 671 through 679, or if a tax is finally determined by the IRS to be payable by one or more Participants or Beneficiaries with respect to any interest in the Plans or the Trust Fund prior to payment of such interest to such Participant or Beneficiary, then (1) the Trust will immediately terminate, (2) the Trustee will immediately determine each Participant's share of the Trust Fund in accordance with the Plans, and (3) the Trustee will immediately distribute such share in a lump sum to each Participant or Beneficiary entitled thereto, regardless of whether such Participant's employment has terminated and regardless of form and time of payments specified in or pursuant to the Plans. Any remaining assets (less any expenses or costs due under Sections 3.2(n) and 5.1 of this Trust Agreement) will then be paid by the Trustee to the Company and the Subsidiaries in such amounts, and in the manner instructed by the Committee. (g) The Trustee will make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plans or this Trust Agreement and will pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by the Company and the Subsidiaries. 3.4 Trustee Responsibility Regarding Payments on Insolvency. (a) The Trustee will cease payment of benefits to Participants and their Beneficiaries attributable to a particular entity under the terms of a Plan if the entity is Insolvent (the "Insolvent Entity"). The Insolvent Entity will be considered "Insolvent" for purposes of this Trust Agreement if: (1) the Insolvent Entity is unable to pay its debts as they become due, or (2) the Insolvent Entity is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. For purposes of this Section 3.4, if an entity is determined to be Insolvent, each Subsidiary in which such entity has an equity interest will also be deemed to be an Insolvent Entity. However, the insolvency of a subsidiary will not cause a parent corporation to be deemed Insolvent. (b) At all times during the continuance of this Trust, as provided in Section 1.3 above, the principal and income of the Trust will be subject to claims of the general creditors of the Company and its Subsidiaries under federal and state law as set forth below: (1) The board of directors of the Company and the president of the Company have the nondelegable duty to inform the Trustee in writing of the Company's or any Subsidiary's Insolvency. If a person claiming to be a creditor of the Company or any Subsidiary alleges in writing to the Trustee that the Company or any Subsidiary has become Insolvent, the Trustee will determine whether the Company or any Subsidiary is Insolvent and, pending such determination, the Trustee will discontinue payment of benefits to the Participants or their Beneficiaries attributable to the Insolvent Entity. The Trustee may conclusively rely on any determination it receives from the board of directors of the Company or the president of the Company with respect to the Insolvency of the Company or any Subsidiary. (2) Unless the Trustee has actual knowledge of the Company's or a Subsidiary's Insolvency, or has received notice from the Company, a Subsidiary, or a person claiming to be a creditor alleging that the Company or a Subsidiary is Insolvent, the Trustee has no duty to inquire whether the Company or any Subsidiary is Insolvent. The Trustee may in all events rely on such evidence concerning the Company's or any Subsidiary's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's or any Subsidiary's solvency. In this regard, the Trustee may rely upon a letter from the Company's or a Subsidiary's auditors as to the Company's or any Subsidiary's financial status. (3) If at any time the Trustee has determined that the Company or any Subsidiary is Insolvent, the Trustee will discontinue payments to Participants or their Beneficiaries attributable to the Insolvent Entity, and will hold the portion of the assets of the Trust allocable to the Insolvent Entity for the benefit of the Insolvent Entity's general creditors. Nothing in this Trust Agreement in any way diminishes any rights of Participants or their Beneficiaries to pursue their rights as general creditors of the Insolvent Entity with respect to benefits due under the Plans or otherwise. (4) The Trustee will resume the payment of benefits to Participants or their Beneficiaries in accordance with this Article 3 of this Trust Agreement only after the Trustee has determined that the alleged Insolvent Entity is not Insolvent (or is no longer Insolvent). (c) Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust pursuant to Section 3.4(b) hereof and subsequently resumes such payments, the first payment following such discontinuance will include the aggregate amount of all payments due to Participants or their Beneficiaries under the terms of the Plans for the period of such discontinuance, less the aggregate amount of any payments made to Participants or their Beneficiaries by the Company or any Subsidiary in lieu of the payments provided for hereunder during any such period of discontinuance. 3.5 Records. The Trustee will maintain accurate records and detailed accounts of all investments, receipts, disbursements and other transactions hereunder. Such records will be available at all reasonable times for inspection by the Company and Subsidiaries or their authorized representative. The Trustee, at the direction of the Committee, will submit to the Committee and to any insurer such valuations, reports or other information as the Committee may reasonably require and, in the absence of fraud or bad faith, the valuation of the Trust Fund by the Trustee will be conclusive. 3.6 Quarterly Accounting; Final Accounting. (a) Within 45 days following the last day of each calendar quarter and within 45 days after the removal or resignation of the Trustee or the termination of the Trust, the Trustee will file with the Committee a written accounting setting forth in the aggregate and for each Account and Subaccount a description of all assets purchased and sold, all receipts, disbursements and other transactions effected by it during the three-month period then ending or, in the case of removal, resignation or termination, since the previous quarter end, and listing the assets held in the Trust Fund as of the last day of the period and indicating the cost and market values of each such asset. (b) The Committee may approve such accounting either by written notice of approval delivered to the Trustee or by its failure to express written objection to such accounting delivered to the Trustee within 90 days after the date of which such account was delivered to the Committee. (c) The approval by the Committee of an accounting is binding as to all matters covered by the accounting, other than matters which the Committee could not reasonably determine to be in error, on all parties to this Trust Agreement and on all Participants and Beneficiaries, to the same extent as if such accounting had been settled by a judgment or decree of a court of competent jurisdiction in which the Trustee, the Committee, the Company, the Subsidiaries and all persons having or claiming any interest in any Plan or Trust Fund were made parties. (d) Despite the foregoing, nothing contained in this Trust Agreement deprives the Trustee of the right to have an accounting judicially settled, if the Trustee, in the Trustee's sole discretion, desires such a settlement. 3.7 Valuation. The Trustee will determine the fair market value of assets comprising the Trust Fund based upon such sources of information as it may deem reliable, including, but not limited to, stock market quotations, statistical evaluation services, newspapers of general circulation, financial publications, advice from investment counselors, brokerage firms or insurance companies, or any combination of sources. The Trustee may take whatever action it deems reasonable, including employment of attorneys, appraisers, life insurance companies or other professionals, the expense of which will be an expense of administration of the Trust Fund payable by the Company and the Subsidiaries. The Trustee may rely upon information from the Company and the Subsidiaries, the Committee, appraisers or other sources. 3.7 Delegation of Duties. The Company, a Subsidiary or the Committee, or any or all of them, may at any time employ the Trustee as its/their agent to perform any act, keep any records or accounts and make any computations that are required of the Company, any Subsidiary or the Committee by this Trust Agreement or the Plans. The Trustee may be compensated for such employment and such employment will not be deemed to be contrary to the Trust. Nothing done by the Trustee as such agent changes or increases its responsibility or liability as Trustee hereunder. ARTICLE 4 Directed Investments 4.1 Appointment of Insurance Company as Investment Manager. The Committee may appoint one or more insurance companies to serve as an investment manager. The appointment of any such investment manager and investment of the Trust Fund pursuant to such appointment are subject to the provisions of this Section 4.1, notwithstanding any other provisions of this Trust Agreement to the contrary: (a) Written notice of each such appointment will be given to the Trustee a reasonable time in advance of the effective date of the appointment. (b) The Committee will determine the terms of each contract to be entered into between such insurance company and the Trustee (including any agreement or agreements supplemental thereto) pursuant to which investment management services are to be performed by the insurance company. On written direction of the Committee, the Trustee will make application for each such contract and will hold the contract as an asset of the Trust Fund. (c) The Trustee will pay such premiums to the insurance company pursuant to such contract as may be directed in writing by the Committee. (d) Except as otherwise agreed in writing by the Trustee and the Retirement Committee, the Trustee will take only such actions as contractholder of such contract as may be directed in writing by the Committee. (e) Any direction by the Committee with respect to such contract will be complete as to the terms with respect thereto, it being intended that the Trustee will have no discretion whatsoever with respect to the provisions of such contract or actions taken pursuant thereto. 4.2 Appointment of Investment Adviser as Investment Manager. The Committee may appoint one or more parties that are registered as investment advisers under the Investment Advisers Act of 1940 to serve as an investment manager. The appointment of any such investment manager and investment of the Trust Fund pursuant to such appointment are subject to the provisions of this Section 4.2, notwithstanding any other provisions of this Agreement to the contrary: (a) Written notice of each such appointment will be given to the Trustee a reasonable time in advance of the effective date of the appointment. The notice will state what portion of the Trust Fund is to be invested by the investment manager and will direct the Trustee to segregate such portion of the Trust Fund into a separate account for the investment manager. Each such separate account is referred to in this section as an Investment Account. (b) There will be a written agreement between the Committee and each investment manager. The Trustee will receive a copy of each such agreement and all amendments thereto and will give written acknowledgement of receipt of same. Alternately, the Committee may direct the Trustee to enter into such agreement and any ancillary agreements that the Committee determines to be necessary or appropriate. Each agreement with an investment manager will provide that: (1) All directions given by an investment manager to the Trustee will be in writing, signed by an officer or partner of the investment manager or by such other person as may be designated in writing by the investment manager; provided that the Trustee will accept oral directions for the purchase or sale of securities, which will be confirmed by such authorized personnel of the investment manager in writing; (2) In all events the Trustee, or an agent thereof, is to retain physical custody of or title to all assets included in an Investment Account; and (3) The Committee, by written notice to the investment manager and the Trustee, may modify or terminate the authority of the investment manager. (c) Payment of the cost of the acquisition, sale, or exchange of any security or other property for an Investment Account will be charged to that Investment Account unless the agreement between the Committee and investment manager provides otherwise. (d) So long as the appointment of an investment manager is in effect, the investment manager has full power and authority to direct the Trustee as to, and full responsibility for, investment of its Investment Account and for the retention and disposition of any assets in its Investment Account. Subject to any limitations in the agreement between the Committee and the investment manager, the investment manager has the same investment discretion as is accorded the Trustee under Section 3.2. The Trustee may invest any portion of an Investment Account that would otherwise be held in cash but has no obligation to do so. (e) Unless the written agreement between the Committee and investment manager expressly provides to the contrary, the Trustee has voting power with respect to all stocks and other securities in the Investment Account. (f) The Trustee will make available to an investment manager copies of or extracts from such portions of its accounts, books, or records relating to the Investment Account of such investment manager as the Trustee may deem necessary or appropriate in connection with the exercise of the investment manager's function, or as the Committee may direct. (g) All charges (other than those covered in Section 4.2(c) above) against each Investment Account will be made in such proportions as the Committee may direct from time to time. (h) If the authority of an investment manager is terminated and a successor investment manager is not appointed, the assets held in its Investment Account may or may not continue to be segregated as the Trustee may determine. Until receipt of written notice of the termination of the authority of an investment manager, the Trustee will be fully protected in assuming the continuing authority of such investment manager. (i) Any direction by an investment manager will be complete as to the terms with respect thereto, it being intended that the Trustee has no obligation whatsoever to invest or otherwise manage any asset of an Investment Account. 4.3 Directions of Committee. The Committee may direct the Trustee as to the investment and reinvestment of all or a part of the Trust Fund, subject to the following provisions of this Section 4.3, notwithstanding any other provisions of this Trust Agreement to the contrary: (a) Written notice of each such appointment will be given to the Trustee a reasonable time in advance of the effective date of the appointment. Such notice will state what portion of the Trust Fund is to be invested by the Committee and will direct the Trustee to segregate such portion of the Trust Fund into a separate account for the Committee. Each such separate account is referred to in this section as a Committee Account. (b) All directions given by the Committee to the Trustee will be in writing, signed by the duly authorized person or persons; provided that the Trustee will accept oral directions for the purchase or sale of securities which must be confirmed by such authorized personnel in writing. (c) In all events the Trustee or an agent thereof is to retain physical custody of or title to all assets comprising a Committee Account. (d) Payment of the cost of the acquisition, sale, or exchange of any security for a Committee Account will be charged to such Account. (e) The Committee has full power and authority to direct the Trustee as to, and full responsibility for, investment of each Committee Account and for the retention and disposition of any assets at any time included in each Committee Account. The Committee has the same investment discretion as is accorded the Trustee under Section 3.2 of this Agreement. The Trustee may invest any portion of a Committee Account that would otherwise be held in cash but has no obligation to do so. (f) The Trustee has the voting power with respect to all stocks and other securities in a Committee Account except to the extent written directions by the Committee to the Trustee grant voting power to the Committee. (g) The Trustee will make available to the Committee copies of or extracts from such portions of its accounts, books, or records relating to any Committee Account as the Committee may direct. (h) All charges (other than those covered in Section 4.3(d) above) against each Committee Account will be made in such proportions as the Committee may direct from time to time. (i) Any direction by the Committee be complete as to its terms, it being intended that the Trustee will have no obligation whatsoever to invest or otherwise manage any asset of a Committee Account. ARTICLE 5 Compensation, Indemnification 5.1 Compensation and Expenses. The Trustee is entitled to receive such reasonable compensation for its services as Trustee or in any other capacity in connection with the Plans as agreed upon by the Trustee and the Company. The Trustee is entitled to reimbursement for all reasonable and necessary costs, expenses and disbursements incurred by it in connection with the performance of such services. Such compensation and reimbursement will be charged to and paid out of the Trust Fund as an administrative expense but if not so paid or if the Committee so specifies, will be paid directly by the Company and Subsidiaries in such proportions as the Committee determines. 5.2 Indemnification. (a) The Company and the Subsidiaries will indemnify and hold the Trustee harmless from and against all liability, loss, cost or reasonable expense (including reasonable attorneys' fees) to which it may be subject by reason of its execution of its duties under this Trust Agreement, or by reason of any acts taken in good faith in accordance with any directions, or acts omitted in good faith due to absence of directions, from the Company, the Committee or a Participant, unless such liability, loss, cost or expense is due to the Trustee's negligence or misconduct. The indemnity described herein is provided jointly and severally by the Company and the Subsidiaries. (b) In the event that the Trustee is named as a defendant in a lawsuit or proceeding involving one or more of the Plans or the Trust Fund, the Trustee will be entitled to receive on a current basis the indemnity payments provided for in this section; provided, however, that, if the final judgment entered in the lawsuit or proceeding holds that the Trustee is guilty with respect to the Trust Fund of negligence or misconduct, the Trustee must refund the indemnity payments that it has received to the extent such payments are attributable to liability, loss, cost or expense due to such negligence or misconduct. (c) All releases and indemnities provided in this Trust Agreement survive the termination of this Trust Agreement. ARTICLE 6 Resignation or Removal of Trustee 6.1 Resignation; Removal. The Trustee may resign at any time by written notice to the Committee. The resignation will be effective 180 days after the Company's receipt of such notice unless the Company and the Trustee agree otherwise. The Trustee may be removed by the Company on 60 days notice or upon shorter notice accepted by the Trustee. 6.2 Successor Trustee. If the Trustee resigns or is removed, a successor will be appointed, in accordance with this section, by the effective date of the resignation or removal under Section 6.1 above. The successor must (a) be a bank (or a trust company wholly owned by a bank) (b) be among the 100 largest banks in the United States as measured by deposits and (c) have a rating of "B/C" or greater based on the most current rating from Keefe, Bruyett & Woods ("KB&W") or its successor, or if KB&W or its successor should cease to publish ratings, then a short-term debt rating from Moody's of "P-1," or greater, or from Standard and Poor's of "A-1." If no such appointment has been made, the Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of the Trustee in connection with the proceeding will be allowed as administrative expenses of the Trust. 6.3 Settlement of Accounts. Upon resignation or removal of the Trustee and appointment of a successor Trustee, all assets comprising the Trust Fund will subsequently be transferred to the successor Trustee. The transfer must be completed within 90 days after receipt of notice of resignation, removal or transfer, unless the Company extends the time limit. Upon the transfer of the assets, the successor Trustee will succeed to all of the powers and duties given to the Trustee in this Trust Agreement. The resigning or removed Trustee will render to the Committee an accounting in the form and manner and at the time prescribed in Section 3.6. SECTION 7 Controversies, Legal Actions 7.1 Controversy. If any controversy arises with respect to the Trust, the Trustee will act as it deems advisable, whether by legal proceedings, compromise or otherwise. The Trustee may retain the funds or property involved without liability pending settlement of the controversy. The Trustee is under no obligation to take any legal action of whatever nature unless there is sufficient property in the Trust to indemnify the Trustee with respect to any expenses or losses to which it may be subjected. 7.2 Joinder of Parties. In any action or other judicial proceedings affecting the Trust, it will be necessary to join as parties the Trustee, the Committee, the Company and the Subsidiaries. No Participant, Beneficiary or other person is entitled to any notice or service of process. Any judgment entered in such a proceeding or action will be binding on all persons claiming under the Trust. Nothing in this Trust Agreement is to be construed in a way that deprives a Participant or Beneficiary of his or her right to seek adjudication of his or her rights by administrative process or by a court of competent jurisdiction. ARTICLE 8 Insurers 8.1 Insurer Not a Party. No insurer will be deemed to be a party to the Trust and an insurer's obligations will be measured and determined solely by the terms of contracts and other agreements executed by it. 8.2 Authority of Trustee. An insurer must accept the signature of the Trustee to any documents or papers executed in connection with any insurance contracts or agreements ancillary or supplemental thereto. The signature of the Trustee is conclusive proof to the insurer that the person on whose life an application is being made is eligible to have a contract issued on his or her life and is eligible for a contract of the type and amount requested. 8.3 Contract Ownership. An insurer will deal with the Trustee as the sole and absolute owner of any insurance contracts and has no obligation to inquire whether any action or failure to act on the part of the Trustee is in accordance with or authorized by the terms of the Plans or this Trust Agreement. 8.4 Limitation of Liability. An insurer will be fully discharged from any and all liability for any action taken or any amount paid in accordance with the direction of the Trustee and has no obligation to see to the proper application of the amounts so paid. An insurer has no liability for the operation of the Trust or the Plans, whether or not in accordance with their terms and provisions. 8.5 Change of Trustee. An insurer will be fully discharged from any and all liability for dealing with a party or parties indicated on its records to be the Trustee until such time as it receives at its home office written notice of the appointment and qualification of a successor Trustee. ARTICLE 9 Amendment and Termination. 9.1 Amendment. Subject to the limitations set forth in this section, this Trust Agreement may be amended by a written instrument executed by the Trustee and the Company. Any amendment, change or modification is subject to the following rules: (a) General Rule. Subject to Sections 9.1(b) and (c) below, this Trust Agreement may be amended: (1) By the Company and the Trustee, provided, however, that if an amendment would in any way adversely affect the rights created by the Plans or this Trust Agreement of any Participant or Beneficiary in the Trust Fund, each and every Participant and Beneficiary whose rights in the Trust Fund would be adversely affected must consent to the amendment before this Trust Agreement may be so amended; and (2) By the Company and the Trustee as may be necessary to comply with laws which would otherwise render the Trust void, voidable or invalid in whole or in part. (b) Limitation. Notwithstanding that an amendment may be permissible under Section 9.1(a) above, this Trust Agreement may not be amended by an amendment that would: (1) Cause any of the assets of the Trust to be used for or diverted to purposes other than for the exclusive benefit of Participants and Beneficiaries as set forth in the Plans, except as is required to satisfy the claims of the Company's or a Subsidiary's general creditors; or (2) Be inconsistent with the terms of any Plan, including the terms of any Plan regarding termination, amendment or modification of the Plan. (c) Writing and Consent. Any amendment to this Trust Agreement must be set forth in writing and signed by the Company and the Trustee and, if consent of any Participant or Beneficiary is required under Section 9.1(a), the Participant or Beneficiary whose consent is required. Any amendment may be current, retroactive or prospective, in each case as provided therein. (d) Taxation. This Trust Agreement may not be amended, altered, changed or modified in a manner that would cause the Participants and/or Beneficiaries under any Plan to be taxed on the benefits under any Plan in a year other than the year of actual receipt of benefits. 9.2 Final Termination. The Trust will not terminate until the date on which Participants and their Beneficiaries are no longer entitled to benefits pursuant to the terms of the Plans. Upon termination of the Trust, any assets remaining in the Trust will be returned to the Company and the Subsidiaries. Such remaining assets will be paid by the Trustee to the Company and the Subsidiaries in such amounts and in the manner instructed by the Committee, whereupon the Trustee will be released and discharged from all obligations hereunder. From and after the date of termination and until final distribution of the Trust Fund, the Trustee will continue to have all of the powers provided herein as are necessary or expedient for the orderly liquidation and distribution of the Trust Fund. ARTICLE 10 Miscellaneous 10.1 Taxes. The Company and the Subsidiaries will from time to time pay taxes of any and all kinds whatsoever that at any time are lawfully levied or assessed upon or become payable in respect of the Trust Fund, the income or any property forming a part thereof, or any security transaction pertaining thereto. To the extent that any taxes lawfully levied or assessed upon the Trust Fund are not paid by the Company and the Subsidiaries, the Trustee has the power to pay such taxes out of the Trust Fund and must seek reimbursement from the Company and the Subsidiaries. Prior to making any payment, the Trustee may require such releases or other documents from any lawful taxing authority as it deems necessary. The Trustee will contest the validity of taxes in any manner deemed appropriate by the Company or its counsel, but at the Company's and the Subsidiaries' expense, and only if it has received an indemnity bond or other security satisfactory to it to pay any such expenses. The Trustee (a) will not be liable for any nonpayment of tax when it distributes an interest hereunder on directions from the Committee and (b) has no obligation to prepare or file any tax return on behalf of the Trust Fund, any such return being the sole responsibility of the Company and Subsidiaries. The Trustee will cooperate with the Committee in connection with the preparation and filing of any such return. 10.2 Third Persons. All persons dealing with the Trustee are released from inquiring into the decisions or authority of the Trustee and from seeing to the application of any moneys, securities or other property paid or delivered to the Trustee. 10.3 Nonassignability; Nonalienation. Benefits payable to Participants and their Beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. 10.4 The Plans. The Trust and the Plans are parts of a single, integrated employee benefit plan system and will be construed together. In the event of any conflict between the terms of this Trust Agreement and the agreements that constitute the Plans, such conflict will be resolved in favor of this Trust Agreement. 10.5 Applicable Law. Except to the extent, if any, preempted by ERISA, all questions arising in connection with this Trust Agreement, including, without limitation, those pertaining to construction, validity, effect, enforcement and remedies, will be determined in accordance with the internal, substantive laws of the State of Minnesota without regard to the conflict of law principles of the State of Minnesota or of any other jurisdiction. Any provision of this Trust Agreement prohibited by law are ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. 10.6 Notices and Directions. Whenever a notice or direction is given by the Committee to the Trustee, it will be in the form required by Section 2.1. Actions by the Company will be by the Board or a duly authorized officer, with such actions certified to the Trustee by an appropriately certified copy of the action taken. The Trustee will be protected in acting upon any such notice, resolution, order, certificate or other communication believed by it to be genuine and to have been signed by the proper party or parties. 10.7 Successors and Assigns. This Trust Agreement is binding upon and inures to the benefit of the Company, the Subsidiaries and the Trustee and their respective successors and assigns. 10.8 Gender and Number. Words used in one gender apply to the other gender where applicable, and when the context requires, the plural is to be read as the singular and the singular as the plural. 10.9 Headings. Headings in this Trust Agreement are inserted for convenience of reference only and if there is a conflict between the headings and the text, the text controls. 10.10 Counterparts. This Trust Agreement may be executed in an original and any number of counterparts, each of which will be deemed to be an original of one and the same instrument. 10.11 Beneficial Interest. The Company and the Subsidiaries are the true beneficiaries hereunder in that the payment of benefits, directly or indirectly to or for a Participant or Beneficiary by the Trustee, is in satisfaction of the Company's and the Subsidiaries' liability therefor under the Plans. Nothing in this Trust Agreement establishes any beneficial interest in any person other than the Company and the Subsidiaries. 10.12 Effective Date effective date of this Trust Agreement is December 1, 1994. Schedule 1 1. Ceridian Corporation Benefit Equalization Plan for benefits payable with respect to Participants who terminate employment or die after December 1, 1994 2. Ceridian Corporation Deferred Compensation Plan EX-10.16 14 EXHIBIT 10.16 EXHIBIT 10.16 CERIDIAN CORPORATION DEFERRED COMPENSATION PLAN Table of Contents ARTICLE 1 Description 1 1.1 Plan Name 1 1.2 Plan Purpose 1 1.3 Plan Type 1 ARTICLE 2 Participation 2 2.1 Eligibility 2 2.2 Transfer Among Participating Employers 2 2.3 Multiple Employment 2 2.4 Termination or Ceasing to be a Qualified Employee 2 2.5 Condition of Participation 2 2.6 Termination of Participation 3 ARTICLE 3 Benefits 4 3.1 Participant Accounts 4 3.2 Deferral Credits 4 3.3 Earnings Credits 5 3.4 Vesting 5 ARTICLE 4 Distribution 6 4.1 Distribution to Participant 6 4.2 Distribution to Beneficiary 8 4.3 Beneficiary Designation 8 4.4 Payment in Event of Incapacity 9 ARTICLE 5 Source of Payments; Nature of Interest 10 5.1 Establishment of Trust 10 5.2 Source of Payments 10 5.4 Non-assignability of Benefits 10 ARTICLE 6 Adoption, Amendment, Termination 11 6.1 Adoption 11 6.2 Amendment 11 6.3 Termination of Participation 11 6.4 Termination 12 ARTICLE 7 Definitions, Construction and Interpretation 13 i 7.17.1 Account 13 7.2 Active Participant 13 7.3 Administrator. 13 7.4 Affiliated Organization 13 7.5 Annual Bonus. 13 7.6 Base Salary 13 7.7 Board 14 7.8 Beneficiary 14 7.9 Code 14 7.10 Committee 14 7.11 Company 14 7.12 Cross Reference 14 7.13 Effective Date 14 7.14 Employee 14 7.15 ERISA 14 7.16 Governing Law 14 7.17 Headings 14 7.19 Participant 14 7.20 Participating Employer 15 7.21 Plan 15 7.22 Plan Year 15 7.23 Plan Rule 15 7.24 Qualified Employee 15 7.25 Trust 15 7.26 Trustee 15 ARTICLE 8 Administration 16 8.1 Administrator 16 8.2 Plan Rules and Regulations 16 8.3 Administrator's Discretion 16 8.4 Specialist's Assistance 16 8.5 Indemnification 16 8.6 Benefit Claim Procedure 16 ARTICLE 9 Miscellaneous 18 9.1 Withholding and Offsets 18 9.2 Other Benefits 18 9.3 No Warranties Regarding Tax Treatment 18 9.4 No Employment Rights Created 18 ARTICLE 1 Description 1.1 Plan Name. The name of the Plan is the "Ceridian Corporation Deferred Compensation Plan." 1.2 Plan Purpose. The purpose of the Plan is to provide Active Participants with the opportunity to defer a portion of the Base Salary or Annual Bonus or both that would otherwise be payable to them. 1.3 Plan Type. The Plan is an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees and, as such, is intended to be exempt from the provisions of Parts 2, 3 and 4 of Subtitle B of Title I of ERISA by operation of sections 201(2), 301(a)(3) and 401(a)(4) thereof, respectively, and from the provisions of Title IV of ERISA, to the extent otherwise applicable, by operation of section 4021(b)(6) thereof. The Plan is also intended to be unfunded for tax purposes. The Plan will be construed and administered in a manner that is consistent with and gives effect to the foregoing. ARTICLE 2 Participation 2.1 Eligibility. (A) Prior to the beginning of each Plan Year, the Administrator will determine which Qualified Employees, if any, are eligible to make deferral elections pursuant to Section 3.2 with respect to the Plan Year. (B) At any time during a Plan Year, the Administrator may determine that a Qualified Employee who became such after the beginning of the Plan Year is eligible to make a deferral election pursuant to Section 3.2 with respect to the remainder of the Plan Year. (C) The fact that an Employee has been eligible to make deferral elections with respect to any particular Plan Year does not give the Employee any right to make deferral elections in any other Plan Year. (D) In conjunction with each deferral election, a Participant must elect the form and timing of distribution of amounts deferred pursuant to the election and earnings thereon in accordance with Section 4.1. The election is applicable to all amounts credited to a Participant's Account pursuant to Section 3.2 for a given Plan Year. To be effective, a deferral election must specify a benefit payment or commencement date that is neither (1) before the earlier of (a) the last day of the third Plan Year after the Plan Year to which the election relates or (b) the Participant's termination of employment nor (2) after the later of (a) the Participant's sixty-fifth birthday or (b) the Participant's termination of employment. 2.2 Transfer Among Participating Employers. An Active Participant who transfers employment from one Participating Employer to another Participating Employer and who continues to be a Qualified Employee after the transfer will, for the duration of the Plan Year during which the transfer occurs, continue to participate in the Plan, in accordance with the election in effect for the portion of the Plan Year before the transfer, as a Qualified Employee of such other Participating Employer. 2.3 Multiple Employment. An Active Participant who is simultaneously employed as a Qualified Employee with more than one Participating Employer will participate in the Plan as a Qualified Employee of all such Participating Employers on the basis of a single deferral election pursuant to Section 3.2 applied separately to his or her Base Salary and Annual Bonus from each such Participating Employer. 2.4 Termination or Ceasing to be a Qualified Employee. An Active Participant who, during a Plan Year, terminates his or her employment with all Participating Employers or is determined by the Administrator to have otherwise ceased to be a Qualified Employee is not eligible for further deferral credits for the Plan Year pursuant to Section 3.2 other than such credits relating to the period prior to such termination or cessation. 2.5 Condition of Participation. Each Qualified Employee, as a condition of participation, is bound by all of the terms and conditions of the Plan and the Plan Rules, including but not limited to the reserved right of the Company to amend or terminate the Plan, and must furnish to the Administrator such pertinent information, and must execute such election forms and other instruments, as the Administrator or Plan Rules may require by such dates as the Administrator or Plan Rules may establish. 2.6 Termination of Participation. A Participant or Beneficiary will cease to be such as of the date on which his or her entire Account balance has been distributed. ARTICLE 3 Benefits 3.1 Participant Accounts. (A) The Administrator will establish and maintain an Account for each Participant to evidence amounts credited with respect to the Participant pursuant to Sections 3.2 and 3.3. If a Participant makes deferrals with respect to Base Salary, Annual Bonus or both from more than one Participating Employer, the Administrator will establish a separate Account for the Participant with respect to each such Participating Employer. (B) Within each Account, the Administrator will maintain two or more separate subaccounts, each of which will evidence amounts credited to the Account pursuant to Section 3.2 with respect to which the Participant has elected an identical form and timing of distribution. 3.2 Deferral Credits. (A) For any Plan Year with respect to which the Company chooses to permit deferrals of Base Salary, an Active Participant may elect to defer a portion of his or her Base Salary for the Plan Year from a minimum percentage or dollar amount specified in Plan Rules to a maximum percentage or dollar amount specified in Plan Rules and any percentage so elected will automatically apply to the Participant's Base Salary as adjusted from time to time. An election made pursuant to this subsection will not be effective unless it is made on a properly completed election form received by the Administrator by a date specified by the Administrator which is prior to the first day of the Plan Year to which the election relates or, in the case of an Active Participant who is determined by the Administrator to be eligible to participate for a Plan Year pursuant to Section 2.1(B), within 30 days after the Administrator's determination. An Active Participant may revoke a deferral election made pursuant to this subsection at any time. The revocation will be effective as soon as administratively practicable after the Administrator receives a properly completed revocation form. Any election or revocation pursuant to this subsection applies only to Base Salary relating to services performed after the effective date of the election or revocation. (B) For any Plan Year with respect to which the Company chooses to permit deferrals of Annual Bonuses, (1) an Active Participant who is determined by the Administrator to be eligible to participate for a Plan Year pursuant to Section 2.1(A) may elect to defer all or a portion of his or her Annual Bonus for the Plan Year as specified in Plan Rules and (2) an Active Participant who is determined by the Administrator to be eligible to participate for a Plan Year pursuant to Section 2.1(B) may, if and to the extent specified by the Administrator in conjunction with such determination, elect to defer a portion of his or her Annual Bonus for the Plan Year as specified in Plan Rules. An election made pursuant to this subsection will not be effective unless it is made on a properly completed election form received by the Administrator by a date specified by the Administrator which is prior to the first day of the Plan Year to which the election relates or, in the case of an Active Participant who is determined by the Administrator to be eligible to participate for a Plan Year pursuant to Section 2.1(B), within 30 days after the Administrator's determination. An election pursuant to this subsection is irrevocable after the latest date by which it must be received by the Administrator to be effective; provided, that if a Participant terminates employment with all Affiliated Organizations before the date as of which an Annual Bonus deferral is credited to his or her Account, other than in connection with a divestiture contemplated by Section 4.1(D)(2) in which the Participant is covered in a successor plan, the deferral election with respect to such Annual Bonus will be automatically revoked as of the date of the Participant's termination of employment. (C) Notwithstanding Subsections (A) and (B), Plan Rules may impose conditions and limitations on participation by any Qualified Employee or any group of similarly situated Qualified Employees. (D) Reductions to an Active Participant's Base Salary and Annual Bonus pursuant to this section will be credited to his or her Account as of the day on which the Participant would have otherwise received the Base Salary or Annual Bonus with respect to which such credit relates. 3.3 Earnings Credits. As of the last day of each month, the Administrator will, in accordance with Plan Rules, credit a Participant's Account, including the undistributed portion of an Account being distributed in the form of installment payments, with earnings in an amount equal to the "applicable percentage" of the average daily balance of the Account for the month. The applicable percentage for a given month is the monthly equivalent of the annual prime rate of interest in effect on the first banking day of the month as reported in The Wall Street Journal or other national financial publication selected by the Administrator. 3.4 Vesting. Each Participant always has a fully vested nonforfeitable interest in his or her Account. ARTICLE 4 Distribution 4.1 Distribution to Participant. (A) Form. (1) Disability. Notwithstanding any election by a Participant to the contrary, if a Participant is determined by the Administrator to have terminated employment because of illness, injury or disease that is likely to be of long or indefinite duration or result in death, distribution to the Participant will be made in the form of a lump sum payment. (2) Other. Except as provided in clause (1), distribution to a Participant will be made in the form of a lump sum payment or annual installment payments for either five or ten years, as elected by the Participant. (B) Time. (1) Disability. Distribution to a Participant described in Subsection (A)(1) will be made as soon as administratively practicable after the date on which the Participant is determined to have terminated employment. (2) Other. Except as provided in clause (1), distribution to a Participant will be made or will begin, as the case may be, on or as soon as administratively practicable after the date or the occurrence of the event specified by the Participant. (C) Amount. (1) Lump Sum. If distribution is made in the form of a lump sum payment, the amount of the payment will be equal to the sum of (a) the balance of the Participant's Account as of the last day of the month immediately preceding the date of the distribution plus (b) deferrals credited to the Account pursuant to Section 3.2 since the last day of the month immediately preceding the date of the distribution plus (c) earnings on the average daily balance of the Account for the period beginning on the first day of the month during which the distribution occurs and ending on the day before the distribution at the rate in effect for the month pursuant to Section 3.3. (2) Installments. If distribution is made in the form of annual installment payments, the amount of the payment each year will be determined by dividing the Participant's Account balance as of the last day of the month immediately preceding the payment date by the total number of remaining payments (including the payment in question); provided, that the amount of the final installment payment will be determined in accordance with clause (1). (D) Special Rules. The provisions of this subsection apply notwithstanding Subsection (A) or (B) or any election by a Participant to the contrary. (1) Nondeductibility. If the Committee determines in good faith that there is a reasonable likelihood that any compensation paid to a Participant by an Affiliated Organization for a taxable year of the Affiliated Organization would not be deductible by the Affiliated Organization solely by reason of the limitation under Code section 162(m), to the extent deemed necessary by the Committee to ensure that the entire amount of any distribution to the Participant is deductible, the Committee may defer all or any portion of the distribution. Any amounts deferred pursuant to this subsection will continue to be credited with earnings in accordance with Section 3.3. The deferred amounts and earnings thereon will be distributed to the Participant, or to his or her Beneficiary in the case of the Participant's death, at the earliest possible date, as determined by the Committee in good faith, on which the deductibility of compensation paid or payable to the Participant for the taxable year of the Affiliated Organization during which the distribution is made will not be limited by Code section 162(m). (2) Divestitures. (a) If some or all of the assets of a Participating Employer are sold or otherwise disposed of to an unrelated third party, the Committee may but is not required to cause to be distributed the Account of any Participant whose employment with all Affiliated Organizations is terminated in connection with the sale or disposition unless the acquiror adopts a successor plan which is substantially similar to the Plan in all material respects and expressly assumes the Participating Employer's obligation to provide benefits to the Participant, in which case the Participating Employer will cease to have any obligation to provide benefits to the Participant pursuant to the Plan as of the effective date of the assumption. Any such distribution will be made in the form of a lump sum payment as soon as administratively practicable after the date of the sale or disposition. The amount of the payment will be determined in accordance with Section 4.1(C)(1). (b) If a Participating Employer ceases to be an Affiliated Organization, unless otherwise provided in an agreement between an Affiliated Organization and the Participating Employer or an Affiliated Organization and an unrelated third party acquiror: (i) a Participant who is employed with the Participating Employer or (ii) a Participant who is not employed with the Participating Employer but has an Account balance attributable to the Participating Employer will not become entitled to his or her Account balance attributable to the Participating Employer solely as a result of the cessation and the Participating Employer will, after the date on which it ceases to be an Affiliated Organization, continue to be solely responsible to provide benefits to the Participant at least equal to the balance of the Account as of the effective date of the cessation and as thereafter increased by deferral credits relating to the period before the effective date and earnings credits pursuant to Section 3.3. (E) Reduction of Account Balance. The balance of the Account from which a distribution is made will be reduced by the amount of the distribution as of the date of the distribution. 4.2 Distribution to Beneficiary. (A) Form. In the event of a Participant's death, the balance of the Participant's Account will be distributed to the Participant's Beneficiary in a lump sum payment whether or not payments had commenced to the Participant in the form of installments prior to his or her death. (B) Time. Distribution to a Beneficiary will be made as soon as administratively practicable after the date on which the Administrator receives notice of the Participant's death. (C) Amount. The amount of the payment will be determined in accordance with Section 4.1(C)(1). (D) Reduction of Account Balance. The balance of the Account from which a distribution is made will be reduced by the amount of the distribution as of the date of the distribution. (E) Beneficiary Designation. (1) Each Participant may designate, on a form furnished by the Administrator, one or more primary Beneficiaries or alternative Beneficiaries to receive all or a specified part of his or her Account after his or her death, and the Participant may change or revoke any such designation from time to time. No such designation, change or revocation is effective unless executed by the Participant and received by the Administrator during the Participant's lifetime. No designation of a Beneficiary other than the Participant's spouse is effective unless the spouse consents to the designation or the Administrator determines that spousal consent cannot be obtained because the spouse cannot reasonably be located or is legally incapable of consenting. The consent must be in writing, must acknowledge the effect of the election and must be witnessed by a notary public. The consent is effective only with respect to the Beneficiary or class of Beneficiaries so designated and only with respect to the spouse who so consented. (2) If a Participant - (a) fails to designate a Beneficiary, or (b) revokes a Beneficiary designation without naming another Beneficiary, or (c) designates one or more Beneficiaries none of whom survives the Participant or exists at the time in question, for all or any portion of his or her Account, such Account or portion will be paid to the Participant's surviving spouse or, if the Participant is not survived by a spouse, to the representative of the Participant's estate. (3) The automatic Beneficiaries specified above and, unless the designation otherwise specifies, the Beneficiaries designated by the Participant, become fixed as of the Participant's death so that, if a Beneficiary survives the Participant but dies before the receipt of the payment due such Beneficiary, the payment will be made to the representative of such Beneficiary's estate. Any designation of a Beneficiary by name that is accompanied by a description of relationship or only by statement of relationship to the Participant is effective only to designate the person or persons standing in such relationship to the Participant at the Participant's death. 4.3 Payment in Event of Incapacity. If any individual entitled to receive any payment under the Plan is, in the judgment of the Administrator, physically, mentally or legally incapable of receiving or acknowledging receipt of the payment, and no legal representative has been appointed for the individual, the Administrator may (but is not required to) cause the payment to be made to any one or more of the following as may be chosen by the Administrator: the Beneficiary (in the case of the incapacity of a Participant); the institution maintaining the individual; a custodian for the individual under the Uniform Transfers to Minors Act of any state; or the individual's spouse, children, parents, or other relatives by blood or marriage. The Administrator is not required to see to the proper application of any such payment and the payment completely discharges all claims under the Plan against the Participating Employer, the Plan and Trust to the extent of the payment. ARTICLE 5 Source of Trust 5.1 Establishment of Trust. The Company may establish a Trust with an independent corporate trustee. The Trust must be a grantor trust that conforms substantially with the model trust described in Revenue Procedure 92-64. The Participating Employers may from time to time transfer to the Trust cash, marketable securities or other property acceptable to the Trustee in accordance with the terms of the Trust. 5.2 Source of Payments. (A) Each Participating Employer will pay, from its general assets, the portion of any benefit pursuant to Article 4 or Section 6.3 or 6.4 attributable to a Participant's Account with respect to that Participating Employer, and all costs, charges and expenses relating thereto. (B) The Trustee will make distributions to Participants and Beneficiaries from the Trust in satisfaction of a Participating Employer's obligations under the Plan in accordance with the terms of the Trust. The Participating Employer is responsible for paying any benefits attributable to a Participant's Account with respect to that Participating Employer that are not paid by the Trust. 5.3 Status of Plan. Nothing contained in the Plan or Trust is to be construed as providing for assets to be held for the benefit of any Participant or any other person or persons to whom benefits are to be paid pursuant to the terms of this Plan, the Participant's or other person's only interest under the Plan being the right to receive the benefits set forth herein. The Trust is established only for the convenience of the Participating Employers and the Participants, and no Participant has any interest in the assets of the Trust prior to distribution of such assets pursuant to the Plan. To the extent the Participant or any other person acquires a right to receive benefits under this Plan or the Trust, such right is no greater than the right of any unsecured general creditor of the Participating Employer. 5.4 Non-assignability of Benefits. The benefits payable under the Plan and the right to receive future benefits under the Plan may not be anticipated, alienated, sold, transferred, assigned, pledged, encumbered, or subjected to any charge or legal process. ARTICLE 6 Adoption, Amendment, Termination 6.1 Adoption. With the prior approval of the Administrator, an Affiliated Organization may adopt the Plan and become a Participating Employer by furnishing to the Administrator a certified copy of a resolution of its Board adopting the Plan. 6.2 Amendment. (A) The Company reserves the right to amend the Plan at any time to any extent that it may deem advisable. To be effective, an amendment must be stated in a written instrument approved in advance or ratified by the Company's Board and executed in the name of the Company by its President or a Vice President and attested by the Secretary or an Assistant Secretary. (B) An amendment adopted in accordance with Subsection (A) is binding on all interested parties as of the effective date stated in the amendment; provided, however, that no amendment will have any retroactive effect so as to deprive any Participant, or the Beneficiary of a deceased Participant, of any benefit to which he or she is entitled under the terms of the Plan in effect immediately prior to the effective date of the amendment, determined in the case of a Participant who is employed by an Affiliated Organization, as if he or she had terminated employment immediately prior to the effective date of the amendment. (C) Any amendment that changes the method of determining the earnings credited to Participants' Accounts pursuant to Section 3.3 is effective with respect to the portion of the Accounts attributable to credits made before the date on which the amendment is adopted only if the Company's Board determines in good faith that on that date, it is reasonably likely that, in the long run, the new method will not result in materially lower earnings credits than the old method. (D) The provisions of the Plan in effect at the termination of a Participant's employment will, except as otherwise expressly provided by a subsequent amendment, continue to apply to such Participant. 6.3 Termination of Participation. Notwithstanding any other provision of the Plan to the contrary, if determined by the Administrator to be necessary to ensure that the Plan is exempt from ERISA to the extent contemplated by Section 1.3 or upon the Administrator's determination that a Participant's interest in the Plan has been or is likely to be includable in the Participant's gross income for federal income tax purposes prior to the actual payment of benefits pursuant to the Plan, the Administrator may take any or all of the following steps: (a) terminate the Participant's future participation in the Plan; (b) cause the Participant's entire interest in the Plan to be distributed to the Participant in the form of an immediate lump sum; and/or (c) transfer the benefits that would otherwise be payable pursuant to the Plan for all or any of the Participants to a new plan that is similar in all material respects (other than those which require the action in question to be taken.) 6.3 Termination. The Company reserves the right to terminate the Plan in its entirety at any time. Each Participating Employer reserves the right to cease its participation in the Plan at any time. The Plan will terminate in its entirety or with respect to a particular Participating Employer as of the date specified by the Company or such Participating Employer in a written instrument by its authorized officers to the Administrator, adopted in the manner of an amendment. Upon the termination of the Plan in its entirety or with respect to any Participating Employer, the Company or Participating Employer, as the case may be, will either cause (a) any benefits to which Participants have become entitled prior to the effective date of the termination to continue to be paid in accordance with the provisions of Article 4 or (b) the entire interest in the Plan of any or all Participants, or the Beneficiaries of any or all deceased Participants, to be distributed in the form of an immediate lump sum payment. ARTICLE 7 Definitions, Construction and Interpretation The definitions and rules of construction and interpretation set forth in this article apply in construing the Plan unless the context otherwise indicates. 7.1 Account. "Account" means the bookkeeping account maintained with respect to a Participant pursuant to Section 3.1(A) or the subaccount maintained pursuant to Section 3.1(B), as the context requires. 7.2 Active Participant. "Active Participant" with respect to a Plan Year is a Qualified Employee who the Administrator has determined pursuant to Section 2.1 is eligible to make deferrals pursuant to the Plan during the Plan Year, for the portion of the Plan Year during which he or she remains eligible. 7.3 Administrator. The "Administrator" of the Plan is the Company or person to whom administrative duties are delegated pursuant to the provisions of Section 8.1, as the context requires. 7.4 Affiliated Organization. An "Affiliated Organization" is the Company and any corporation that is a member of a controlled group of corporations within the meaning of Code section 414(b) that includes the Company. 7.5 Annual Bonus. "Annual Bonus" with respect to a Participant for a Plan Year means the discretionary annual cash bonus paid to the Participant by a Participating Employer during the calendar quarter first following the Plan Year or that would have been so paid but for an election made pursuant to the Plan. 7.6 Base Salary. "Base Salary" with respect to a Participant for a Plan Year means the regular cash remuneration for services rendered as a Qualified Employee paid to the Participant by a Participating Employer during the Plan Year or that would have been so paid but for an election made pursuant to the Plan, excluding the following: (a) any bonus; (b) the value of life insurance coverage included in the Participant's wages under Code section 79; (c) any car allowance, moving expense or mileage reimbursement; (d) any educational assistance payment; (e) any severance pay; (f) any payments under any qualified or nonqualified plan of deferred compensation; (g) any benefit under any qualified or nonqualified stock option or stock purchase plan; or (h) any other element of compensation specified in Plan Rules. 7.7 Board. "Board" means the board of directors of the Affiliated Organization in question. When the Plan provides for an action to be taken by the Board, the action may be taken by any committee or individual authorized to take such action pursuant to a proper delegation by the board of directors in question. 7.8 Beneficiary. "Beneficiary" with respect to a Participant is the person designated or otherwise determined under the provisions of Section 4.2(E) as the distributee of benefits payable after the Participant's death who has not ceased to be a Beneficiary pursuant to Section 2.6. 7.9 Code. "Code" means the Internal Revenue Code of 1986, as amended from time to time. 7.10 Committee. "Committee" means the Compensation and Human Resources Committee of the Company's Board of Directors (or any successor Committee). 7.11 Company. "Company" means Ceridian Corporation or any successor thereto. 7.12 Cross Reference. References within a section of the Plan to a particular subsection refer to that subsection within the same section and references within a section or subsection to a particular clause refer to that clause within the same section or subsection, as the case may be. 7.13 Effective Date. "Effective Date" means January 1, 1995. 7.14 Employee. "Employee" is an individual who performs services as a common law employee of a Participating Employer. 7.15 ERISA. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. 7.16 Governing Law. To the extent that state law is not preempted by the provisions of ERISA, or any other laws of the United States, all questions pertaining to the construction, validity, effect and enforcement of the Plan will be determined in accordance with the internal, substantive laws of the State of Minnesota without regard to its conflict of laws rules of the State of Minnesota or any other jurisdiction. 7.17 Headings. The headings of articles and sections are included solely for convenience of reference; if there exists any conflict between such headings and the text of the Plan, the text will control. 7.18 Number and Gender. Wherever appropriate, the singular may be read as the plural, the plural may be read as the singular and one gender may be read as the other gender. 7.19 Participant. "Participant" is a current or former Active Participant to whose Account amounts have been credited pursuant to Article 3 and who has not ceased to be a Participant pursuant to Section 2.6. 7.20 Participating Employer. "Participating Employer" is the Company and any other Affiliated Organization that has adopted the Plan, or all of them collectively, as the context requires. An Affiliated Organization will cease to be a Participating Employer upon a termination of the Plan as to its Employees and the satisfaction in full of all of its obligations under the Plan or upon its ceasing to be an Affiliated Organization. 7.21 Plan. "Plan" means the Ceridian Corporation Deferred Compensation Plan, as from time to time amended or restated. 7.22 Plan Year. "Plan Year" means the calendar year. 7.23 Plan Rule. "Plan Rule" is a rule, policy, practice or procedure adopted by the Administrator pursuant to Section 8.2. 7.24 Qualified Employee. "Qualified Employee" means an Employee who is considered to be a management or highly compensated employee under Plan Rules. 7.25 Trust. "Trust" means any trust or trusts established by the Company pursuant to Section 5.1. 7.26 Trustee. "Trustee" means the independent corporate trustee or trustees that at the relevant time has or have been appointed to act as Trustee of the Trust. ARTICLE 8 Administration 8.1 Administrator. The general administration of the Plan and the duty to carry out its provisions is vested in the Company. The Company's Vice President, Human Resource Services, or his or her functional equivalent in the event of a material change in the duties or title of such position, will perform such duty on behalf of the Company. Such Vice President may delegate such duty or any portion thereof to a named person and may from time to time revoke such authority and delegate it to another person. 8.2 Plan Rules and Regulations. The Administrator has the discretionary power and authority to make such Plan Rules as the Administrator determines to be consistent with the terms, and necessary or advisable in connection with the administration, of the Plan and to modify or rescind any such Plan Rules. 8.3 Administrator's Discretion. The Administrator has the discretionary power and authority to make all determinations necessary for administration of the Plan, except those determinations that the Plan requires others to make, and to construe, interpret, apply and enforce the provisions of the Plan and Plan Rules whenever necessary to carry out its intent and purpose and to facilitate its administration, including, without limitation, the discretionary power and authority to remedy ambiguities, inconsistencies, omissions and erroneous benefit calculations. In the exercise of its discretionary power and authority, the Administrator will treat all similarly situated persons uniformly. 8.4 Specialist's Assistance. The Administrator may retain such actuarial, accounting, legal, clerical and other services as may reasonably be required in the administration of the Plan, and may pay reasonable compensation for such services. All costs of administering the Plan will be paid by the Participating Employers. 8.5 Indemnification. The Participating Employers jointly and severally agree to indemnify and hold harmless, to the extent permitted by law, each director, officer, and employee of any Affiliated Organization against any and all liabilities, losses, costs and expenses (including legal fees) of every kind and nature that may be imposed on, incurred by, or asserted against such person at any time by reason of such person's services in connection with the Plan, but only if such person did not act dishonestly or in bad faith or in willful violation of the law or regulations under which such liability, loss, cost or expense arises. The Participating Employers have the right, but not the obligation, to select counsel and control the defense and settlement of any action for which a person may be entitled to indemnification under this provision. 8.6 Benefit Claim Procedure. (A) If a request for a benefit by a Participant or Beneficiary of a deceased Participant is denied in whole or in part, he or she may, not later than 30 days after the denial, file with the Administrator a written claim objecting to the denial. (B) The Administrator, not later than 90 days after receipt of such claim, will render a written decision to the claimant on the claim. If the claim is denied, in whole or in part, such decision will include the reason or reasons for the denial; a reference to the Plan provisions on which the denial is based; a description of any additional material or information, if any, necessary for the claimant to perfect his or her claim; an explanation as to why such information or material is necessary; and an explanation of the Plan's claim procedure. (C) The claimant may file with the Administrator, not later than 60 days after receiving the Administrator's written decision, a written notice of request for review of the Administrator's decision, and the claimant or his or her representative may thereafter review relevant Plan documents which relate to the claim and may submit written comments to the Administrator. (D) Not later than 60 days after receipt of such review request, the Administrator will render a written decision on the claim, which decision will include the specific reasons for the decision, including a reference to the Plan's specific provisions where appropriate. (E) The foregoing 90 and 60-day periods during which the Administrator must respond to the claimant may be extended by up to an additional 90 or 60 days, respectively, if special circumstances beyond the Administrator's control so require and notice of such extension is given to the claimant prior to the expiration of such initial 90 or 60-day period, as the case may be. ARTICLE 9 Miscellaneous 9.1 Withholding and Offsets. The Participating Employers and the Trustee retain the right to withhold from any compensation, deferral and/or benefit payment pursuant to the Plan, any and all income, employment, excise and other tax as the Participating Employers or Trustee deems necessary and the Participating Employers may offset against amounts payable to a Participant or Beneficiary under the Plan any amounts then owing to the Participating Employers by such Participant or Beneficiary. 9.2 Other Benefits. Neither amounts deferred nor amounts paid pursuant to the Plan constitute salary or compensation for the purpose of computing benefits under any other benefit plan, practice, policy or procedure of a Participating Employer unless otherwise expressly provided thereunder. 9.3 No Warranties Regarding Tax Treatment. The Participating Employers make no warranties regarding the tax treatment to any person of any deferrals or payments made pursuant to the Plan and each Participant will hold the Administrator and the Participating Employers and their officers, directors, employees, agents and advisors harmless from any liability resulting from any tax position taken in good faith in connection with the Plan. 9.4 No Employment Rights Created. Neither the establishment of or participation in the Plan gives any Employee the right to continued employment or limits the right of the Participating Employer to discharge, transfer, demote, modify terms and conditions of employment or otherwise deal with any Employee without regard to the effect which such action might have on him or her with respect to the Plan. EX-10.18 15 EXHIBIT 10.18 ISSC/Ceridian Corporation Agreement for Information Technology Services CONFIDENTIAL INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED AND IS BEING FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ANY SUCH OMISSIONS IN THIS AGREEMENT ARE INDICATED BY THE WORDS "CONFIDENTIAL INFORMATION OMITTED" OR THE REFERENCE ["CIO"]. This Agreement for Information Technology Services ("Agreement"), dated as of January 10, 1995, is by and between Ceridian Corporation acting through its Ceridian Employer Services Division having a place of business at 300 Embassy Row, Atlanta, Georgia 30328, ("CES"), and Integrated Systems Solutions Corporation, a wholly owned subsidiary of International Business Machines Corporation, having its headquarters at 44 South Broadway, White Plains, New York 10601 ("ISSC"). CES and ISSC agree that the following terms and conditions will apply to services provided by ISSC under this Agreement. CES and ISSC may be referred to individually as a "Party" and collectively as the "Parties." TABLE OF CONTENTS Section Title Page 1.0 Background and Objectives 6 2.0 Definitions, Documents and Term 6 2.1 General Definitions 6 2.2 Associated Contract Documents 11 2.3 Term 12 2.4 Renewal and Expiration 12 3.0 Overview 12 3.1 Implementation Plan 12 3.2 Ceridian-Owned Software 13 3.3 Third Party Software 13 3.4 Software Currency 13 3.5 Required Consents 13 3.6 Joint Verification 14 3.7 On-going Relationship 14 4.0 Services 14 4.1 ISSC Project Executive 15 4.2 Personnel Replacement 16 4.3 Non-Competition 17 4.4 Use of Subcontractors 17 4.5 Alternate Source for Work 18 4.6 CES Project Executive 18 4.7 Performance 19 4.8 Efficient Use of Resources 19 4.9 Management and Control 20 4.10 Annual Technology Plan 22 4.11 CES Approvals and Notification 22 5.0 Operations 23 5.1 ISSC Machines 23 1 5.2 Software Services 23 5.3 Operations, Support and Maintenance 23 5.4 Consolidation and Relocation Services 24 5.5 Systems Management 24 5.6 Production Services 24 5.7 Software 25 5.8 CES-Retained Machines 25 5.9 Connectivity 26 5.10 Viruses 26 5.11 Software Licenses 26 6.0 Additional Services 27 6.1 Help Desk 27 6.2 Security 27 6.3 Back-up and Disaster Recovery 27 6.4 Facilities and Support Services 27 6.5 Audits 28 7.0 Charges and Expenses 29 7.1 Annual Services Charge 29 7.2 Additional Resource Charges 29 7.3 [CIO] Adjustments 29 7.4 Cost of Living Adjustment 29 7.5 New Entities 29 7.6 New Services 30 7.7 Taxes 30 7.8 Reduction of CES Requirements for the Base System 31 7.9 Services Transfer Assistance 32 8.0 Invoicing and Payment 33 8.1 Annual Services Charge Invoices 33 8.2 ARC and COLA Invoicing 34 8.3 Capacity Invoicing 34 8.4 Other Charges 34 8.5 Invoice Payment 34 8.6 Proration 34 8.7 Disputed Charges/Credits 34 8.8 Other Credits 35 9.0 Intellectual Property Rights 35 9.1 Intellectual Property Definitions 35 9.2 ISSC Developed Code 36 9.3 CES Developed Code 37 9.4 General Rights 37 10.0 Confidentiality/Data Security 38 10.1 Confidential Information 38 10.2 Obligations 38 10.3 Exclusions 39 10.4 Protection of CES Information 40 2 10.5 Loss of Confidential Information 40 10.6 Limitation 40 11.0 Termination 40 11.1 Termination for Convenience 40 11.2 Termination for Change of Control 41 11.3 [CIO] 41 11.4 Termination Proration 41 11.5 Termination [CIO] 42 11.6 [CIO] 42 11.7 Extension of Service 43 11.8 Other Rights Upon Termination 43 12.0 Liability 44 12.1 General Intent 44 12.2 Damages 44 13.0 Remedies 46 13.1 Warranty 46 13.2 Work Standards 46 13.3 Ownership of CES-Retained Machines 46 13.4 Noninfringement 46 13.5 Compliance with Obligations 47 13.6 Disclaimer 47 13.7 Disabling Code 47 13.8 Authorization and Enforceability 47 13.9 Regulatory and Corporate Proceedings 48 14.0 Indemnities 48 14.1 Indemnity by ISSC 48 14.2 Indemnity by CES 49 14.3 Employment Actions 50 14.4 Cross Indemnity and Contribution 50 14.6 Indemnification Procedures 51 15.0 Insurance and Risk of Loss 52 15.1 ISSC Insurance 52 15.2 CES Insurance 53 15.3 Risk of Property Loss 54 15.4 Mutual Waiver of Subrogation 55 16.0 Publicity 55 17.0 Review Committee and Dispute Resolution 55 17.1 Joint Advisory Committee 55 17.2 Dispute Resolution 56 17.3 Continued Performance 57 3 18.0 General 57 18.1 Control of Services 57 18.2 Right to Perform Services for Others 57 18.3 Scope of Services 57 18.4 Amendments and Revisions 57 18.5 Force Majeure 57 18.6 Nonperformance 58 18.7 Remarketing 58 18.8 Waiver 59 18.9 Severability 59 18.10 Limitations Period upon Termination 59 18.11 Counterparts 59 18.12 Governing Law 59 18.13 Binding Nature and Assignment 60 18.14 Notices 60 18.15 No Third Party Beneficiaries 61 18.16 Other Documents 62 18.17 Consents and Approvals 62 18.18 Headings 62 SUPPLEMENT Annual Services Charge Capacity Rates Additional Resource Charge Rates Termination Charge Capacity Plan Baselines Disaster Recovery Options 4 TABLE OF SCHEDULES Schedule Title Schedule A Applications Software Schedule B Systems Software Schedule C CES-Retained Machines Schedule D ISSC Machines Schedule E Support Services, Performance Standards and Operational Responsibilities Schedule F Procedures Manual Table of Contents Schedule G Disaster Recovery Services Schedule H Implementation Plan Schedule I Operations Help Desk Schedule J ISSC Charges, Measures of Utilization and Financial Responsibilities Schedule K Application Installation Standards Schedule L Security Procedures Schedule M Confidential Information Categories 5 1.0 Background and Objectives a) CES desires that: 1) ISSC and CES mutually work to define and develop a fully operational data processing environment to support the CES Business; and 2) ISSC provide, operate, maintain and support a professional, cost effective and flexible operational data processing environment (including, without limitation, the ISSC facility housing such environment) for the support of the CES Business. b) ISSC, a large and well-known provider of a broad range of information management and related services (including without limitation, the services described in Section 1.0(a)(1) and (2) above), desires to perform and provide the services described in Section 1.0(a)(1) and (2) above as described in this Agreement. The Parties intend that ISSC, and any of its subcontractors performing Services under this Agreement, will constantly strive to improve the efficiency, quality and effectiveness of the Services to be provided to CES in accordance with this Agreement. c) This Agreement documents the terms and conditions under which CES agrees to purchase and ISSC agrees to perform and provide the Services. d) In entering into this Agreement, the Parties have identified specific objectives and goals intended to be satisfied throughout performance of this Agreement. In determining these goals and objectives CES has made certain assumptions, which ISSC has reviewed, but not validated, regarding the volume of transactions that could be processed as part of the Services. These objectives and goals include the following: 1) a level and quality of Services to facilitate retention and expansion of CES's customer base. 2) ability to transition services to CES or its designee with minimal disruption to the CES Business; and 3) flexibility regarding evolving technologies and CES Business' needs; e) The provisions of this Section are intended to be a general introduction to this Agreement and are not intended to expand the scope of the Parties' obligations hereunder or to alter the plain meaning of the terms and conditions of this Agreement. However, to the extent the terms and conditions of this Agreement are unclear or ambiguous, such terms and conditions are to be interpreted and construed consistent with the objectives set forth in the preceding paragraphs of this Section 1.0. 2.1 General Definitions As used in this Agreement: a) (CIO} has the meaning given in Section V.B of Schedule J. 6 b) "Additional Resource Charge Rate" ("ARC Rate") means the charge rate for each Resource Unit in excess of its Baseline, as set forth in the Supplement and Schedule J. c) "Additional Resource Charges" ("ARCs") means the charges for utilization of Resource Units in excess of the Baseline quantity set forth in the Supplement and described in Schedule J. d) "Affiliate" means, with respect to a Party, any entity (including joint ventures) at any time Controlling, Controlled by or under common Control with, such Party. e) "Applications Development" ("AD/M") means the programming of (1) any new applications software, (2) regulatory/statutory mandated changes, (3) version upgrades to applications software and (4) changes or enhancements to existing applications programs. Programming effort shall include, without limitation, the pre and post development analysis, planning, design, coding, testing, installation, provision of program and training documentation and training necessary to complete the task. f) "Annual Services Charge" means the fixed charge to CES for ISSC's provision of the Services and includes the CPU and DASD capacity and the quantity of tape Resource Units set forth under Capacity Plan and Baselines in the Supplement. g) "Applications Software" means those programs and programming resident on ISSC Machines, including all supporting documentation and media, that perform specific user related information processing and communication tasks. Applications Software as of the Commencement Date is listed in Schedule A, which will be updated pursuant to Section 2.2 to reflect the then current Applications Software. h) "Available Resources" has the meaning given in Section 18.7. i) "Baseline" means the specified quantity of resources for a resource category included within the Annual Services Charge, as set forth under the category entitled "Baselines" in the Supplement. j) "Cable" or "Cabling" means the wires or cables that interconnect Machines and/or connect a Machine to a facility connection point. k) "Capacity Plan" has the meaning given in Section IV.A of Schedule J. l) "Ceridian-Owned Software" has the meaning given in Section 3.2. m) "CES Business" means the services that CES provides to its customers. n) "CES Facilities" means any CES facilities used or required by ISSC in connection with ISSC's provision of the Services. o) "CES-Retained Machines" means Machines physically located at the ISSC Data Center and Recovery Centers that are owned, leased or rented and retained by CES after the Commencement Date and for which CES has retained responsibility except as described in this Agreement. CES-Retained Machines are listed in Schedule C which will be updated pursuant to Section 2.2 to reflect the then current CES-Retained Machines. 7 p) "CES Service Employees" has the meaning given in Section 11.8(e). q) "Change of Control" has the meaning given in Section 18.13. r) "Change Management Procedures" has the meaning given in Section 4.9(b). s) "Claim" has the meaning given in Section 14.6. t) "Code" has the meaning given in Section 9.0. u) "Commencement Date" means January 1, 1995. v) "Confidential Information" has the meaning given in Section 10.1. w) "Contract Year" means the first 12 months following the Commencement Date and each 12 month period thereafter beginning on the anniversary of the Commencement Date. x) "Control," "Controlling" or "Controlled" means the legal, beneficial or equitable ownership, directly or indirectly, of more than 50% of the aggregate of all voting equity interests in such entity. y) "Data Center" means the ISSC Machines, CES-Retained Machines and Software to be located at 1505 Windward Concourse, Alpharetta, Georgia 30202, ("Site 1") as of the Commencement Date and at the second location to be provided hereunder if applicable ("Site 2") and at such other locations as ISSC may establish thereafter. z) "DEC Machines" means the Machines listed in Schedule C under the heading "DEC Machines" or the then current replacement or equivalent thereof. aa) "Deferral Credit" has the meaning given in Section V.A of Schedule J ab) "Derivative Work" has the meaning given in Section 9.1(a). ac) "Develop" has the meaning given in Section 9.0. ad) "Direct Damages Cap" has the meaning given in Section 12.2(a). ae) "Disaster Recovery" has the meaning given in Schedule G. af) "Equipment Plan" has the meaning given in Section V.A of Schedule J. ag) "Execution Date" means the date this Agreement is signed by both Parties. ah) "Force Majeure Event" has the meaning given in Section 18.5(a). ai) "IBM Systems Software" means the Systems Software licensed by IBM or its Affiliates operating on the ISSC Machines in the Data Center. aj) "Implementation Plan" has the meaning given in Section 3.1 and Schedule H. 8 ak) "Indemnified Party" has the meaning given in Section 14.6(a). al) "Indemnifying Party" has the meaning given in Section 14.6(a). am) "ISSC Machines" means Machines which are provided by ISSC on or after the Commencement Date in order to meet its obligations under this Agreement. ISSC Machines as of the Commencement Date are listed in Schedule D, which will be updated pursuant to Section 2.2 to reflect the then current ISSC Machines. an) "Joint Advisory Committee" has the meaning given in Section 17.1. ao) "Level One Support" means, with respect to hardware and software, receiving the initial call, problem recording, isolation to a failing subsystem, (e.g., workstation, network, host application, etc.), call routing and problem tracking. ap) "Level Two Support" means, with respect to hardware and software, performing the maintenance diagnostic routines to isolate a problem to a failing component of the subsystem and includes replacing the failing component. aq) "Level Three Support" means, with respect to hardware and software, diagnosing or repairing the failure within the component. ar) "Losses" means all losses, liabilities, damages and claims (including taxes), and all related costs and expenses (including any and all reasonable attorneys' fees and reasonable costs of investigation, litigation, settlement, judgment, interest and penalties). as) "Machines" means the equipment used to provide the Services including the following: (1) computer equipment, including all computers and associated features, peripheral devices, and other equipment; and (2) communications equipment, including all cabling, communications controllers, multiplexors, modems/DSUs and all other communications equipment. at) "Maintenance Release" means those Software fixes and updates provided by the Software vendor as part of normal maintenance service for which there is no additional cost to ISSC. au) "Materials" has the meaning given in Section 9.1(b). av) [CIO] has the meaning given in Schedule E. aw) [CIO] has the meaning given in Section 4.0(d). ax) [CIO] has the meaning given in Section 4.0(d). ay) "New Services" has the meaning given in Section 7.6. az) "Operational Support" means the provision of data backups, monitoring of consoles, mounting of tapes, reloading and any other standard procedures documented in the 9 Procedures Manual and/or other requested activities consistent with the normal and customary operation of the machine environment. ba) "Out-of-Pocket Expenses" means all actual direct payments made by ISSC for equipment, materials, supplies and other services purchased by ISSC that ISSC would not otherwise have expended in connection with the provision of the Services hereunder and will include, but not be limited to, ISSC's reasonable indirect expenses such as ISSC's personnel and overhead costs or allocations thereof, administrative expenses or other partially or fully burdened charge factors consistent with industry practice in connection with providing the services; provided, however, that such costs shall have been approved in writing by CES in advance and in no event will any profit be included in the concept of Out-of-Pocket Expenses, and ISSC shall not be obligated to perform any functions for which Out-of-Pocket Expenses are applicable and have not been approved. bb) [CIO] means the [CIO] and [CIO] responsibilities under which the Services will be provided. The [CIO] are described in Section 4.7 and listed in Schedule E. bc) [CIO] has the meaning given in Section V.G of Schedule J. bd) "Procedures Manual" has the meaning given in Section 4.9(a). be) [CIO] has the meaning given in Section V.G of Schedule J. bf) "Recovery Center" has the meaning given in Section II.E of Schedule G. bg) "Replacement Services" has the meaning given in Section 7.6(c). bh) "Required Consents" means any consents or approvals required to be obtained to grant ISSC the same rights of access and use of the Software and CES-Retained Machines that CES has with respect to the Software and CES-Retained Machines. bi) [CIO] has the meaning given in Section 3.5. bj) "Required Consents Charges" has the meaning given in Section 3.5. bk) "Resource Unit" ("RU") means a particular unit of resource utilization, as described in Schedule J and set forth under Baseline quantities in the Supplement. bl) [CIO] has the meaning given in Section V.G. of Schedule J. bm) [CIO] has the meaning set forth in Schedule E. bn) "Services," ("Information Technology Services") means those services and functions which ISSC agrees to provide to CES pursuant to this Agreement. bo) "Services Transfer Assistance" has the meaning given in Section 7.9. bp) "Similarly Situated Customers" means ISSC customers, during the term of such customer's contracts with ISSC, with substantially the same mix of on-line and batch processing 10 applications and systems resources utilization at similar or lesser volumes and for whom ISSC is providing services substantially similar to the Services ISSC is providing CES, using a substantially similar charging methodology. bq) "Software" means both Applications Software and Systems Software. br) "Software Maintenance" means problem analysis, defect identification, fixes and installation of Maintenance Releases and Versions. bs) "Systems Software" means those programs and programming resident on the Machines, including all IBM Systems Software and Third Party Systems Software and all supporting documentation and media, that perform tasks basic to the functioning of the Machines that are necessary to operate the Applications Software or otherwise support the provision of Services by ISSC. Systems Software includes, but is not limited to, operating systems, software utilities, data security software and data base managers. Systems Software as of the Commencement Date is listed in Schedule B, which shall be updated pursuant to Section 2.2 to reflect the then current Systems Software. bt) "Technology Plan" has the meaning given in Section 4.10. bu) "Term" has the meaning given in Section 2.3 and any extension and renewal term described in this Agreement. bv) [CIO] has the meaning given in Section 11.1. bw) "Third Party Systems Software" means Systems Software other than IBM Systems Software. bx) "Type I Materials," "Type II Materials," Type III Materials," "Type IV Materials," Type V Materials," "Type VI Materials" and Type VII Materials" have the meanings given in Sections 9.1(c), 9.1(d), 9.1(e), 9.1(f), 9.1(g), 9.1(h) and 9.1(i), respectively. by) "Version" means those Software updates that generally add function to the existing Software and are provided by the Software vendor at a fee over and above the standard software maintenance costs. bz) "Virus" or "Viruses" has the meaning given in Section 5.10. ca) "Wind-Down Expenses" has the meaning given in Section 11.3. cb) "Wire" or "Wiring" means those cables or wires that are internal to the building structure that interconnect machines within the same building or between buildings. 2.2 Associated Contract Documents This Agreement also includes: a) Supplement ("Supplement") containing the charges and certain other necessary information; and 11 b) Schedules A through M which will be updated by the Parties as necessary or appropriate during the Term. 2.3 Term The term of this Agreement will begin as of 12:01 a.m. on the Commencement Date and will end as of 12:00 midnight on December 31, 2004, (the "Term"), unless earlier terminated or extended in accordance with this Agreement. 2.4 Renewal and Expiration ISSC agrees to notify CES, in writing, whether it desires to renew this Agreement not less than [CIO] months prior to the expiration of the Term and, if so, of the proposed prices and terms to govern such renewal not less than [CIO] months prior to the expiration of the Term. If ISSC notifies CES that it desires to renew this Agreement, CES agrees to inform ISSC in writing whether it desires to renew not less than [CIO] months prior to the expiration of the Term. If CES notifies ISSC that it desires to renew the Agreement, but the Parties are unable to agree upon renewal prices, terms and conditions as of [CIO] prior to the expiration of the Term, this Agreement will be extended for[CIO] at the then current prices, terms and conditions. If the Parties are unable to reach agreement on renewal during such extension period, this Agreement will expire at the end of such extension period. 3. 0 Overview 3.1 Implementation Plan On the Commencement Date, the Parties completed a transition period pursuant to that certain letter agreement between ISSC and CES executed November 9, 1994, which is hereby replaced and superseded by this Agreement. Any amounts paid by CES (a) attributable to the overlapping time period covered by both the letter agreement and this Agreement, and (b) attributable to the rate differential between the letter agreement and this Agreement for the period of January 8, 1995, through February 7, 1995, will be credited to the amounts owed by CES under this Agreement which credit both Parties agree equals[CIO]. During such transition period, the Parties mutually developed a detailed written plan for the operating environments being provided under this Agreement ("Implementation Plan") which is set forth in Schedule H and which will be updated by the Parties throughout the Term as necessary. The Implementation Plan is divided into four specific phases as follows: a) Phase I addresses the requirements for implementing an MVS operating environment at the Data Center. b) Phase II addresses the requirements for implementing the CES application development and testing environments in the Data Center. c) Phase III addresses the implementation of the CES customer processing in the operating environment. d) Phase IV addresses the implementation of Site 2, if applicable. 12 e) CES and ISSC will cooperate with one another in accomplishing all aspects of the Implementation Plan, including the fulfillment of their respective obligations to complete the Implementation Plan. 3.2 Ceridian-Owned Software As of the Commencement Date, Ceridian Corporation and its Affiliates grant to ISSC a license to use such Software owned by Ceridian or its Affiliates ("Ceridian-Owned Software") as is necessary and appropriate for ISSC to perform the Services. Such Ceridian-Owned Software is identified as such in Schedules A and B. Ceridian-Owned Software remains the property of Ceridian Corporation or its Affiliates, as applicable. 3.3 Third Party Software CES will make the Software available to ISSC for the purpose of providing the Services. ISSC will comply with all license obligations of CES, including those of nondisclosure, under any such Software licenses to the extent such obligations were disclosed. The Parties acknowledge and agree that ISSC has had access to such CES books, records, documents and personnel as ISSC deemed necessary or appropriate and has had the opportunity to perform due diligence as it deemed applicable to verify and validate such obligations. ISSC's due diligence does not include a review of CES's compliance with any such lease, license or other agreement prior to the Commencement Date. 3.4 Software Currency The Parties agree to maintain reasonable currency for Maintenance Releases and Versions of Software, unless CES determines otherwise. For purposes of this Section, "reasonable currency" shall mean that the next Maintenance Release or Version is installed not later than the longer of (a) [CIO] after the date the licensor makes such Maintenance Release or Version commercially available or (b) within [CIO] after the date the licensor makes a subsequent Maintenance Release or Version commercially available which causes CES to be more than one Maintenance Release or Version behind. In the event CES requests ISSC to expedite installation of a Maintenance Release or Version or to delay upgrading of specific Software beyond such period or requires operation and maintenance of multiple versions of Software, ISSC shall do so, provided, that if ISSC reasonably determines that it will incur any Out-of-Pocket Expenses as a result of such requests (e.g., Software support costs due to withdrawal of maintenance by the licensor, multiple version charges, etc.); then ISSC will notify CES of the amount of such Out-of-Pocket Expenses in writing and CES, at its option, will either delay installation of such Maintenance Release or Version or update the Software to the current level (as applicable) or reimburse ISSC for any demonstrable Out-of-Pocket Expenses. In addition, CES shall relieve ISSC from any failure to meet a Minimum Service Level directly related to delaying, or impacted by the operation of, the next Maintenance Release or Version until such time as the affected Software is deemed current. 3.5 Required Consents CES shall be responsible for obtaining all Required Consents necessary to enable ISSC to use the Software and CES-Retained Machines until such time as the third party vendor refuses to provide such Required Consents. 13 ISSC will provide CES with advice and counsel regarding ISSC's experience with vendors and ISSC's agreements with vendors. CES will be responsible for all vendor charges and fees related specifically to obtaining the Required Consents (the "Required Consents Charges"). [CIO] shall reimburse [CIO] of the Required Consents Charges. Thereafter, ISSC shall reimburse CES for [CIO] of any and all Required Consents Charges up to the Required Consents Cap. The [CIO] is the [CIO] for Required Consents Charges and is initially set at [CIO], which amount may [CIO] described in [CIO] and [CIO] of [CIO]. ISSC shall bear the costs, if any, associated with the cancellation and relicensing of IBM brand software. In the event that any Required Consent is not obtained with respect to the Software licenses, leases or contracts related to the Services, then, unless and until such Required Consents are obtained, the Parties shall cooperate with each other in achieving a reasonable alternative arrangement for CES to continue to process its work with minimum interference to the CES Business, and [CIO] shall bear [CIO] of the expenses related to achieving such alternative arrangement, which amount shall be applied towards the [CIO]. 3.6 Joint Verification Following the Commencement Date, ISSC and CES reserve the right to inventory, validate and update, any information that is reflected in or omitted from the attached Supplement or Schedules. If any administrative or clerical discrepancies are detected, the Supplement and Schedules shall be changed, modified and adjusted to correct such discrepancies so that the Supplement and Schedules will be correct and accurately reflect the scope of Services provided CES. If either Party disputes the discrepancy then the Parties will submit the matter to the Joint Advisory Committee for dispute resolution as specified in Section 17 of this Agreement. 3.7 On-going Relationship Both CES and ISSC agree that the Services provided may require adjustments to reflect the evolving business and operations of CES and ISSC. Therefore, CES and ISSC will establish a Joint Advisory Committee as described in Section 17.1, which will periodically evaluate the business operating strategies of each Party and recommend modifications to, and evolution of, the Services to optimize such strategies. The Parties acknowledge that the relationship memorialized by this Agreement is dynamic in nature and that such relationship will change as the operating and business environment of CES changes and evolves, and that it is impossible to define with specificity the scope of the Services that will be provided by ISSC during the Term of this Agreement. While the Parties will endeavor to modify the Schedules and amend the Agreement as necessary or appropriate from time to time to reflect the parameters and changing nature of the Services, the Parties acknowledge that such activities may not always be documented with specificity. Therefore, the Parties agree to deal with each other in good faith and endeavor to resolve in good faith, through the dispute resolution processes contained in this Agreement, any disputes that may arise. 4. 0 Services During the Term, ISSC shall provide the Services, consisting of the following, as they may evolve during the Term and be supplemented and enhanced as provided in this Agreement: 14 a) The services, functions and responsibilities described in this Agreement and its Schedules, including without limitation, the services, functions and responsibilities described in Sections 3.0 through 6.0 and the Schedules. b) If any services, functions or responsibilities not specifically described in this Agreement are required for the proper performance and provision of the Services and are an inherent part of, or a necessary sub-task included within, the Services described above in this Section, including, without limitation, those described in Schedule E, such services, functions and responsibilities shall be deemed to be implied by and included within the scope of the Services to the same extent and in the same manner as if specifically described in this Agreement. c) Except as otherwise expressly provided in this Agreement and the Schedules, ISSC shall be responsible for providing all facilities, personnel and other resources set forth in this Agreement, the Schedules and the Supplement. The Parties agree that additional or replacement Data Center machines and other equipment, including upgrades not set forth in the Equipment Plan listed in Section H-2 of Schedule H, or provided pursuant to the charging methodologies described in the Supplement and Schedule J, are the responsibility of CES and will be provided by ISSC as New Services in accordance with Section 7.6 of the Agreement. d) ISSC agrees to take commercially reasonable actions, without an increase in charges to CES, to provide the ISSC Machines and IBM Systems Software at a technological level that will enable CES to take advantage of technological advancement in its industry; provided, however, that ISSC will maintain the ISSC Machines and IBM Systems Software as a whole [CIO] unless otherwise mutually agreed; provided, further, ISSC will maintain new installations for critical components, such as the processors and DASD supporting the production environment at a level [CIO] 4.1 ISSC Project Executive a) Prior to the Commencement Date, ISSC will designate an ISSC Project Executive, who will be located at the CES Facility on and after the Execution Date, to whom all CES's communications may be addressed and who has the authority to act for ISSC and its subcontractors in connection with all aspects of this Agreement. b) ISSC shall cause the person assigned to the position of Project Executive to devote substantially his or her full working time and effort in the employ of ISSC to the provision of the Services under this Agreement. Before assigning an individual to the position of Project Executive, whether the individual is initially assigned or is subsequently assigned, ISSC shall: 1) notify CES of the proposed assignment; 2) introduce the individual to appropriate CES representatives; and 3) consistent with ISSC's personnel practices, provide CES with a resume and any other information about the individual reasonably requested by CES. 15 ISSC agrees to discuss with CES any objections CES may have to such assignment and will resolve such concerns on a mutually agreed basis. c) ISSC will give CES at least [CIO] advance notice of a change of the person appointed to the position of Project Executive and will discuss with CES any objections CES may have to such change. Appointment of any such candidate will be in accordance with Section 4.1(b) above. CES shall have the right to request a replacement of the ISSC Project Executive in accordance with Section 4.2. d) ISSC shall not reassign or replace any person assigned to the position of Project Executive during the [CIO] of his or her assignment to the CES service team nor shall ISSC assign more than [CIO] different individuals to the position during the Term unless: 1) CES consents to such reassignment or replacement; or 2) any such ISSC employee: (a) voluntarily resigns from ISSC; or (b) is dismissed by ISSC for misconduct or materially failing to perform his or her duties and responsibilities pursuant to this Agreement in ISSC's reasonable judgment; or (c) is unable to work due to his or her death or disability. e) If ISSC reassigns or replaces the Project Executive, ISSC will provide a reasonable period for overlap training as the circumstances allow. 4.2 Personnel Replacement a) In the event that CES reasonably and in good faith determines that it is not in the best interests of CES for any individual ISSC employee or subcontractor employee to be appointed to perform or to continue performing any of the Services, then CES shall give the ISSC Project Executive written notice requesting that the employee or subcontractor employee not be appointed, not be replaced or be replaced. Promptly after its receipt of such a notice, ISSC shall investigate the matters stated in such notice. If it determines that CES's position is valid, ISSC shall not appoint, shall not remove, or shall cause to be removed, such ISSC employee, including the ISSC Project Executive, or subcontractor employee from the CES service team providing the Services under this Agreement. b) If ISSC [CIO] to meet the [CIO] or [CIO] and if CES reasonably determines such [CIO] is attributable in whole or in part to [CIO] assigned to the CES service team, CES will notify ISSC of such determination. ISSC will provide data concerning its [CIO] for providing the Services and will meet with CES to discuss the reasons for the [CIO]. If reasonably requested by CES, ISSC shall submit to CES its proposals for reducing the turnover rate and the Parties shall mutually agree on a plan to bring the turnover rate down to a reasonably acceptable level. Notwithstanding transfer or turnover of personnel, ISSC remains obligated to perform the Services in accordance with the [CIO] and 16 the other terms and conditions of this Agreement. Any exercise or non-exercise of this provision by CES shall not impact any other right or remedy of CES under this Agreement. 4.3 Non-Competition a) Except as approved by CES, ISSC will not: 1) assign to the account of a CES competitor an ISSC employee who has held a position hereunder as [CIO] for [CIO] after the date such individual ceased to hold a position of [CIO] hereunder; provided, however, that such reassignment limitation shall not be applicable after the termination of this Agreement, if such termination was by CES for convenience or by ISSC for cause pursuant to Sections 11.1 or 11.5, respectively. For the purposes of this Section 4.3a(1), CES's competitors will be the list of [CIO] businesses provided by CES to the ISSC Project Executive in writing. CES may update such list not more than once annually and the updated listing cannot exceed [CIO] businesses; or 2) [CIO] for [CIO] for [CIO] or [CIO] development for [CIO]. For purposes of this provision, [CIO] includes any present or future Affiliate of [CIO] that provides [CIO], relating to [CIO], as well as any successor in interest to [CIO] (in whatever corporate form) that provides such services. b) CES will not reduce the volume of Services obtained from ISSC below the Capacity Plan set forth in the Supplement in order to transfer data processing for CES's payroll customers to a competitor of ISSC or in-house to a CES facility during the Term; provided, however, that nothing contained herein shall prevent CES from retaining the CES data processing facilities operated by CES as of the Commencement Date in connection with its then current data processing for payroll customers, or prevent CES from utilizing in-house or any third party facilities and services for (1) data processing for CES payroll customers in an amount in excess of such Capacity Plan, or (2) data processing for CES Business' activities other than payroll processing for its payroll customers or (3) data processing on a hardware and/or software platform other than the integrated hardware and software platforms set forth on Schedules A, B, C and D. 4.4 Use of Subcontractors a) ISSC may delegate or subcontract its obligations under this Agreement but ISSC shall remain primarily liable to CES for the timely and proper performance of all such obligations and the performance and actions of any person or entity to which it delegates or subcontracts any such obligation. ISSC shall notify CES of a decision to delegate or subcontract its basic Data Center operations (i.e., systems programming) and obtain CES's approval of such delegation or subcontract. b) ISSC shall remain responsible for: 1) obligations performed by the subcontractors that it engages or permits to be engaged to provide and/or perform the Services; and 17 2) for the performance and actions of all such persons and entities, to the same extent as if such obligations were performed by ISSC and its employees. 4.5 Alternate Source for Work a) Except as limited in Section 4.3(b), CES shall have the right during the Term to retain third parties to perform any part of the Services, any services, functions or responsibilities that would be deemed New Services pursuant to Section 7.6, or to do either such work internally. ISSC shall cooperate with any such third party and CES. Such cooperation shall include, without limitation: 1) providing reasonable electronic access to the Data Center and Software (other than Third Party Systems Software, if any, where the underlying license agreement does not authorize such access and a Required Consent permitting such access has not been obtained), and other resources used by ISSC to perform the Services; and 2) providing such information regarding the operating environments, system constraints, and other operating parameters as is reasonably necessary for the work product of the third party or CES to be compatible with the Services. b) ISSC's obligations hereunder shall be subject to the third party's: 1) compliance with ISSC's reasonable security and other applicable standards and procedures; 2) execution of appropriate confidentiality agreements; and 3) scheduling of computer time and scheduling access to other resources to be furnished by ISSC pursuant to this Agreement. c) The Parties agree that if ISSC's cooperation with CES or any third party performing such work for CES causes ISSC to expend additional resources that ISSC would not otherwise have expended, ISSC's Out-of-Pocket Expenses for such additional requested Resources will be paid by CES. d) The Parties further agree that if a third party's activities affect ISSC's ability to meet the Performance Standards or otherwise provide the Services in ISSC's reasonable determination, ISSC will provide written notice to CES of such determination and the Parties will cooperate to determine whether such affect is caused by the third party and how to ameliorate any such affect. ISSC shall be excused for any inability to meet the Performance Standards, [CIO] or provide Services due to the third party's access and use of the resources ISSC otherwise uses to provide the Services and meet the Performance Standards to the extent such inability is demonstrated by ISSC to be caused by such third party's access. 4.6 CES Project Executive Prior to the Commencement Date, CES agrees to designate a Project Executive to whom all ISSC communications may be addressed and who has the authority to act for CES and its subcontractors in connection with all aspects of this Agreement. 18 4.7 Performance a) ISSC agrees that it will perform the [CIO] and [CIO] such Services. ISSC further agrees that its performance of the Services will [CIO] and [CIO]. b) Within[CIO] after the Commencement Date, CES and ISSC will review and modify, as agreed by the Parties, each of the [CIO] but the [CIO] and [CIO] shall not be [CIO] or [CIO] agreed to by the Parties at any time without the prior written agreement of CES, except [CIO] that ISSC [CIO] is [CIO] on [CIO] beyond the Capacity Plan set forth on the Supplement without the corresponding adjustment to increase such Capacity Plan in accordance with the Supplement and Schedule J. The Parties expect and understand that the [CIO] and[CIO] will be [CIO] over time. As part of this review process, the Parties shall jointly determine and, if appropriate, agree on additional or alternate [CIO] which may be added to Schedule E as applicable. c) ISSC shall install and implement the measurement and monitoring tools set forth on Schedule B and shall implement procedures approved by CES as required to measure and report ISSC's performance of the Services against the applicable [CIO] and [CIO]. Such measurement and monitoring shall permit reporting at a reasonable level of detail sufficient to verify compliance with the [CIO] and [CIO], if any, and shall be subject to reasonable audit by CES. ISSC shall provide CES with the information for, data for and access to such tools for CES's use and analysis to the extent permitted under the Software license subject to Section 5.11(b), upon request, for purposes of verification and for CES's own analysis. 4.8 Efficient Use of Resources ISSC shall take commercially reasonable actions to efficiently use resources that will be chargeable to CES under this Agreement for providing and performing the Services including, but not limited to the following: a) ISSC will make schedule adjustments (consistent with CES's priorities and schedules for the Services and ISSC's obligation to meet the Performance Standards) including, without limitation, delaying the performance of noncritical functions within established limits; b) ISSC will tune or optimize the ISSC Machines and Systems Software running on the ISSC Machines used to perform the Services; c) ISSC will assign personnel with the required skills, training and experience to perform the duties, responsibilities and functions assigned to such personnel; d) ISSC will utilize project management tools, including productivity aids and project management systems, as reasonably necessary to perform the Services; and 19 e) ISSC will be responsible for providing and implementing quality assurance processes and procedures that are reasonably necessary to assure that the Services are performed accurately and in a timely manner. CES will cooperate with ISSC, and as reasonably requested by ISSC, promptly make management decisions and provide approvals, information and otherwise facilitate ISSC's provision of the Services. 4.9 Management and Control a) On the Execution Date, ISSC shall provide a manual describing the operating processes and procedures relating to ISSC's performance of the Services then being provided (the "Procedures Manual"). The Procedures Manual shall generally conform to the format and content set forth in Schedule F. Until such procedures are completed and accepted by the Parties, ISSC shall provide the Services using generally accepted industry processes and procedures. 1) The Procedures Manual shall be provided to CES for review, comment and approval. Any reasonable proposals, comments or suggestions of CES will be incorporated therein. 2) ISSC shall periodically update the Procedures Manual to reflect any changes in the operations or procedures described therein and provide such changes to CES for review, comment and approval. 3) ISSC shall perform all Services in accordance with the Procedures Manual. ISSC shall develop the Procedures Manual according to the priorities and schedule mutually established by the Parties. b) On the Execution Date, ISSC shall provide the "Change Management Procedures" then being provided, which shall include, at a minimum, that: 1) ISSC will make no change which may adversely affect the business operations of CES without first obtaining approval from CES. 2) ISSC will assure that all programs are moved from the applications development and test environments to the production environment in a controlled and documented manner that is adequately noticed in advance in a writing delivered by ISSC to CES in hard copy or through CES's electronic mail system. 3) ISSC will schedule all change(s) to CES's operating environment in consultation with CES so as not to unreasonably interrupt the CES Business. 4) ISSC will prepare monthly, a rolling quarterly "look ahead" schedule for ongoing and planned change(s) to CES's operating environment. The status of such change(s) will be monitored and tracked against the applicable schedule. 5) ISSC will document and provide to CES, via the change control notice referenced in Section 4.9(b)(2) above, notification of all change(s) performed for emergency 20 purposes or as otherwise not precluded in Section 4.9(b)(1) above. In addition, ISSC shall provide verbal notification within 12 hours after such change to the contact specified in the Procedures Manual. The Change Management Procedures will be included in the Procedures Manual and shall be provided to CES for review, comment and approval. Any reasonable comments or suggestions of CES will be incorporated therein. c) Beginning on February 1, 1995, ISSC will provide to CES preliminary reports regarding ISSC's performance of the Services. Beginning March 1, 1995, ISSC will provide to CES a mutually agreed upon set of periodic reports and cooperate with CES to establish a final report structure by a mutually agreed upon date. At a minimum, the reports to be provided beginning March 1, 1995 will include the following: 1) a monthly performance report documenting ISSC's performance with respect to the Performance Standards, [CIO] and applicable Service Credits; 2) a monthly project schedule report containing the information described in Section 4.9(b)(4); 3) a monthly change report setting forth a record of all change(s) to CES's operating environment performed during the previous month; and 4) a monthly report describing CES's utilization of each particular type of RU during such month, and comparing such utilization to the then applicable Baseline for each RU. ISSC will provide CES with such documentation and other information as may be reasonably requested by CES from time to time in order to verify the accuracy of the reports specified above. d) By the Execution Date, the Parties will mutually determine an appropriate set of periodic meetings to be held between representatives of CES and ISSC. At a minimum, these meetings will include the following: 1) a weekly meeting, unless otherwise agreed upon by the Parties, among operational personnel to discuss ongoing issues relating generally to daily performance and planned or anticipated activities and change(s) to CES's operating environment; 2) a monthly management meeting to review the performance report, the project schedule report, the changes report, and such other matters as appropriate; and 3) a quarterly senior management meeting to review relevant contract and performance issues. All meetings will have a published agenda agreed to by CES and ISSC, which agenda shall be issued by ISSC sufficiently in advance of the meeting to allow meeting participants a reasonable opportunity to prepare for the meeting. ISSC shall prepare minutes of all such meetings and shall circulate the minutes for review. 21 4.10 Annual Technology Plan The Parties shall jointly prepare a "Technology Plan" in accordance with the following procedures: a) The First Technology Plan under this Agreement will be completed by [CIO]. The Technology Plan for subsequent years of this Agreement will be completed by [CIO] of each year, commencing [CIO]. b) The Technology Plan will be composed of short-term and long- range plans, which tie into CES Business' goals and objectives. The long-range plan will include strategic and flexible use of the Data Center in light of CES Business' priorities and strategies. The short-term plan will include an identification of proposed software and hardware, as appropriate, and a projected time schedule for developing and implementing the proposed changes. c) CES will draft the Technology Plan with ISSC's active participation, advice and consent. ISSC will provide CES with its written comments regarding the draft Technology Plan within [CIO] after receipt thereof by ISSC. ISSC's response will include, without limitation, information regarding industry trends in production capabilities and pricing and the implementation of proposed hardware and software changes. The final Technology Plan will be subject to mutual agreement by the Parties. If the Parties are unable to agree with respect to a particular element of the Technology Plan, then the Parties' rights and obligations with respect to such element shall be as otherwise required under this Agreement without reference to the Technology Plan. Implementation of any portion of the Technology Plan that is inconsistent with the Parties' obligations hereunder will require an amendment to this Agreement pursuant to Section 18.4. 4.11 CES Approvals and Notification For those areas of the Services where CES: a) has reserved right-of-approval or consent or agreement; b) is required to provide notification; and/or c) is required to perform a responsibility set forth in this Agreement; and such approval, consent, notification or performance is delayed or withheld by CES without authorization or right beyond the period provided in this Agreement or the Schedules and such delay or withholding is not caused by ISSC and affects ISSC's ability to provide the Services under this Agreement, then CES will relieve ISSC of the responsibility for that portion of the Services affected by the delay or withholding during the period such approval, consent, notification or performance is delayed or withheld beyond the period provided in this Agreement or the Schedules provided that ISSC provides reasonable written notice to CES of such delay by CES and of the responsibility affected. CES will reimburse ISSC for its Out-of-Pocket Expenses, if any, incurred during such period as a result thereof. 22 5. 0 Operations 5.1 ISSC Machines ISSC will provide the Services using the ISSC Machines. Additional or replacement ISSC Machines, including upgrades, will be added by ISSC to the Data Center, as necessary to perform the Services in accordance with the Performance Standards, subject to capacity charges beyond the specified Capacity Plan or ARCs for growth beyond the Baselines set forth in the Supplement, as applicable. ISSC retains all right, title and interest in and to all ISSC Machines, subject to Section 11.8 with respect to CES's rights upon termination or expiration of this Agreement. 5.2 Software Services ISSC will: a) operate, maintain and enhance all IBM Systems Software in the Data Center, as necessary to perform the Services in accordance with the Performance Standards; b) operate the Third Party Systems Software in the Data Center; c) provide Operational Support for the CES-Retained Machines in the Data Center; d) apply problem analysis, preventive maintenance and program temporary fixes to correct defects in the Systems Software operating on the ISSC Machines running in the Data Center; e) provide or obtain new Versions and Maintenance Releases, upgrades, replacements or additional IBM Systems Software as ISSC deems appropriate, subject to Section 3.4, in order to perform the Services in accordance with the Performance Standards; f) operate all Applications Software in the Data Center; g) provide Operational Support for the interfaces to the Applications Software and Systems Software developed by CES; and h) cooperate with CES in connection with CES's development of Applications Software and Systems Software, upon request. CES will develop interfaces to the Applications Software and Systems Software. 5.3 Operations, Support and Maintenance ISSC will: a) operate the Data Center; b) provide maintenance services for ISSC Machines in the Data Center seven days a week, twenty-four hours a day; c) provide files to the queue in accordance with Schedule E; 23 d) monitor file transmissions originating from the ISSC Machines using monitoring tools provided by CES and approved by ISSC, which approval will not be unreasonably withheld, and take appropriate action in accordance with the Procedures Manual; e) store, maintain and provide security for storage media (tapes, disk packs, etc.) provided to ISSC; and f) provide reasonable system capacity to support CES application development and testing, in accordance with Schedule E, the resources utilized for which will be included in the Capacity Plan and when calculating RUs. 5.4 Consolidation and Relocation Services ISSC will install, rearrange and relocate equipment in the Data Center as ISSC deems necessary in order to perform the Services in accordance with the Performance Standards and in such a manner so as to minimize service level impact to CES users. ISSC will also be responsible for the de-installation and relocation of the ISSC Machines in the Data Center, including without limitation, appropriate packaging, certification and shipping. Installation, relocation or rearrangement of CES-Retained Machines if made pursuant to CES's request will be invoiced to CES as Out-of-Pocket Expenses or if made pursuant to ISSC's request will be deemed to be included in the Annual Services Charge. De-installation and relocation of the CES-Retained Machines, including without limitation, appropriate packaging, certification and shipping, if made pursuant to CES's request will be invoiced to CES as Out-of- Pocket Expenses or if made pursuant to ISSC's request will be deemed to be included in the Annual Services Charge. 5.5 Systems Management ISSC will: a) perform capacity planning, performance analysis and tuning for the ISSC Machines and Systems Software operating on the ISSC Machines running in the Data Center; b) implement controls to effectively manage the environment of the Data Center according to the Procedures Manual; c) provide backup and restore capability for data and programs maintained in the Data Center; d) invoke the disaster recovery plan when appropriate in accordance with Schedule G; and e) provide for systems access security for the ISSC Machines through the use of appropriate security products. Any other security products specified by CES will be considered Third Party Systems Software. 5.6 Production Services ISSC will: a) take direction from CES and cooperate with the scheduling, controlling, monitoring and running of production jobs on the ISSC Machines using scheduling and quality control procedures, as specified in Schedule E and in the Procedures Manual; and 24 b) follow procedures for scheduling and directing output of all production work (including workload and performance balancing), as specified in the Procedures Manual. 5.7 Software ISSC agrees to use any Third Party Systems Software selected by CES. CES may add Applications Software to, or delete Applications Software, from Schedule A. ISSC agrees to use any Applications Software selected by CES, subject to the provisions of Schedule K and Section 7.6. CES will retain responsibility for maintenance, support and all license and related charges for all Applications Software and Third Party Systems Software, subject to the provisions of Section 3.5. If CES requests a [CIO] of any IBM Systems Software, CES shall pay [CIO] the [CIO] and [CIO] attributable to the [CIO] IBM System Software [CIO] attributable to the IBM Systems Software being [CIO]. If CES [CIO] any IBM Systems Software [CIO] Schedule B and does not at the same time [CIO] any other IBM Systems Software therefor, CES may [CIO] an amount equal to [CIO] and[CIO] to such [CIO] IBM System Software [CIO] attributable to any [CIO] to the IBM System Software [CIO] by CES. CES shall audit, control and approve all new Applications Software and Third Party Systems Software prior to its promotion into production. 5.8 CES-Retained Machines ISSC shall provide approximately [CIO] of space within each Data Center location (Site 1 and Site 2, if applicable) and the Recovery Center for the DEC Machines. Upon request by CES, ISSC shall increase such square footage of floor space at a rate not to exceed [CIO] each year for the remainder of the Term at [CIO]. In addition, ISSC shall provide space within each Data Center location and the Recovery Center for the CES-Retained Machines other than the DEC Machines. ISSC shall provide heat, light, power, air conditioning, UPS, and such other similar utilities as may reasonably be necessary for the CES-Retained Machines. ISSC shall provide reasonable physical and electronic access to the CES- Retained Machines by CES and CES's maintenance providers upon reasonable advance notice. In addition, ISSC will: a) provide Operational Support for the Systems Software resident on the CES-Retained Machines; b) to the extent the CES-Retained Machines trigger notification to ISSC of the need for reasonable local operational action, ISSC will perform such action; c) to the extent that CES's personnel notify ISSC of the need for reasonable local operational action, ISSC shall perform such action; and d) follow standard local operational procedures for such CES- Retained Machines provided to ISSC by CES (such as disk back-up procedures). CES shall otherwise be financially and operationally responsible for the CES-Retained Machines and the Software resident thereon, including the operation, other than that specified above or in Schedule E, maintenance, upgrade, enhancement and replacement thereof. 25 5.9 Connectivity CES will be responsible for providing and managing connectivity up to the output side of the 3745 and/or the 3172 controller and interconnect equipment or their equivalent located in the Data Center from end users and ISSC will be responsible for managing connectivity from the mainframe to the output side of the 3745 and/or the 3172 controller. ISSC will monitor network messages regarding connectivity, utilizing mutually agreed upon monitoring tools and notify CES in accordance with the Procedures Manual. 5.10 Viruses Each Party agrees to use diligent efforts to ensure that no viruses or similar items ("Viruses") are coded or introduced into the systems by their respective employees, contractors or other third parties that have access to or utilize the Services. ISSC will engage in and comply with IBM established virus prevention programs and processes for Software used or being promoted into the production environment. ISSC agrees that, in the event a Virus is found to have been introduced into the operating environment used to provide the Services, ISSC shall, at CES's written request, use commercially reasonable efforts to assist CES in reducing the effects of the Virus and, if the Virus causes a loss of operational efficiency or loss of data, to assist CES to the same extent to mitigate and restore such losses; provided, however, that the Party that introduced a Virus shall bear the cost associated with such efforts. If a Virus was introduced by CES, CES shall relieve ISSC of the Minimum Service Level effect of such Virus, if any, to the extent caused by or resulting from such Virus(es). ISSC shall not be deemed to have introduced a Virus if ISSC promotes Applications Software to production to which it applies its applicable virus protection programs and processes prior to promotion to production. 5.11 Software Licenses a) All Software provided by ISSC in connection with the Services, with the exception of IBM Systems Software, shall be licensed in CES's name as licensee with ISSC having the right to use such Systems Software in performing the Services unless ISSC can provide the Software specified by CES on a more cost effective basis in its own name. ISSC shall consider and take into account in its dealings with the Software vendors CES's reasonable concerns regarding the terms and conditions of such Software licenses including CES's use upon termination. b) Prior to the initial use of any new or additional Systems Software operating on the ISSC Machines, which is not listed in Schedule B, and prior to any upgrade, enhancement or modification of existing Systems Software listed in Schedule B operating on the ISSC Machines, or the addition of or migration to different Systems Software operating on the ISSC machines licensed to anyone other than CES, ISSC shall [CIO] for any such actions. In addition, prior to taking any such action, ISSC will provide CES with information regarding the amount of any fees and other requirements CES would have to undertake in order to obtain a license to and maintenance for such Systems Software, and shall obtain, where possible using commercially reasonable efforts, a firm commitment from the third party vendor of such software to license the software to CES and provide maintenance for the Software upon the payment of such fees. To the extent possible, using commercially reasonable efforts, each Systems Software license entered into hereunder in either CES's or ISSC's name shall include use and access rights for CES's consultants and 26 subcontractors. ISSC will not utilize Systems Software to which CES [CIO] unless CES otherwise agrees in advance in writing. 6. 0 Additional Services 6.1 Help Desk As part of the Services, ISSC will provide a Data Center operations help desk and problem management in accordance with Schedule I. 6.2 Security CES shall approve and ISSC shall administer system level access, granting group access and control to CES for their administration and control of CES's applications and end users. CES shall notify ISSC of what entities and personnel are to be granted access to the Software and the level of security access required by each. The Parties shall cooperate in administering security procedures regarding such access, all as set forth in Schedule L. 6.3 Back-up and Disaster Recovery ISSC shall perform the back-up, recovery and storage procedures specified in Schedule E and provide Disaster Recovery services as specified in Schedule G. 6.4 Facilities and Support Services To enable ISSC to provide the Services, CES agrees: a) to provide, at no charge to ISSC, the use of CES Facilities as may be reasonably necessary to house the ISSC Project Executive and his or her office business equipment for the performance of the Services. This includes reasonable office space, storage space, telephone capability (but excluding long distance telephone charges, and all long distance telephone charges for facsimile transmissions for which CES will be reimbursed by ISSC), office support services (e.g., janitorial and physical security) and furniture; b) to provide for the CES Facilities during the Term, all heat, light, power, air conditioning, UPS, and such other similar utilities as may reasonably be necessary for ISSC to perform the Services as described in this Agreement; c) to provide access to CES parking (if available, but excluding CES's paying for such parking) and break room facilities for ISSC employees; d) if CES decides to relocate its current CES Facility that houses the ISSC Project Executive and his or her office business equipment, CES will provide comparable space, facilities and resources in the new location, as well as relocation of such equipment to the new location, under the same terms and conditions of this Agreement; e) following the expiration or termination of this Agreement, CES will allow ISSC the use, at [CIO], of those CES Facilities then being used to perform the Services for up to [CIO] following the effective date of such expiration or termination (or from the last day of any 27 Services Transfer Assistance period) to enable ISSC to affect an orderly transition of ISSC resources; f) it is understood that ISSC's use of the CES Facilities does not constitute or create a lease hold interest. When the CES Facilities are no longer being utilized by ISSC to perform the Services, CES's obligations set forth in this Section with respect to the CES Facilities will cease; and g) it is understood that ISSC's usage of any of the foregoing CES facilities and services will not be deemed to be a part of any Baseline Charge related thereto payable by CES to ISSC hereunder. 6.5 Audits ISSC will assist CES in meeting its audit and regulatory requirements, including providing access to the Data Center to enable CES and its auditors and examiners to conduct appropriate audits and examinations of the operations of ISSC relating to the performance of the Services to verify: a) the accuracy of ISSC's charges to CES; and b) that the Services are being provided in accordance with this Agreement and the Performance Standards. Such access will require not less than two business days prior written notice to ISSC and will be provided during normal business hours, provided that any audit does not interfere with ISSC's ability to perform the Services in accordance with the Performance Standards. ISSC will provide access to information reasonably necessary to perform the audit. ISSC shall not allow CES, its examiners or auditors access to ISSC's proprietary data. ISSC will also assist CES's employees or auditors in testing CES's data files and programs, including, without limitation, installing and running audit software, subject to CES's reimbursing ISSC for its Out-of- Pocket Expenses. ISSC agrees to make any changes and take other actions which are necessary in order to maintain compliance with applicable laws or regulations in effect on the Commencement Date at no charge to CES, except with respect to any such changes or actions arising out of CES's failure to comply with such laws or regulations prior to the Commencement Date. In addition, ISSC agrees to make any changes and take other actions which are necessary in order to maintain compliance with laws or regulations applicable to CES Business effective after the Commencement Date and CES shall reimburse ISSC for such changes and actions as a New Service in accordance with Section 7.6. CES may submit additional findings or recommendations to ISSC for its consideration and ISSC shall consider such findings. If any audit or examination reveals that ISSC's invoices for the audited period are not correct for such period, ISSC shall promptly reimburse CES for the amount of any overcharges, or CES shall promptly pay ISSC for the amount of any undercharges. CES may audit the Services annually and may provide reports on the audit results to CES's customers; provided, however, CES may not provide pricing and financial information provided to CES by ISSC to CES's customers. 28 7. 0 Charges and Expenses 7.1 Annual Services Charge CES agrees to pay the Annual Services Charge specified in the Supplement for each year of the Term together with the other amounts as described in this Section 7 and Schedule J, as set forth in the Supplement. 7.2 Additional Resource Charges Beginning for the initial month following the Commencement Date and monthly thereafter, ISSC will review the quantity of Resource Units utilized by CES during the preceding month, and calculate Addi- tional Resource Charges (ARCs) in accordance with the Supplement and Schedule J. CES agrees to pay Additional Resource Charges in accordance with Section 8.2. 7.3 [CIO] Adjustments CES may [CIO] or [CIO] of the [CIO] of [CIO] in accordance with the Supplement and Schedule J. If CES elects to [CIO] of an[CIO] of [CIO], ISSC shall provide CES a [CIO], as described in Schedule J, until the [CIO] of [CIO] is [CIO]. If CES elects to [CIO] of an [CIO] of [CIO], ISSC will use commercially reasonable efforts to meet CES's [CIO]. CES shall pay ISSC an [CIO], as described in Schedule J, for the period from when the [CIO] is [CIO] until the time [CIO] was [CIO] to [CIO] as shown on the Supplement. 7.4 Cost of Living Adjustment CES agrees to pay ISSC, or ISSC will credit CES with, a Cost of Living Adjustment ("COLA"), in accordance with Section III of Schedule J, as applicable, beginning in the first January following the Commencement Date. In the event that the rate of change of CPI-U for any year is greater than [CIO] and the Parties agree that the CPI-U does not accurately reflect the rate of inflation actually experienced by the elements of cost that make up the Services for such year, the Parties shall determine by agreement either an alternative index or the actual rate of inflation that shall be used for computing the COLA for such year. 7.5 New Entities If CES acquires any additional Affiliates during the Term for which CES desires ISSC to provide Services and ISSC's acceptance of such responsibilities would require ISSC to (a) utilize capacity or resources for which there is not an existing charging methodology and/or Baseline and (b) expend additional resources that ISSC would not otherwise have expended, then ISSC will provide the Services to such Affiliate in accordance with this Agreement, subject to Section 7.6. 29 7.6 New Services In the event that CES requests ISSC to perform functions different from, and in addition to, the Services ("New Services"), the charge to CES for ISSC performing such functions will be determined as follows: a) if the additional function requires only those resources which have a current charging methodology or Baseline, the additional function will not be considered a New Service and the charges for the incremental resources, if any, will be recovered through the applicable charging methodology set forth in the Supplement and Schedule J; b) if the additional function requires resources not covered by a current charging methodology, an existing Baseline and/or requires additional start-up expenses, then to the extent that ISSC should not otherwise have provided such function as part of the Services, such additional resources and/or start-up expenses will be considered New Services, and prior to performing such New Services: 1) ISSC will quote to CES the increase in the Annual Services Charge or other payment method that will be attributable to such New Services, which will be based upon the required proportional increase in system and other applicable resources relative to the Annual Services Charge; and 2) CES, upon receipt of such quote, may then elect through written notice by the CES Project Executive to have ISSC perform the New Services, and the Annual Services Charge, charging methodology and/or Baselines will be adjusted, if necessary, to reflect such New Services; and c) if CES's request for different or additional services results in ISSC having to reduce or eliminate Services being provided hereunder, and such reduced or eliminated Services are not a result of CES or a third party services provider performing such Services, such different or additional services will be deemed "Replacement Services." In such event, the Parties shall determine the resources and expenses related to the Services being replaced, the resources and expenses related to the services being added and the net increase or decrease in resources and expenses will be the basis on which ISSC will quote a price to CES for Replacement Services. Notwithstanding the foregoing, nothing herein may be interpreted as obligating CES to obtain New Services from ISSC. During the Term, if the Services evolve or are supplemented and enhanced over time by ISSC at its sole discretion, such as by changes made which keep pace with technological advancements or improvements, the Parties acknowledge that such changes will not be deemed to result in functions materially different from and in addition to the Services and will not be considered New or Replacement Services. 7.7 Taxes a) The Annual Services Charges, ARCs (if any) and any other charges paid by CES to ISSC are inclusive of any applicable sales, use, personal property or other taxes based upon or measured by ISSC's cost of acquiring or providing materials, supplies or services furnished 30 by ISSC in performing the Services. CES will be responsible for paying any tax on the Services (if any) and any other taxes for which it is legally responsible. b) Each Party shall bear sole responsibility for all taxes, assessments and other real property-related levies on its owned or leased real property. c) The Parties agree to reasonably cooperate with each other to more accurately determine each Party's tax liability and to minimize such liability to the extent legally permissible. d) Each Party shall provide and make available to the other any resale certificates, information regarding out-of-state sales or use of equipment, materials or services, and other exemption certificates or information reasonably requested by either Party. The Parties will also work together to segregate the Annual Services Charge, ARCs and other charges into separate payment streams: 1) that for taxable Services, if any; 2) that for nontaxable Services; 3) that for which a sales, use or similar tax has already been paid by ISSC; and 4) that for which ISSC functions merely as a paying agent for CES in receiving goods, supplies or services (including leasing and licensing arrangements) that otherwise are nontaxable or have previously been subject to tax. Consistent with this Agreement, no portion of the payment stream will be described as the lease or rental of tangible property. 7.8 Reduction of CES Requirements for the Base a) If, during the Term, CES experiences significant changes in the scope or nature of its business, exclusive of any Services set forth in this Agreement, which have or are reasonably expected to have the effect of causing sustained substantial decreases ([CIO] or more) in the amount of the "Base System" (as defined in Schedule J) used in providing the Services, such changes shall be governed by this Section. Examples of the kinds of events that might cause such substantial decreases are: 1) changes to locations where CES operates; 2) changes in CES's products or markets; 3) mergers, acquisitions or divestitures; 4) changes in the method of service delivery (other than use of another vendor or an in-house solution); or 5) changes in market priorities. b) CES will notify ISSC of any event or discrete set of events which CES believes qualifies under this Section and ISSC will identify the changes that need to be made to accommodate 31 the extraordinary decrease of resource requirements in a cost-effective manner without disruption to CES Business, and the cost savings that will result therefrom in a plan that will be submitted to CES for review and acceptance. c) Upon acceptance by CES, ISSC will make the applicable adjustments to the Annual Services Charge and the Baselines to reflect the foregoing and distribute an amended Supplement to the Parties. d) CES may, at its option and expense, employ an accredited and mutually agreed upon independent auditor to verify that ISSC's methodology for calculating the savings referenced in Section 7.8(b) above conforms to accepted accounting practices. 7.9 Services Transfer Assistance It is the intent of the Parties that ISSC will cooperate with CES to assist with the orderly transfer of the services, functions and operations provided by ISSC hereunder to CES itself or another services provider in connection with the expiration or earlier termination of this Agreement. Commencing [CIO] prior to expiration or commencing upon any notice of termination or of non- renewal of this Agreement, CES may request ISSC to provide and, if so requested, ISSC shall provide to CES or CES's designee (except in the event of a termination due to a failure by CES to pay any amounts due and payable under this Agreement when due; provided, however, that [CIO] shall not be considered a failure by CES to pay amounts due and payable) services in connection with migrating the work of CES to CES itself or another services provider ("Services Transfer Assistance"), subject to Section 11.8. Services Transfer Assistance shall be provided until the effective date of expiration or termination with respect to the Services, and, for expiration or termination related services other than those relating to the Services, upon request by CES, for up to [CIO] after the effective date of expiration or termination. Subject to Section 7.9(d) below, Services Transfer Assistance shall include, but not be limited to, providing CES and its Affiliates and their agents, contractors and consultants, as necessary, with services such as the following: a) Premigration Services 1) continue to install, load and operate Software as necessary to meet project schedules until it is necessary to freeze all noncritical Software changes to perform the Migration Services, 2) notifying all outside vendors of procedures to be followed during the turnover phase, 3) reviewing all Software libraries (tests and production) with CES and/or the new service provider, 4) assisting in establishing naming conventions for the new production site, 5) providing copies of configuration diagrams, manuals, inventories, operational records, and other documentation generally used to provide the Services, 6) analyzing space required for the data bases and Software libraries, and 32 7) generating a tape and computer listing of the source code on the ISSC Machines in a form reasonably requested by CES. b) Migration Services 1) unloading the production data bases, 2) delivering tapes of production data bases (with content listings) to the new operations staff, 3) assisting with the loading of the data bases, 4) assisting with the Data Center connectivity to the communications network turnover, if applicable, and 5) assisting in the execution of a parallel operation until the effective date of expiration or termination of this Agreement. c) Post Migration Services 1) answering questions regarding the Services on an "as needed" basis, and 2) turning over of any remaining CES owned reports and documentation still in ISSC's possession. d) If any Services Transfer Assistance provided by ISSC requires the utilization of additional resources for which there is a current Baseline that ISSC would not otherwise use in the performance of this Agreement, CES will pay ISSC for such usage at the then current Agreement charges. If the Services Transfer Assistance requires ISSC to incur expenses in addition to the expenses that ISSC would otherwise incur in the performance of this Agreement, then: 1) ISSC shall notify CES of any Out-of-Pocket Expenses associated with the performance of any additional services pursuant to this Section prior to performing such services, and 2) upon CES's authorization, ISSC shall perform the additional services and invoice CES for such Out-of-Pocket Expenses; and 3) CES shall pay ISSC for such Out-of-Pocket Expenses within thirty business days of the date of the invoice. 8. 0 Invoicing and Payment 8.1 Annual Services Charge Invoices ISSC will invoice CES on a monthly basis the proportional amount of the Annual Services Charge for that month in advance. The invoice will state separately applicable taxes owed by CES, if any, by tax jurisdiction. No such invoice shall be delivered prior to the month for which such invoice is applicable. 33 8.2 ARC and COLA Invoicing Beginning in the fifth month following the Commencement Date and quarterly thereafter, ISSC will invoice CES for the net amounts due for ARCs, if any, for the preceding quarter. ISSC will invoice CES for COLA monies starting in January following the Commencement Date for such month and monthly thereafter in accordance with Section 7.4. No COLA invoice shall be delivered to CES prior to the month for which such invoice is applicable. 8.3 Capacity Invoicing ISSC will bill or credit CES on a monthly basis in advance for the CPU and/or DASD capacity that is either installed early or deferred in accordance with the procedures set forth in Schedule J. 8.4 Other Charges Any amount due under this Agreement including amounts described in Sections 8.1, 8.2 and 8.3 shall be payable as described in Section 8.5. No invoice for any such amount, exclusive of amounts under Sections 8.1, 8.3 and 11.7, shall be delivered to CES until after the Service, which is the subject of such invoice, has been provided to CES. 8.5 Invoice Payment CES will pay each invoice either by wire funds transfer or other electronic means acceptable to ISSC to an account specified by ISSC or, at CES's option, by bank check within [CIO] after the date of receipt of such invoice. In the event that any payments are not received by ISSC within [CIO] following the due date, a late fee equal to [CIO] will be payable to ISSC on unpaid balances; provided, however, that such late fee will not apply to disputed amounts placed in escrow, which amounts shall not accrue a late fee, but may accrue interest in accordance with Section 8.7 and provided, further, that with respect to disputed amounts below the escrow account minimum amount, such disputed amounts shall not accrue a late fee until the [CIO] day after the original due date. 8.6 Proration All periodic charges under this Agreement are to be computed on a calendar month basis, and will be prorated for any partial month, unless specifically stated otherwise in this Agreement. 8.7 Disputed Charges/Credits In the event either Party disputes the accuracy or applicability of any charge or credit, then that Party shall notify the other Party of the disputed matter and support for such dispute in writing within [CIO] after becoming aware of, and performing an investigation of, dispute. The Party contesting its obligation to pay a charge or to grant a credit of [CIO] such or greater will deposit the disputed amount in an escrow account in a mutually agreed upon United States commercial bank or, if the Parties do not reach agreement, NationsBank of Georgia, N.A. in Atlanta shall be the depository. The amounts so escrowed shall be deposited in an interest bearing account and the interest accruing on such escrowed amount will be allocated among the Parties based on the percentage of the principal amount of the escrow paid to each Party upon resolution of the dispute. Neither Party shall set off or fail to pay a disputed amount without prior notification to the other Party of such dispute and escrow of the disputed amount. A disputed amount on an invoice does not 34 relieve the Party of the obligation for payment of the other undisputed amounts contained on such invoice and the Party will pay such undisputed amounts pursuant to the applicable terms and conditions of this Agreement. If requested by the non-escrowing Party, the non-escrowing Party will be added as a second Party of the escrow account and the disputed amounts and accrued interests in escrow may only be released by the escrow agent upon receipt of written instructions signed by both Parties, or by the escrowing Party if the non- escrowing Party does not request addition as a second Party on the escrow account. No failure by either Party to identify a contested charge or credit prior to payment of the invoiced amount will limit or waive any of such Party's rights or remedies with respect to such charges or credits, including such Party's right to withhold such disputed amounts from subsequent payments or credits due to the other Party hereunder and pay such sums that are [CIO] into an escrow account as described in this Section 8.7. If the Parties do not investigate and resolve any disputed amounts pursuant to Section 17.2, within [CIO] after receipt of written notification of the request for the initiation of such dispute resolution procedures by the noncontesting Party, the Parties shall notify the escrow agent to release the applicable disputed funds, at the contesting Party's sole discretion, (a) to the contesting Party or (b) to the noncontesting Party. Upon settlement of the dispute by the Parties or final resolution of the dispute by a court of competent jurisdiction, if the holder of the disputed amounts shall be determined not to be entitled to such amounts, the holder shall pay the amounts to which it is found not to be entitled to the other Party together with interest thereon payable at a rate of [CIO] from the date such amounts were due or the date released from escrow, whichever is later, through the date of payment thereof. Unpaid charges and credits that are in dispute and placed in escrow pursuant to this Section 8.7 or held by the noncontesting Party pursuant to this Section 8.7 pending final resolution of the dispute will not be considered a basis for monetary or other default under this Agreement. 8.8 Other Credits Except as otherwise set forth in this Agreement, with respect to any amount to be paid or reimbursed to CES by ISSC pursuant to this Agreement, ISSC may, at its option, pay that amount to CES by giving CES a credit against the charges otherwise payable to ISSC hereunder at the time any such amount is due and payable to CES. Notwithstanding the foregoing, if the amount to be paid or reim- bursed by ISSC in any specific month, together with the credits due CES for such month, exceed the pro rata portion of the Annual Services Charge for such month, ISSC shall [CIO] during such month. 9. 0 Intellectual Property Rights Pursuant to this Agreement, ISSC, its subcontractors and CES personnel may develop, create, modify or personalize (collectively, "Develop") certain computer programming code, including source and object code ("Code") and documentation to perform the Services. 9.1 Intellectual Property Definitions a) "Derivative Work" means a work based on one or more preexisting works, including, without limitation, a condensation, transformation, expansion or adaptation, which, if prepared without authorization of the owner of the copyright of such preexisting work, would constitute a copyright infringement. 35 b) "Materials" means Type I, Type II, Type III, Type IV, Type V, Type VI and VII Materials collectively. c) "Type I Material" means Developed Code which constitutes a Derivative Work of software for which the copyright is owned by CES. d) "Type II Material" means Developed Code created at ISSC's expense, by ISSC personnel performing the Services hereunder and used to provide the Services, which does not constitute a Derivative Work of any software owned by CES, ISSC, IBM or their Affiliates or any third party. e) "Type III Material" means Code Developed under this Agreement which constitutes Derivative Works of software for which the copyright is owned by ISSC, IBM, their Affiliates or their subcontractors. f) "Type IV Material" means literary works of authorship Developed under this Agreement, such as user manuals, charts, graphs and other written documentation and machine-readable text and files created at ISSC's expense, by ISSC personnel performing the Services hereunder and used to provide the Services, and excludes Code. g) "Type V Material" means Code Developed under this Agreement by ISSC and/or its subcontractors independently or jointly with CES, at CES's expense or as part of the Services or specifically related to the core business of CES. h) "Type VI Material" means literary works of authorship Developed under this Agreement, such as user manuals, charts, graphs and other written documentation, and machine-readable text and files, by ISSC and/or it subcontractors independently or jointly with CES, at CES's expense or as part of the Services or specifically related to the core business of CES, but excludes Code. i) "Type VII Material" means Code and/or literary works of authorship such as user manuals, charts, graphs and other written documentation, and machine-readable text and files created at ISSC's expense and used to interface between Applications Software and/or Systems Software which does not constitute a Derivative Work of any software owned by CES, ISSC, IBM or their Affiliates or any third party. 9.2 ISSC Developed Code With respect to any Materials whether Developed solely by ISSC or its subcontractors, or jointly by CES personnel and ISSC or its subcontractors, ownership will be as follows: a) Type I, Type V and VI Materials shall be owned by CES, and ISSC shall have the following license rights: 1) a perpetual, nonexclusive, worldwide, paid-up license to use, execute, reproduce, display, perform, operate, distribute, modify, develop, personalize and create Derivative Works from such Materials internally for the sole benefit of and exclusive use by CES during the Term; and 2) the right to sublicense third parties to do any of the foregoing. 36 b) Type II, III, IV and VII Materials, shall be owned by ISSC, and CES shall have the following license rights: 1) a perpetual, nonexclusive, worldwide, perpetual, paid-up license to use, execute, operate, reproduce, display, perform, distribute, modify, Develop, personalize and create Derivative Works from such Materials internally within CES and its Affiliates; and 2) the right to sublicense third parties to do any of the foregoing. 9.3 CES Developed Code With respect to any Materials whether or not Developed under this Agreement, which are or have been Developed solely by CES personnel, such Materials shall be owned by CES, and ISSC, at CES's sole option, shall have the following license rights: a) an irrevocable, nonexclusive, worldwide, paid-up license to use, execute, operate, reproduce, display, perform, distribute, modify, Develop, personalize and create Derivative Works from such Materials for the purpose of performing the Services for the sole benefit of and exclusive use by CES during the Term; and b) the right to sublicense third parties to do any of the foregoing. 9.4 General Rights a) At the expiration or earlier termination of this Agreement, so long as CES is not in arrears of its payment of monies due ISSC (other than amounts disputed by CES in accordance with Section 8.7), ISSC will grant to CES the following license rights in the Types II, III, IV and VII Materials: 1) an irrevocable, nonexclusive, worldwide, perpetual, paid up license to use, execute, operate, reproduce, display, perform, distribute, modify, Develop, personalize and create Derivative Works from the Materials internally for the sole benefit of and exclusive use by CES and its Affiliates in the operation of their businesses; and 2) the right to sublicense third parties to do any of the foregoing. b) Any ownership or license rights herein granted to either Party are limited by and subject to any patents and copyrights held by, and terms and conditions of any license agreements with, applicable third party software providers. c) To the extent any of the Materials may not, by operation of law, be owned by the Party to which ownership has been granted (as described in this Section 9), each Party agrees to assign (and take such actions and execute and deliver such documents as shall be necessary or appropriate to effect such assignment) and hereby assigns, without further consideration, the ownership of all right, title and interest in all U.S. and foreign copyrights and mask work rights (if any) and patents in such Materials to the other Party as set forth in this Section 9, and such assignee Party shall have the right to obtain and hold in its own name copyrights, registrations, renewals and all other rights relating or pertinent thereto. 37 d) The Parties agree to reproduce copyright legends which appear on any portion of the Materials which may be owned by third parties. e) This Agreement shall not preclude either Party from developing materials or providing services which are competitive to the Materials or Services which might be delivered pursuant to this Agreement subject to the limitations set forth in Section 4.3, except to the extent any of same may infringe any of the other Party's patent rights or copyrights or mask work rights. f) Except as set forth in Sections 4.3 and 10, nothing contained in this Agreement shall restrict either Party from the use of any ideas, concepts, know-how, or techniques relating to data processing or network management which either Party, individually or jointly, develops or discloses under this Agreement, except to the extent such use infringes any of either Party's patent rights or copyrights or mask work rights. However, except for the licenses expressly granted under this Section 9, neither this Agreement nor any disclosure made hereunder grants any license to either Party under any patents or copyrights or mask work rights of the other Party. 10. 0 Confidentiality/Data Security 10.1 Confidential Information ISSC and CES each acknowledge that the other possesses and will continue to possess information that has been created, discovered, developed by or acquired by such party, which information has commercial value in its business and is not in the public domain. "Confidential Information" means: information related to either Party and/or its Affiliates (i) which derives economic value, actual or potential, from not being generally known to or readily ascertainable by other persons who can obtain economic value from its disclosure or use; (ii) which is the subject of efforts that are reasonable under the circumstances to maintain its secrecy and (iii) all tangible reproductions of such information including, but not limited to, technical and nontechnical data related to the formulas, patterns, designs, compilations, programs, inventions, methods, techniques, drawings, processes, finances, actual or potential employees, customers and suppliers and existing and future products; provided, however, that all of either Party's information which falls within one of the categories of information set forth on Schedule M shall be deemed Confidential Information whether or not so marked. Schedule M may be modified by either party if the Party seeking modification obtains prior written consent from the other Party, which consent shall not be unreasonably withheld. All information that does not fall within a category set forth on Schedule M must be marked confidential, restricted or proprietary by either Party or its Affiliates to be deemed Confidential Information. 10.2 Obligations a) CES and ISSC will each use the same care to prevent disclosing to third parties the Confidential Information of the other as it employs to avoid disclosure, publication or dissemination of its own information of a similar nature but in no event less than a reasonable standard of care. Notwithstanding the foregoing, the Parties may disclose such information to subcontractors involved in providing Services under this Agreement where: 1) such disclosure is necessary to permit the subcontractor to perform its duties hereunder; 38 2) the subcontractor agrees in writing, under which the nondisclosing Party is a third party beneficiary for all purposes, to observe the confidentiality and restricted use and disclosure covenants and standards of care set forth in this Section 10 at the security levels as applicable to CES and ISSC respectively; and 3) the disclosing Party assumes full responsibility for the acts or omissions of its subcontractor, no less than if the acts or omissions were those of the disclosing Party. a) Without limiting the generality of the foregoing, neither Party will publicly disclose the terms of this Agreement, except to the extent permitted by Sections 10.3 and 16, without the prior written consent of the other. Furthermore, neither ISSC nor CES will: 1) make any use of the Confidential Information of the other except as contemplated by this Agreement; 2) acquire any right in or assert any lien against the Confidential Information of the other except as contemplated by this Agreement; or 3) refuse to promptly return, provide a copy of or destroy such Confidential Information upon the request of the other Party; provided, however, that except for those restrictions set forth in Section 4.3 and this Section 10, neither Party will be restricted in using any data processing or network management ideas, concepts, know-how and techniques, (including without limitation, in the development, manufacturing and marketing of its products and services and in its operations) which are retained in the minds of employees who have had access to the Confidential Information of such Party without reference to any physical or electronic embodiment of such information, unless such use shall infringe any of such Party's patent rights, copyrights or mask work rights. 10.3 Exclusions Notwithstanding the foregoing, this Section will not apply to any information which ISSC or CES can demonstrate was: a) at the time of disclosure to it, in the public domain; b) after disclosure to it, published or otherwise becomes part of the public domain through no fault of the receiving Party; c) without a breach of duty owed to the disclosing Party, is in the possession of the receiving Party at the time of disclosure to it; d) received after disclosure to it from a third party who had a lawful right to, and without a breach of duty owed to the disclosing Party, did disclose such information to it; or e) independently developed by the receiving Party without reference to Confidential Information of the furnishing Party. 39 Further, either Party may disclose Confidential Information of the other to the extent required by law or order of a court or governmental agency; provided, however, that the recipient of such Confidential Information must give the discloser prompt notice and make a reasonable effort to obtain a protective order or otherwise protect the confidentiality of such information, all at the discloser's cost and expense. It is understood that the receipt of Confidential Information under this Agreement will not limit or restrict assignment or reassignment of employees of ISSC and CES within or between the respective Parties and their Affiliates. 10.4 Protection of CES Information Any additional responsibilities of ISSC and CES with respect to protection of Confidential Information are set forth in Schedule L. 10.5 Loss of Confidential Information In the event of any disclosure or loss of, or use in violation of this Agreement of Confidential Information of a disclosing Party known to the receiving Party, the receiving Party will notify the disclosing Party immediately, orally or in writing. 10.6 Limitation a) That portion, if any, of the Confidential Information that constitutes trade secrets shall be subject to this Section 10 for such period as it shall qualify as trade secrets under applicable law. The remainder of the Confidential Information shall be subject to this Section 10 for a period of two years after the expiration or earlier termination of this Agreement. b) ISSC will not be responsible for the security of data during transmission via public communications facilities if the breach of security occurred through access to the public communications facilities, except to the extent that such breach of security is caused by the failure of ISSC to perform its security obligations under this Agreement, or the negligent acts or omissions of ISSC. 11. 0 Termination 11.1 Termination for Convenience Subject to the other provisions of this Agreement, CES may terminate this Agreement for CES's convenience beginning on the [CIO] upon at least [CIO] prior written notice to ISSC; provided, however, CES may terminate this Agreement for CES's convenience prior to such [CIO] if the [CIO]. If CES terminates this Agreement prior to the expiration of the Term for CES's convenience, CES agrees to pay ISSC on the effective date of termination either: a) the charge, as specified in the Supplement, ([CIO]) under [CIO] b) the [CIO] specified in the Supplement under [CIO] and [CIO]. 40 11.2 Termination for Change of Control In the event of a sale of stock of either Party resulting in the ability of the purchaser(s) of such stock to elect a majority of the board of directors of such Party, the merger of either Party with another entity, or the sale of all or substantially all of the assets of either Party to another entity, not effected solely for the purpose of permitting termination under this Section 11.2 ("Termination for Change of Control"), CES or its successor corporation in the case of a merger or the entity purchasing the assets of CES, may terminate this Agreement with [CIO] prior written notice to ISSC given not later than [CIO] after such Change of Control, upon payment of either: a) the [CIO] specified in the Supplement under [CIO] b) the [CIO] specified in the Supplement under [CIO]. 11.3 [CIO] a) No [CIO], however described, payable by CES to ISSC hereunder shall include any element of anticipated profit or revenue, lost opportunity or similar amounts. b) For purposes of this Agreement, "Wind-Down Expenses" shall mean ISSC's reasonable expenses related to the displacement of assets and personnel, and discontinuance of leases, licenses and contracts due to CES's early termination. c) Within [CIO] of the receipt of CES's notification of termination under the provisions of this Section 11, ISSC will provide CES an estimate of the amounts associated with the Wind- Down Expenses and will provide the actual Wind-Down Expenses not less than [CIO] prior to the effective date of termination. Further, ISSC will use commercially reasonable efforts to mitigate its Wind-Down Expenses, such efforts to include, without limitation, appropriate redeployment of assets and personnel. Wind-Down Expenses shall be reduced by all such mitigation anticipated, planned or realized by ISSC prior to termination. d) Upon CES's prior written notification, ISSC will include full payout of the ISSC Machines in the Data Center that are being used solely to provide the Services to CES in the Wind-Down Expenses for [CIO] for either termination for convenience or termination for Change of Control, and upon receipt of the [CIO] and Wind-Down Expenses, transfer title for such ISSC Machines to CES. e) The Parties agree that the charge(s) paid ISSC under either Sections 11.1 or 11.2 above are CES's sole and exclusive liability for termination under such provisions. 11.4 Termination Proration Any [CIO] will be prorated according to the following formula: [{(A-B),12 months} x C] + B = Prorated [CIO] where: 41 A = the [CIO] specified in the Supplement for the year in which termination is effective; B = the [CIO] specified in the Supplement for the year after the year in which termination is effective; and C = the number of months remaining during the year in which termination is effective. 11.5 Termination [CIO] Upon written notice, either Party may terminate this Agreement, without charge to the terminating Party, in the event of a [CIO] by the other; provided, however, any action or inaction by [CIO] for which [CIO] has made payments under Section 14.1(f) and/or [CIO] has received [CIO] in the form of [CIO], that are related to the grounds for termination under this Section, shall be specifically excluded from this provision unless [CIO] returned such [CIO] in accordance with Section 13 and/or such other payments made under Section 14.1(f). However, the Party seeking termination will provide the other Party with sufficient, reasonable written prior notice of such material breach, persistent or continuous breach(es) and the opportunity to cure same, as follows: a) in the event of a failure to pay any amount due and payable under this Agreement when due, at least [CIO], and b) in the event of any other material breach, or persistent or continuous breach(es) at least [CIO]. If the nature of any nonmonetary breach is such that it would be unreasonable to expect a cure within a [CIO] period, the breaching Party shall be given an additional [CIO] to cure such breach. In the event the material breach or persistent or continuous breach(es) are not cured within the periods specified above after delivery of the notice, the nonbreaching Party may terminate this Agreement, which termination shall be in writing, as of a date specified in such notice of termination. The terminating Party shall have all rights and remedies afforded by law or equity, subject to the limitations expressed in this Agreement. 11.6 [CIO] The Parties acknowledge that the [CIO] of [CIO] may have [CIO] on the [CIO] even if such [CIO] does not [CIO] that gives CES the [CIO] under [CIO] above; provided, however, any [CIO] or [CIO] by ISSC for which ISSC has provided [CIO] or CES has received [CIO] in the form of [CIO] that are related to the grounds for [CIO] under this Section shall be specifically excluded from this provision unless CES returned such [CIO]. In the event of such a [CIO], CES may, at its option, [CIO] as provided under [CIO], [CIO] to CES, which termination shall then become CES's [CIO]. If CES does not elect to [CIO] as provided under [CIO], then nothing in this Section 11.6 shall be deemed to limit or restrict the ability of CES to claim that a [CIO] constitutes a [CIO] and elect [CIO] CES [CIO] or otherwise pursuant to the provisions of this Agreement. 42 11.7 Extension of Service Except in the case of a termination of this Agreement due to a material breach by CES, CES may once request and ISSC will extend the provision of services for a period not to exceed [CIO] beyond the effective date of termination or expiration. Such request must be a written notice received not less than [CIO] prior to the effective date of termination or expiration of this Agreement; provided, however, CES may so request and ISSC will extend the provisions of Services beyond the effective date of termination or expiration [CIO] for the portion of the [CIO] period CES desires such extension of Services. 11.8 Other Rights Upon Termination So long as CES has complied with Section 8.7 and is not otherwise in default of monies due ISSC at the expiration or earlier termination of this Agreement: a) ISSC agrees to sell to CES or its designee, upon CES's request, the ISSC Machines at the Data Center then currently being used by ISSC on a dedicated basis to perform the Services at ISSC's accounting book value with such book value based on a [CIO] straight-line depreciation from initial entry on ISSC's books or, in the case of ISSC Machines that ISSC is leasing, at the lease buy-out charge based on a [CIO] lease period or, for ISSC Machines that have either been fully depreciated or the leases have expired and ISSC is the owner of such ISSC Machines, for the [CIO]. CES shall be responsible for any sales, use or similar taxes associated with the purchase of such equipment. b) For Software proprietary to ISSC and not otherwise owned by or licensed to CES in accordance with Section 9 and not generally commercially available, ISSC will provide a source code license, with the right to modify and own such modifications, to CES, for use only by CES and its Affiliates in the CES Business upon terms and prices (which prices shall not be greater than those offered to other Similarly Situated Customers or, in the case where no Similarly Situated Customers exist, other third parties generally) to be mutually agreed upon by the Parties or, at CES's option, ISSC will recommend a mutually agreeable commercially available substitute, if any, to perform the same function. c) With respect to generally commercially available Software, if ISSC has licensed or purchased and is using any such Software solely for providing the Services to CES at the date of expiration or termination, CES will reimburse ISSC for initial license or purchase charges, except to the extent that CES has already compensated ISSC for such investment, for such Software in an amount equal to the remaining unamortized cost of such Software, if any, depreciated over a [CIO] year life, and pay any transfer fee or charge imposed by any applicable vendor; provided, however, that ISSC shall bear the costs, if any, associated with the transfer of [CIO] upon termination. d) With respect to generally commercially available Software, if ISSC has licensed or purchased and is using any such Software for providing the Services to CES and other ISSC customers in a shared environment at the date of expiration or termination, ISSC will assist CES in obtaining licenses for such Software subject to CES's payment of any license fee or charge imposed by any applicable vendor. 43 e) Upon the date of expiration or termination of this Agreement, CES shall have the right to make offers of employment to any or all ISSC employees performing Services for CES or its Affiliates hereunder ("CES Service Employees"). Promptly after either Party sends the other written notice of termination or expiration, ISSC agrees to supply CES, at no charge, with the names and resumes requested by CES for the purpose of exercising its rights under this Section. CES's rights under this Section will take precedence over any ISSC/employee employment contract or covenant that may otherwise limit an employee's right to accept employment with CES. f) ISSC will transfer or assign to CES or its designee, upon CES's request, on mutually acceptable terms and conditions, subject to the payment by CES of any transfer fee or charge imposed by the applicable vendors, any contracts applicable solely to services being provided to CES for maintenance, Disaster Recovery services and other necessary third party services (other than subcontractor services) then being used by ISSC to perform the Services. g) ISSC will provide Services Transfer Assistance pursuant to Section 7.9. h) ISSC will use commercially reasonable efforts to negotiate license arrangements with third parties that will minimize the amount of license transfer fees to be paid by CES. 12. 0 Liability 12.1 General Intent Each Party's and each of its subcontractor's entire monetary liability to the other Party and its exclusive remedies for monetary damages are set forth in this Section, in Schedule E (Service Credits) and in Section 14 (Indemnities). Subject to the specific provisions of this Section, it is the intent of the Parties that each Party will be liable to the other Party for any damages incurred by the nonbreaching Party as a result of the breaching Party's failure to perform its obligations in the manner required by this Agreement. 12.2 Damages a) Each Party's and each of its subcontractor's liability for actual, direct monetary liability arising out of or resulting from the other Party's and each of its subcontractor's performance or non-performance under this Agreement regardless of the form of the action (whether in contract, tort, warranty or other legal or equitable grounds), will be limited [CIO] breach by such Party and its subcontractors, to [CIO](the [CIO]). Actual, direct damages shall include, by way of example but without limitation, the costs of cover incurred by CES to obtain services which are the same as or substantially similar to the Services, the costs incurred by CES to transition to another provider of information technology services and/or taking some or all of such functions and responsibilities in-house, the difference in the amounts to be paid to ISSC hereunder and the charges to be paid to such other provider and/or the costs of providing such functions and responsibilities in-house, and similar damages. The [CIO] shall be [CIO] in any or all of the following three ways: 1) reduced by the amount of [CIO] actually paid by [CIO] pursuant to [CIO] hereof; 44 2) as described in [CIO] if the [CIO] set forth in [CIO] is not [CIO] or is [CIO]; and 3) if the ASC is adjusted pursuant to [CIO]. b) In the event ISSC [CIO] to provide the Services in accordance with [CIO], ISSC [CIO] according to the schedule set forth in [CIO] (each, a [CIO]); collectively, the [CIO] ) against the amounts owed to ISSC in respect of the [CIO] following the [CIO] in which the [CIO] was (were) incurred. c) The [CIO] shall not apply to any of the following: 1) any failure by CES to pay any amounts due and payable but remaining unpaid to ISSC pursuant to the terms of this Agreement; 2) Losses covered by either Party's obligation to indemnify the other Party under Sections 14.1(a), 14.1(c), 14.1(d), 14.1(e), 14.2(a), 14.2(c), 14.2(d) and 14.2(e), respectively; 3) Losses incurred by either Party caused by or arising out of the inaccuracy or untruthfulness of the representations and warranties of the other Party contained in this Agreement; 4) amounts to be [CIO] to [CIO] by [CIO] pursuant to [CIO] in the form [CIO]; and 5) Losses arising from a violation of Section 10.0 Confidentiality/Data Security of this Agreement. d) In no event will either Party have any liability whether based on contract, tort (including, without limitation, negligence), warranty or any other legal or equitable grounds, for any damages other than the actual, direct damages described in Section 12.2(a), (b) and (c) including without limitation, any other damages constituting: 1) loss of interest, profit or revenue of the other Party; or 2) any consequential, indirect, incidental, special, punitive or exemplary damages suffered by the other Party, arising from or related to this Agreement, even if such Party has been advised of the possibility of such losses or damages; provided, however, that this clause will not prevent either Party from recovering accrued but unpaid credits and amounts due under this Agreement. e) In no event will ISSC or its subcontractors be liable for any damages if and to the extent caused by CES's failure to perform its responsibilities, nor shall CES or its subcontractors be liable for any damages if and to the extent caused by any failure to perform by ISSC or its subcontractors. 45 13. 0 Remedies If ISSC's provision of the Services is such that ISSC would otherwise owe CES a [CIO], CES may, at its option: a) seek [CIO] subject to the limitations specified in Section 12.2; or b) recover as [CIO] the [CIO]; provided, however, CES may [CIO], which are related to [CIO] under Sections 11.5 and 11.6, received from ISSC hereunder within [CIO] after CES's receipt thereof and seek in lieu thereof [CIO]. If [CIO] does not return a [CIO] prior to the end of such [CIO] period, [CIO] recovery of the [CIO] shall constitute acknowledgement of [CIO] of full satisfaction of any claim by [CIO] that [CIO] has [CIO] its obligations under this Agreement with respect to such event or said events giving rise to the applicable [CIO]. 13.1 Warranty 13.2 Work Standards ISSC represents and warrants that: a) it has [CIO], rights and [CIO] to provide and perform the Services; and b) it has [CIO] and [CIO] the Services or [CIO] that are [CIO] to the Services for other customers. CES represents that: a) CES is authorized to permit ISSC access to and use of the CES Facilities and ISSC is performing a portion of the Services for CES at the CES Facilities at CES's request; and b) if the CES Facilities are found not to be in compliance with all material applicable federal, state and local environmental laws regarding hazardous substances by an applicable governmental regulatory authority, ISSC may remove the ISSC Project Executive from the CES Facility until such noncompliance is remedied. 13.3 Ownership of CES-Retained Machines CES represents that CES is either the owner of each CES-Retained Machine or is authorized by its owner to include it under this Agreement. 13.4 Noninfringement The Parties represent and warrant that they will perform their responsibilities under this Agreement in a manner that does not infringe, or constitute an infringement or misappropriation of, any patent, trade secret, copyright or other proprietary right of any third party. Notwithstanding this provision 46 or any other provision in this Agreement, CES makes no warranty or representation with respect to any claims for such infringement or misappropriation by virtue of its compliance with obligations herein to provide ISSC access to, use of or benefits of the software licenses, leases and related contracts prior to receiving the necessary Required Consents. 13.5 Compliance with Obligations Each Party represents and warrants that its entry into this Agreement does not violate or constitute a breach of any of its contractual obligations with third parties. Notwithstanding this provision or any other provision in this Agreement, CES makes no warranty or representation with respect to any claims for violation or breach of any of its contractual obligations by virtue of its compliance with obligations herein to provide ISSC use of the objects of such arrangements prior to receiving the necessary Required Consents. 13.6 Disclaimer a) ISSC does not warrant the accuracy of any advice, report, data or other product delivered to CES to the extent any inaccuracies are caused by data and/or Software provided by CES, and such products are delivered AS IS, and ISSC shall not be liable for any inaccuracy thereof. ISSC will promptly notify CES of any such inaccuracies of which ISSC becomes aware and the cause therefore and will provide reasonable assistance to CES to remedy the problem. b) Subject to the obligations of ISSC contained in this Agreement and the Supplement and Schedules referenced herein, ISSC does not assure uninterrupted or error-free operation of the ISSC Machines. c) EXCEPT AS PROVIDED IN THIS AGREEMENT, THERE ARE NO OTHER EXPRESS WARRANTIES AND THERE ARE NO IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 13.7 Disabling Code Each Party represents and warrants that, without the prior written consent of the other Party, it will not insert into the Software any code which would have the effect of disabling or otherwise shutting down all or any portion of the Services. Each Party further represents and warrants that, with respect to any disabling code that may be part of the Software, it will not invoke such disabling code at any time, including upon expiration or termination of this Agreement for any reason, without the other Party's prior written consent. 13.8 Authorization and Enforceability Each Party hereby represents that: a) it has all requisite corporate power and authority to enter into this Agreement and to carry out the transactions contemplated hereby; 47 b) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of each Party; and c) this Agreement has been duly executed and delivered by such Party and (assuming the due authorization, execution and delivery hereof by the other Party) is a valid and binding obligation of such Party, enforceable against it in accordance with its terms. 13.9 Regulatory and Corporate Proceedings Each Party agrees to obtain all necessary regulatory approvals applicable to its business, obtain any necessary permits, and comply with any regulatory requirement applicable to the performance of the Services. 14.0 Indemnities 14.1 Indemnity by ISSC ISSC agrees to indemnify, defend and hold CES, its Affiliates and their respective officers, directors, employees, agents, successors and assigns harmless, in accordance with the procedures described in Section 14.6 from and against any and all Losses incurred by CES, caused by, arising from or in connection with: a) any Claims of infringement made against CES of any United States letters patent, or any copyright, trademark, service mark, trade name, trade secret or similar proprietary rights conferred by contract or by common law or by any law of the United States or any state, alleged to have occurred because of equipment, systems, products or other resources or items provided to CES by ISSC; provided, however, that ISSC will have no obligation with respect to any Losses to the extent the same are caused by, arise out of or arise in connection with CES's modification of a program or a machine or CES's combination, operation or use with devices, data or programs not furnished by ISSC or its subcontractors; b) the inaccuracy or untruthfulness of any representation or warranty made by ISSC under this Agreement; c) any amounts, including but not limited to taxes, interest and penalties assessed against CES which are obligations of ISSC pursuant to Section 7.7; d) personal injuries, death or damage to tangible personal or real property of third parties, including employees of ISSC, its contractors or subcontractors; provided, however, that ISSC will have no obligation with respect to any Losses, under this part, to the extent the same are caused by, arise out of or arise in connection with the negligence of CES; e) any Claims by third parties arising out of or resulting from the failure to obtain any [CIO] as of the Commencement Date and applicable to [CIO], where CES has used commercially reasonable efforts to obtain such [CIO] and 48 f) notwithstanding anything to the contrary contained in [CIO] hereof, any amounts that are [CIO]; provided, however, that ISSC shall not be required to indemnify CES for charges incurred under this Section 14.1(f) if: 1) CES does not cooperate with ISSC to mitigate the charges incurred under this Section 14.1(f) to the same degree CES sought to mitigate such charges prior to the Commencement Date; 2) After notifying ISSC of the [CIO], CES does not allow ISSC to participate in CES's efforts to mitigate any charges incurred under Section 14.1(f), after being notified in writing of ISSC's desire to so participate; 3) The charges are incurred under a process and/or during a window of time that is substantially different from those processes and time windows utilized as of the Commencement Date (which the Parties agree to document by a mutually agreed upon date) to the extent that the change in the process or window of time, without ISSC's consent, which will not be unreasonably withheld, causes the charges to be incurred; 4) The charges are incurred as a result of an [CIO] of this Agreement that occurred more than [CIO] previously for which CES has received a [CIO] and has not elected to return such [CIO] in accordance with Section 13 hereof. In the event and to the extent that a Claim is made by an employee of ISSC or its contractors or subcontractors providing Services hereunder against CES, its Affiliates and their respective directors, officers, employees or agents, the intent of this Agreement is that ISSC shall indemnify CES, its directors, officers, employees and agents, to the same extent as if the Claim was made by a non-employee of ISSC or its contractors or subcontractors. Accordingly, in addition to other provisions herein, and in order to render the Parties' intent and this indemnification agreement fully enforceable, ISSC, in an indemnification Claim hereunder, expressly and without reservation waives any defense or immunity it may have under any applicable Workers' Compensation Law(s) or any other statute or judicial decision disallowing or limiting such indemnification and consents to a cause of action for indemnity. Said waiver and consent to indemnification is made irrespective of and specifically waiving, only between the Parties, any defense or immunity under any statute or judicial decision. 14.2 Indemnity by CES CES agrees to indemnify, defend and hold ISSC, its Affiliates and their respective officers, directors, employees, agents, successors and assigns harmless, in accordance with the procedures described in Section 14.6, from and against any and all Losses incurred by ISSC, caused by, arising from or in connection with: a) any Claims of infringement made against ISSC of any United States letters patent, or any copyright, trademark, service mark, trade name, trade secret or similar proprietary rights conferred by contract or by common law or by any law of the United States or any state, alleged to have occurred because of equipment, systems, products or other resources or items 49 provided to ISSC by CES hereunder; provided, however, that CES will have no obligation with respect to any Losses to the extent the same are caused by, arise out of, or arise in connection with ISSC's modification of a program or machine or ISSC's combination, operation or use with devices, data or programs not furnished by CES; b) the inaccuracy or untruthfulness of any representation or warranty made by CES under this Agreement; c) any amounts, including but not limited to taxes, interest and penalties, assessed against ISSC which are obligations of CES pursuant to Section 7.7; d) personal injuries, death or damage to tangible personal or real property of third parties, including employees of CES, its contractors and subcontractors; provided however, that CES will have no obligation with respect to any Losses, under this part, to the extent the same are caused by, arise out of or arise in connection with the negligence of ISSC or its contractors or subcontractors; and e) any Claim by third parties arising out of or in connection with CES's disposition of the [CIO] pursuant to Section [CIO]. In the event and to the extent that a Claim is made by an employee of CES against ISSC or its contractors or subcontractors, its Affiliates and their respective directors, officers, employees and agents, the intent of this Agreement is that CES shall indemnify ISSC, its directors, officers, employees and agents, to the same extent as if the Claim was made by a non-employee of CES or its contractors or subcontractors.. Accordingly, in addition to other provisions herein, and in order to render the Parties' intent and this indemnification agreement fully enforceable, CES, in an indemnification Claim hereunder, expressly and without reservation waives any defense or immunity it may have under any applicable Workers' Compensation Law(s) or any other statute or judicial decision disallowing or limiting such indemnification and consents to a cause of action for indemnity. Said waiver and consent to indemnification is made irrespective of and specifically waiving, only between the Parties, any defense or immunity under any statute or judicial decision. 14.3 Employment Actions It is understood and agreed that ISSC shall be solely and exclusively responsible for personnel decisions (including hiring, promotions, training, compensation, evaluation, discipline, and discharge) affecting ISSC's employees, contractors and agents except as specified in Section 4.1. CES shall be solely and exclusively responsible for personnel decisions (including hiring, promotion, training, compensation, evaluation, discipline and discharge) affecting CES's employees, contractors, and agents. 14.4 Cross Indemnity and Contribution Each Party agrees to contribute to the amount paid or payable by the other Party for any and all Losses for which such Party is legally liable and in proportion to such Party's comparative fault in causing such Losses, arising in favor of any person, corporation or other entity, including the Parties hereto and their employees, contractors and agents, on account of personal injuries, death or damage to tangible personal or real property in any way incident to, or in connection with or arising out of: a) this Agreement; 50 b) the Services provided by ISSC hereunder; c) the presence of such Party, its employees, contractors or agents on the premises of the other Party; or d) the act or omission of such Party, its employees, contractors or agents. 14.5 Exclusive Remedy The indemnification rights of each Indemnified Party for third party Claims pursuant to Sections 14.1, 14.2, 14.3 or 14.4, together with the Indemnified Party's right to recover any and all Losses under this Agreement or otherwise caused by, arising out of or arising in connection with the event or facts that give rise to such indemnification right, shall be the exclusive remedy of such Indemnified Party with respect to each such third party Claim to which such indemnification relates. 14.6 Indemnification Procedures a) If any civil, criminal, administrative or investigative action or proceeding is commenced or threatened (any of the above being a "Claim") against any Party entitled to indemnification under Sections 14.1, 14.2 or 14.3 (an "Indemnified Party") written notice thereof shall be given to the Party that is obligated to provide indemnification under such Sections (the "Indemnifying Party") as promptly as practicable but in all events, within a period that will not prejudice the rights of the Indemnifying Party under this Agreement or to defend the Claim. After such notice, if the Indemnifying Party shall acknowledge in writing to such Indemnified Party that this Agreement applies with respect to such Claim, then the Indemnifying Party shall be entitled, if it so elects, in a written notice delivered to the Indemnified Party not fewer than [CIO] prior to the date on which a response to such Claim is due or such lesser period as is reasonable given the nature of the Claim and the notice and response time permitted by law or the facts and circumstances, to take control of the defense and investigation of such Claim and to employ and engage attorneys of its sole choice to handle and defend the same, at the Indemnifying Party's sole cost and expense. The Indemnified Party shall cooperate in all reasonable respects with the Indemnifying Party and its attorneys in the investigation, trial and defense of such Claim and any appeal arising therefrom; provided, however, that the Indemnified Party may, at its own cost and expense, participate, through its attorneys or otherwise, in such investigation, trial and defense of such Claim and any appeal arising therefrom. No settlement of a Claim that involves a remedy other than the payment of money by the Indemnifying Party shall be entered into without the consent of the Indemnified Party, which consent will not be unreasonably withheld. b) After notice by the Indemnifying Party to the Indemnified Party of its election to assume full control of the defense of any such Claim, the Indemnifying Party shall not be liable to the Indemnified Party for any legal expenses incurred thereafter by such Indemnified Party in connection with the defense of that Claim. If the Indemnifying Party does not promptly assume full control over and diligently pursue the defense of a Claim subject to such defense as provided in this Section 14.6, the Indemnifying Party may participate in such defense, at its sole cost and expense, and the Indemnified Party shall have the right to defend, settle or otherwise resolve the Claim in such manner as it may deem appropriate, at the cost and expense of the Indemnifying Party, provided, however, any settlement of the Claim shall require the consent of the Indemnifying Party which consent shall not be unreasonably withheld. 51 15. 0 Insurance and Risk of Loss 15.1 ISSC Insurance During the Term of this Agreement, ISSC and any ISSC contractor and subcontractor shall maintain and keep in force, at its own expense, the following minimum insurance coverages and minimum limits: a) Workers' Compensation Insurance, the statutory limits as required by the various laws and regulations applicable to the employees of ISSC or any ISSC contractor or subcontractor. b) Employer's Liability Insurance, for employee bodily injuries and deaths, with a limit of [CIO] each accident. c) Comprehensive or Commercial General Liability Insurance, covering claims for bodily injury, death and property damage, including Premises and Operations, Independent Contractors, Products and Completed Operations, Personal Injury, Contractual, and Broad-form Property Damage liability coverages, with limits as follows: 1) Occurrence/Aggregate Limit of [CIO] for bodily injury, death and property damage each occurrence of [CIO] general aggregate; or 2) Split liability limits of: (a) [CIO] for bodily injury per person; (b) [CIO] for bodily injury per occurrence; (c) [CIO] for property damage. d) Comprehensive Automobile Liability Insurance, covering owned, non-owned and hired vehicles, with limits as follows: 1) Combined Single Limit of [CIO] for bodily injury, death and property damage per occurrence; or 2) Split liability limits of: (a) [CIO] for bodily injury per person; (b) [CIO] for bodily injury per occurrence; (c) [CIO] for property damage. e) All-Risk Property Insurance, on a replacement cost basis, covering the real property of ISSC which ISSC is obligated to insure by this Agreement. Such real property may include buildings, equipment, furniture, fixtures and supply inventory. All such policies of insurance of ISSC and its contractors and subcontractors shall provide that the same shall not be canceled nor the coverage modified nor the limits changed without first [CIO] 52 prior written notice thereof to CES. No such cancellation, modification or change shall affect ISSC's obligation to maintain the insurance coverages required by this Agreement. ISSC shall be responsible for payment of any and all deductibles from insured claims under its policies of insurance. The coverage afforded under any insurance policy obtained by ISSC pursuant to this Agreement shall be primary coverage regardless of whether or not CES has similar coverage. ISSC or its contractors and subcontractors shall not perform under this Agreement unless and until certificates of such insurance, including renewals thereof, have been delivered to and approved by CES. ISSC shall have the right to self-insure any of the insurance coverages required by this Agreement upon prior written notification to CES. Unless previously agreed to in writing by CES, ISSC's contractors and subcontractors shall comply with the insurance requirements herein. The minimum limits of coverage required by this Agreement may be satisfied by a combination of primary and excess or umbrella insurance policies. If ISSC or its contractors or subcontractors shall fail to comply with any of the insurance requirements herein, upon written notice to ISSC by CES, CES may, without any obligation to do so, procure such insurance and ISSC shall pay CES the cost thereof plus a reasonable administrative fee as designated by CES. The maintenance of the insurance coverages required under this Agreement shall in no way operate to limit the liability of ISSC to CES under the provisions of this Agreement. 15.2 CES Insurance During the Term of this Agreement, CES shall maintain and keep in force, at its own expense, the following minimum insurance coverages and minimum limits: a) Workers' Compensation Insurance, with statutory limits as required by the various laws and regulations applicable to the employees of CES. b) Employer's Liability Insurance, for employee bodily injuries and deaths, with a limit of [CIO] each accident. c) Comprehensive or Commercial General Liability Insurance, covering claims for bodily injury, death and property damage, including Premises and Operations, Independent Contractors, Products and Completed Operations, Personal Injury, Contractual, and Broad-form Property Damage liability coverages, with limits as follows: 1) Occurrence/Aggregate Limit of [CIO] for bodily injury, death and property damage each occurrence and [CIO] general aggregate; or 2) Split liability limits of: (a) [CIO] for bodily injury per person; (b) [CIO] for bodily injury per occurrence; 53 (c) [CIO] for property damage. d) Comprehensive Automobile Liability Insurance, covering owned, non-owned and hired vehicles, with limits as follows: 1) Combined Single Limit of [CIO] for bodily injury, death and property damage per occurrence; or 2) Split liability limits of: (a) [CIO] for bodily injury per person; (b) [CIO] for bodily injury per occurrence; (c) [CIO] for property damage. e) All-Risk Property Insurance, on a replacement cost basis, covering the real property of CES which CES is obligated to insure by this Agreement. Such real property may include buildings, equipment, furniture, fixtures and supply inventory. All such policies of insurance of CES shall provide that the same shall not be canceled nor the coverage modified nor the limits changed without first giving [CIO] prior written notice thereof to ISSC. No such cancellation, modification or change shall affect CES's obligation to maintain the insurance coverages required by this Agreement. CES shall be responsible for payment of any and all deductibles from insured claims under its policies of insurance. The coverage afforded under any insurance policy obtained by CES pursuant to this Agreement shall be primary coverage regardless of whether or not ISSC has similar coverage. CES shall not perform under this Agreement unless and until certificates of such insurance, including renewals thereof, have been delivered to and approved by ISSC. CES shall have the right to self-insure any of the insurance coverages required by this Agreement upon prior written notification to ISSC. The minimum limits of coverage required by this Agreement may be satisfied by a combination of primary and excess or umbrella insurance policies. If CES shall fail to comply with any of the insurance requirements herein, upon written notice to CES by ISSC, ISSC may, without any obligation to do so, procure such insurance and CES shall pay ISSC the cost thereof plus a reasonable administrative fee as designated by ISSC. The maintenance of the insurance coverages required under this Agreement shall in no way operate to limit the liability of CES to ISSC under the provision of this Agreement. 15.3 Risk of Property Loss CES is responsible for risk of loss of, or damage to, the CES- Retained Machines and other CES property regardless of where located, and loss or damage to software on the CES-Retained Machines or any Software in CES's possession at the time of such loss or damage. ISSC is responsible for risk of loss of, or damage to, the ISSC Machines and other ISSC property regardless of where located, and loss or damage to Software in ISSC's possession at the time of such loss or damage. 54 15.4 Mutual Waiver of Subrogation a) To the extent permitted by law, ISSC and its contractors and subcontractors hereby waive their rights of subrogation against CES, its directors, officers, employees and agents for any loss or damage to the Machines and other tangible real property of ISSC, its contractors and subcontractors resulting from operations in connection with this Agreement. Each property insurance policy of ISSC and its contractors and subcontractors shall be endorsed to provide a waiver of any and all rights of subrogation against CES, its directors, officers, employees and agents for loss resulting from operations in connection with this Agreement. b) To the extent permitted by law, CES, its directors, officers, employees and agents hereby waive their rights of subrogation against ISSC and its contractors and subcontractors for any loss or damage to the Machines and other tangible real property of CES, its directors, officers, employees and agents resulting from operations in connection with this Agreement. 16. 0 Publicity Each Party will submit to the other all advertising, written sales promotion, press releases and other publicity materials relating to this Agreement in which the other Party's name or mark is mentioned or language from which the connection of said name or mark may be inferred or implied, and will not publish or use such advertising, sales promotion, press releases, or publicity materials without prior written approval of the other Party. However, either Party may include the other Party's name and a factual description of the work performed under this Agreement on employee bulletin boards, in its list of references and in the experience section of proposals to third parties, in internal business planning documents and in its annual report to stockholders, and whenever required by reason of legal, accounting or regulatory requirements. 17. 0 Review Committee and Dispute Resolution 17.1 Joint Advisory Committee ISSC and CES agree to create a Joint Advisory Committee consisting of two people of the following titles from each Party: ISSC 1) Director, Cross-Industry Applications and Business Services 2) ISSC Project Executive CES 1) Vice-President, Technology 2) CES Project Executive The Joint Advisory Committee will: a) conduct quarterly reviews of the progress of the Services; 55 b) annually review the operating and strategic plans prepared by the Project Executives; c) review, on an annual basis, performance objectives and measurements; d) provide advice and direction on technology changes; and e) resolve disputes between the Parties. 17.2 Dispute Resolution a) Any dispute between the Parties either with respect to the interpretation of any provision of this Agreement or with respect to the performance by ISSC or by CES hereunder shall be resolved as specified in this Section 17.2, as follows: 1) Upon the written request of either Party, each of the Parties will appoint a designated representative who does not devote substantially all of his or her time to performance under this Agreement, whose task it will be to meet for the purpose of endeavoring to resolve such dispute. 2) The designated representatives shall meet as often as necessary to gather and furnish to the other all information with respect to the matter in issue which is appropriate and germane in connection with its resolution. 3) Such representatives shall discuss the problem and negotiate in good faith in an effort to resolve the dispute without the necessity of any formal proceeding relating thereto. 4) During the course of such negotiation, all reasonable requests made by one Party to the other for nonprivileged information reasonably related to this Agreement, will be honored in order that each of the Parties may be fully advised of the other's position. 5) The specific format for such discussions will be left to the discretion of the designated representatives but may include the preparation of agreed upon statements of fact or written statements of position furnished to the other Party. b) If the designated representatives cannot resolve the dispute, then the dispute shall be escalated to the President of CES and the President of ISSC, for their review and resolution. If the dispute cannot be resolved by such officers, then the Parties may initiate formal proceedings; however, formal proceedings for the judicial resolution of any such dispute may not be commenced until the earlier of: 1) the designated representatives, concluding in good faith that amicable resolution through continued negotiation of the matter in issue does not appear likely; or 2) [CIO] after the initial request to negotiate such dispute; or 3) [CIO] before the statute of limitations governing any cause of action relating to such dispute would expire; provided, however, that the pendency of this dispute resolution procedure shall not prevent either Party from seeking equitable relief with respect to a dispute prior to such period. 56 17.3 Continued Performance Both Parties agree to continue performing their respective obligations under this Agreement while any dispute is being resolved unless and until such obligations are terminated or expire in accordance with the provisions hereof. 18. 0 General 18.1 Control of Services a) This Agreement shall not be construed as constituting either Party as partner of the other or to create any other form of legal association that would impose liability upon one Party for the act or failure to act of the other or as providing either Party with the right, power or authority (express or implied) to create any duty or obligation of the other Party. b) Each Party shall be responsible for the management, direction and control of its employees and such employees shall not be employees of the other Party. 18.2 Right to Perform Services for Others Each Party recognizes that ISSC personnel providing Services to CES under this Agreement may perform similar services for others and this Agreement shall not prevent ISSC from using the personnel and equipment provided to CES under this Agreement for such purposes subject only to the restrictions set forth in Sections 4.1, 4.3 and 10. ISSC may perform its obligations through its subsidiaries, Affiliates or through the use of ISSC-selected independent contractors; provided, however, that ISSC shall not be relieved of its obligations under this Agreement by use of such subsidiaries, Affiliates, or subcontractors. 18.3 Scope of Services The Services provided under this Agreement are for ISSC Machines and facilities located within the United States, Puerto Rico or Guam. 18.4 Amendments and Revisions No changes or modifications to this Agreement, its Supplement and Schedules may be made orally, but only by a written amendment or revision signed by both Parties. 18.5 Force Majeure a) Neither Party shall be liable for any default or delay in the performance of its obligations hereunder if and to the extent such default or delay is caused, directly or indirectly, by fire, flood, earthquake, elements of nature or acts of God, acts of war, terrorism, riots, civil disorders, rebellions or revolutions in the United States, strikes, lockouts, or labor difficulties (other than in the case of ISSC, strikes, lockouts or labor difficulties initiated by ISSC's employees or, in the case of CES, strikes, lockouts, or labor difficulties initiated by CES's or its subcontractor's employees), or any other similar cause beyond the reasonable control of such Party (individually, each being a "Force Majeure Event"); provided such Force Majeure Event could not have been prevented by reasonable precautions and cannot 57 reasonably be circumvented by the nonperforming Party through the use of alternate sources, work-around plans or other means. b) In such event, the nonperforming Party will be excused from any further performance or observance of the obligation(s) so affected for as long as such circumstances prevail and such Party continues to use commercially reasonable efforts to recommence performance or observance whenever and to whatever extent possible without delay. Any Party so delayed in its performance will immediately notify the other by telephone (to be confirmed in writing within [CIO] of the inception of such delay) and describe at a reasonable level of detail the circumstances causing such delay. c) This Section 18.5 does not limit or otherwise affect ISSC's obligation to provide Disaster Recovery services in accordance with Schedule G in the event that Site 1 and Site 2 simultaneously experience conditions that cause such Disaster Recovery services to be invoked, or if (1) prior to the scheduled inception of the provision of Services from Site 2 or, (2) if CES does not elect to implement Site 2, in the event that Site 1 experiences such conditions. d) If ISSC materially breaches its obligations to provide Disaster Recovery Services in accordance with Schedule G, CES may terminate this Agreement pursuant to Section 11.5 without regard to the cure periods, provided that CES gives ISSC written notice of termination within [CIO] of the alleged breach. Nothing in this subsection shall be deemed to otherwise limit CES's right to terminate pursuant to Section 11.5 subject to the cure periods stated therein. 18.6 Nonperformance Except as otherwise provided in this Agreement, to the extent any nonperformance by either Party of its nonmonetary obligations under this Agreement results from or is caused by the other Party's failure to perform its nonmonetary obligations under this Agreement, such nonperformance shall be excused. 18.7 Remarketing CES may not remarket all or any portion of the Services provided under this Agreement, or make all or any portion of the Services available to any party, without the prior written consent of ISSC; provided, however, CES may [CIO] subject to the following limitations: a) CES shall independently [CIO]; b) CES does not utilize ISSC's [CIO]; c) CES discloses to its [CIO]; 58 d) CES will seek ISSC's approval of a potential [CIO] prior to CES's initiating [CIO] for such [CIO], which approval shall only be withheld pursuant to ISSC's contractual obligations to its [CIO] and which approval ISSC shall use commercially reasonable efforts to timely obtain for CES; e) if CES's activities for an [CIO] cause ISSC to fail to meet a Minimum Service Level, ISSC shall be excused from such failure to the extent ISSC demonstrates that the failure was caused by such [CIO] activities; and f) if ISSC incurs incremental costs in connection with any such [CIO] of the [CIO], such costs will be treated as a New Service in accordance with Section 7.6 hereof. Nothing herein may be construed to limit or hinder CES from (i) marketing, selling or performing its employee services to and for its customers and/or (ii) from providing any portion of the Services to its Affiliates. 18.8 Waiver No waiver of any breach of any provision of this Agreement shall constitute a waiver of any prior, concurrent or subsequent breach of the same or any other provisions hereof. 18.9 Severability If any provision of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby, and such provision shall be deemed to be restated to reflect the original intentions of the Parties as nearly as possible in accordance with applicable law(s). 18.10 Limitations Period upon Termination Neither Party may bring an action, regardless of form, arising out of this Agreement more than [CIO] after the cause of action has arisen or the date such cause of action was or should have been discovered. 18.11 Counterparts This Agreement shall be executed in duplicate counterparts. Each such counterpart shall be an original. 18.12 Governing Law This Agreement shall be governed by the laws of the State of Georgia as such laws are applied to contracts which are entered into and performed entirely within the State of Georgia. 59 18.13 Binding Nature and Assignment This Agreement will be binding on the Parties and their respective successors and permitted assigns. For purposes of this Agreement, a "Change of Control" of a Party or a merger of a Party or a sale of all or substantially all of the assets of a Party shall not be deemed a prohibited assignment of this Agreement; provided, however, in the case of a purchase of all or substantially all of the assets of a Party, the purchasing entity must be at least as credit worthy as the Party was as of the Commencement Date. Further, the Party must assign this Agreement in writing to the entity purchasing the assets, and the Party shall be released from all obligations and liability hereunder upon the execution by the entity purchasing the assets of a full and unconditional assumption of all obligations of the Party under this Agreement without further modification or amendment to this Agreement. Except as provided in the first paragraph of this Section 18.13, neither Party may, or will have the power to, assign this Agreement without the prior written consent of the other, except that either Party may assign its rights and obligations under this Agreement, without the approval of the other, to an Affiliate which expressly assumes such Party's obligations and responsibilities hereunder, provided that the assigning Party remains fully liable for and shall not be relieved from the full performance of all obligations under this Agreement. Any attempted assignment that does not comply with the terms of this Section 18.13 shall be null and void. Any Party assigning its rights or obligations to an Affiliate in accordance with this Agreement shall, within three business days of such assignment, provide written notice thereof to the other Party together with a copy of the assignment document. 18.14 Notices a) Under this Agreement whenever one Party is required or permitted to give notice to the other, such notice will be in writing unless otherwise specifically provided herein and will be deemed given when delivered in hand, [CIO] after being given to an express courier with a reliable system for tracking delivery, or [CIO] after the day of mailing, when mailed by United States mail, registered or certified mail, return receipt requested, postage prepaid, or when sent by facsimile and thereafter delivered by one of the foregoing methods of delivery. b) Notifications will be addressed as follows: 1) For termination, breach or default, notify: In the case of ISSC: ISSC Project Executive 300 Embassy Row Atlanta, Georgia 30328 Facsimile: 404-353-2099 60 with a courtesy, but not legally required, copy to: ISSC General Counsel 44 South Broadway White Plains, New York 10601 Facsimile: 914-288-1167 In the case of CES: CES Director of Data Services 300 Embassy Row Atlanta, Georgia 30328 Facsimile: 404-353-2099 with a courtesy, but not legally required, copy to: CES General Counsel 8100 34th Avenue South Minneapolis, Minnesota 55425-1640 Facsimile: 612-853-4555 2) For all other notices: In the case of ISSC: ISSC Project Executive 300 Embassy Row Atlanta, Georgia 30328 Facsimile: 404-353-2099 In the case of CES: CES Director of Data Services 300 Embassy Row Atlanta, Georgia 30328 Facsimile: 404-353-2099 Either Party hereto may from time to time change its address for notification purposes by giving the other prior written notice of the new address and the date upon which it will become effective. 18.15 No Third Party Beneficiaries Except as specified in Sections 10 and 15 with respect to either Party's contractors or subcontractors, the Parties do not intend, nor will any clause be interpreted, to create for any third party any obligations to or benefit from either ISSC or CES. 61 18.16 Other Documents On or after the Commencement Date and the date(s) of any amendments or revisions hereto and at the request of the other Party, each Party shall furnish to the other such certificate of its Secretary, certified copy of resolutions of its Board of Directors, or opinion of its counsel as shall evidence that this Agreement or any amendment or revision hereto has been duly executed and delivered on behalf of such Party. 18.17 Consents and Approvals The Parties agree that in any instance where consent, approval or agreement is required of a Party in order for the other Party to perform under or comply with the terms and conditions of this Agreement, then such Party will not unreasonably withhold or delay such consent, approval or agreement and where consent, approval or agreement cannot be provided, the Party shall notify the other Party in a timely manner. 18.18 Headings All headings herein and the table of contents are not to be considered in the construction or interpretation of any provision of this Agreement. This Agreement was drafted with the joint participation of both Parties and shall be construed neither against nor in favor of either, but rather in accordance with the fair meaning thereof. In the event of any apparent conflicts or inconsistencies between this Agreement or any Supplements, Schedules, Exhibits or other Attachments to this Agreement, to the extent possible such provisions shall be interpreted so as to make them consistent, and if such is not possible, the provisions of this Agreement shall prevail. 62 THE PARTIES ACKNOWLEDGE THAT THEY HAVE READ THIS AGREEMENT, UNDERSTAND IT, AND AGREE TO BE BOUND BY ITS TERMS AND CONDITIONS. FURTHER, THE PARTIES AGREE THAT THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES RELATING TO THIS SUBJECT SHALL CONSIST OF 1) THIS AGREEMENT, 2) THE SUPPLEMENT, AND 3) THE SCHEDULES, INCLUDING THOSE MADE EFFECTIVE BY THE PARTIES IN THE FUTURE. THIS STATEMENT OF THE AGREEMENT SUPERSEDES ALL PROPOSALS OR OTHER PRIOR AGREEMENTS, ORAL OR WRITTEN, AND ALL OTHER COMMUNICATIONS BETWEEN THE PARTIES, RELATING TO THE SUBJECT MATTERS DESCRIBED IN THIS AGREEMENT. Accepted by: Accepted by: Integrated Systems Solutions Ceridian Corporation Corporation By: /s/K. R. Johnson By: /s/Kenneth Weber Authorized Signature Authorized Signature Date January 10, 1995 Date January 10, 1995 63
ISSC / Ceridian Corporation Agreement for Information Technology Services ----------------------------------------------------------------------------- Supplement to Agreement for Information Technology Services Name and Address of Customer: Customer No.: 8098415 Ceridian Corporation 300 Embassy Row Atlanta, Georgia 30328 ISSC Project Office Address: ISSC Project Office No.: ISSC Project Executive 44 South Broadway White Plains, New York 10601 Commencement Date: January 1, 1995 Term End Date: December 31, 2004 Contract Year _____________ 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 1/1- 1/1- 1/1- 1/1- 1/1- 1/1- 1/1- 1/1- 1/1- 1/1- 12/31 12/31 12/31 12/31 12/31 12/31 12/31 12/31 12/31 12/31 _____ ______ ______ ______ ______ ______ ______ ______ ______ ______ ANNUAL SERVICES CHARGE Confidential treatment has been requested. (K$) CAPACITY RATES CPU Confidential treatment has been requested. ($ per MIPS) DASD Confidential treatment has been requested. ($ per gigabyte) SITE 2 CREDITS Confidential treatment has been requested. ($ per Month) ADDITIONAL RESOURCE CHARGE RATES Tape Utilization Confidential treatment has been requested. ($ per tape mount) Tape Library Confidential treatment has been requested. ($ per tape stored) Tape Transfer Confidential treatment has been requested. ($ per tape transfer) Tape Vaulting Confidential treatment has been requested. ($ per tape stored in vault) TERMINATION CHARGE ($ in Millions) Convenience Option 1 Confidential treatment has been requested. Option 2 Confidential treatment has been requested. Change of Control Option 1 Confidential treatment has been requested. Option 2 Confidential treatment has been requested. NOTE Credits for cancellation of Site 2 will begin in (Confidential treatment has been requested) January 10, 1995 ISSC/CES Confidential Supplement Page 1 of 3 cessup Supplement to Agreement for Information Technology Services Monthly Baselines _________________ Months ______ JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ YEAR Tape Utilization (# of Mounts) 1995 Confidential treatment has been requested. 1996 Confidential treatment has been requested. 1997 Confidential treatment has been requested. 1998 Confidential treatment has been requested. 1999 Confidential treatment has been requested. 2000 Confidential treatment has been requested. 2001 Confidential treatment has been requested. 2002 Confidential treatment has been requested. 2003 Confidential treatment has been requested. 2004 Confidential treatment has been requested. YEAR Tape Library (# of Tapes Stored) 1995 Confidential treatment has been requested. 1996 Confidential treatment has been requested. 1997 Confidential treatment has been requested. 1998 Confidential treatment has been requested. 1999 Confidential treatment has been requested. 2000 Confidential treatment has been requested. 2001 Confidential treatment has been requested. 2002 Confidential treatment has been requested. 2003 Confidential treatment has been requested. 2004 Confidential treatment has been requested. YEAR Tape Transfer (Aggregate # of Tapes Logged In and Out) 1995 Confidential treatment has been requested. 1996 Confidential treatment has been requested. 1997 Confidential treatment has been requested. 1998 Confidential treatment has been requested. 1999 Confidential treatment has been requested. 2000 Confidential treatment has been requested. 2001 Confidential treatment has been requested. 2002 Confidential treatment has been requested. 2003 Confidential treatment has been requested. 2004 Confidential treatment has been requested. YEAR Tape Vaulting (Aggregate # of Tapes Sent to/Received from Vault Storage) 1995 Confidential treatment has been requested. 1996 Confidential treatment has been requested. 1997 Confidential treatment has been requested. 1998 Confidential treatment has been requested. 1999 Confidential treatment has been requested. 2000 Confidential treatment has been requested. 2001 Confidential treatment has been requested. 2002 Confidential treatment has been requested. 2003 Confidential treatment has been requested. 2004 Confidential treatment has been requested. January 10, 1995 ISSC/CES Confidential Supplement Page 2 of 3 cessup Supplement to Agreement for Information Technology Services Capacity Plan _____________ Months ______ JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ YEAR Host CPU (Installed MIPS) 1995 Confidential treatment has been requested. 1996 Confidential treatment has been requested. 1997 Confidential treatment has been requested. 1998 Confidential treatment has been requested. 1999 Confidential treatment has been requested. 2000 Confidential treatment has been requested. 2001 Confidential treatment has been requested. 2002 Confidential treatment has been requested. 2003 Confidential treatment has been requested. 2004 Confidential treatment has been requested. YEAR DASD (Installed Gigabytes) 1995 Confidential treatment has been requested. 1996 Confidential treatment has been requested. 1997 Confidential treatment has been requested. 1998 Confidential treatment has been requested. 1999 Confidential treatment has been requested. 2000 Confidential treatment has been requested. 2001 Confidential treatment has been requested. 2002 Confidential treatment has been requested. 2003 Confidential treatment has been requested. 2004 Confidential treatment has been requested. Disaster Recovery Options _________________________ Confidential treatment has been requested. (Effective July 1, 1997 through end of Term) ($ per month) ADDITIONAL TEST PERIOD ($ per test) Confidential treatment has been requested. Confidential treatment has been requested.
January 10, 1995 ISSC/CES Confidential Supplement Page 3 of 3 cessup ISSC / Ceridian Corporation Agreement for Information Technology Services ----------------------------------------------------------------------------- Schedules to Agreement for Information Technology Services SCHEDULE A - Applications Software SCHEDULE B - Systems Software SCHEDULE C - CES-Retained Machines SCHEDULE D - ISSC Machines SCHEDULE E - Support Services, Performance Standards and Operational Responsibilities SCHEDULE F - Procedures Manual Table of Contents SCHEDULE G - Disaster Recovery Services SCHEDULE H - Implementation Plan SCHEDULE I - Operations Help Desk SCHEDULE J - ISSC Charges, Measures of Utilization and Financial Responsibilities SCHEDULE K - Application Installation Standards SCHEDULE L - Security Procedures SCHEDULE M - Confidential Information Categories
January 10, 1995 ISSC/CES Confidential Table of Schedules Page 1 of 1 cesskd ISSC / Ceridian Corporation Agreement for Information Technology Services ----------------------------------------------------------------------------- Schedule A Applications Software ITEM APPLICATION RESPONSIBILITY NO. VENDOR NAME/DESCRIPTION OPER FIN MAINT DEV LIC 1. CES Signature 2000 ISSC CES CES CES CES 2. CES Tesseract V.941 ISSC CES CES CES CES LEGEND: "OPER" = OPERATE "FIN" = FINANCIAL "MAINT" = MAINTENANCE "DEV" = DEVELOPMENT "LIC" = LICENSEE January 10, 1995 ISSC/CES Confidential Schedule A Page 1 of 1 cesskda
ISSC / Ceridian Corporation Agreement for Information Technology Services ----------------------------------------------------------------------------- Schedule B Systems Software Section B-1 IBM Systems Software (MVS) ITEM PROGRAM SOFTWARE RESPONSIBILITY NO. VENDOR NO. NAME/DESCRIPTION OPER FIN MAINT LIC 1. IBM 5621-425 3172 INTERCONNECT CONTROLLER ISSC ISSC ISSC ISSC 2. IBM 5648-063 ACF/NCP V7.01 ISSC ISSC ISSC ISSC 3. IBM 5655-257 ICKDSF V1 ISSC ISSC ISSC ISSC 4. IBM 5655-041 ACF/SSP ISSC ISSC ISSC ISSC 5. IBM 5655-042 ISPF/PDF ISSC ISSC ISSC ISSC 6. IBM 5658-260 EREP V3 ISSC ISSC ISSC ISSC 7. IBM 5665-279 BTAM V1 ISSC ISSC ISSC ISSC 8. IBM 5665-311 3270 PC FILE TRANSFER ISSC ISSC ISSC ISSC 9. IBM 5665-488 SDSF ISSC ISSC ISSC ISSC 10. IBM 5668-949 SMP/E ISSC ISSC ISSC ISSC 11. IBM 5685-083 CICS/ESA V3 ISSC ISSC ISSC ISSC 12. IBM 5685-025 TSO/E ISSC ISSC ISSC ISSC 13. IBM 5685-111 NETVIEW V2 ISSC ISSC ISSC ISSC 14. IBM 5685-151 AOC/MVS ISSC ISSC ISSC ISSC 15. IBM 5688-008 ESCON MGR ISSC ISSC ISSC ISSC 16. IBM 5688-139 TSCF ISSC ISSC ISSC ISSC 17. IBM 5695-DF1 DFSMS/MVS/RMM ISSC ISSC ISSC ISSC 18. IBM 5695-039 RACF V2 ISSC ISSC ISSC ISSC 19. IBM 5695-046 BOOKMGR READ/MVS ISSC ISSC ISSC ISSC 20. IBM 5695-100 DITTO ISSC ISSC ISSC ISSC 21. IBM 5695-117 VTAM V4 ISSC ISSC ISSC ISSC 22. IBM 5695-167 GDDM V3 ISSC ISSC ISSC ISSC 23. IBM 5706-254 QMF V3 ISSC ISSC ISSC ISSC 24. IBM 5735-HAL TCP/IP V2 ISSC ISSC ISSC ISSC 25. IBM 5669-962 ASSEMBLER H ISSC ISSC ISSC ISSC 26. IBM 5695-064 CICS AO ISSC ISSC ISSC ISSC 27. IBM 5685-DB2 DB2 ISSC ISSC ISSC ISSC 28. IBM 5688-015 BOOKMASTER ISSC ISSC ISSC ISSC 29. IBM 5668-958 COBOL II ISSC ISSC ISSC ISSC 30. IBM 5740-SM1 DFSORT ISSC ISSC ISSC ISSC 31. IBM 5771-ABA FONT-SONORAN SERIF ISSC ISSC ISSC ISSC 32. IBM 5771-ABC FONT-P1 & SPECIAL ISSC ISSC ISSC ISSC 33. IBM 5685-060 INFO/MGMNT ISSC ISSC ISSC ISSC 34. IBM 5695-MVS MVS/ESA ISSC ISSC ISSC ISSC 35. IBM 5756-265 NETVIEW ANO ISSC ISSC ISSC ISSC 36. IBM 5695-040 PSF ISSC ISSC ISSC ISSC 37. IBM 5695-057 SYSTEMVIEW ISSC ISSC ISSC ISSC 38. IBM 5798-BQH CICS 3270PC FILE TRANSFER ISSC ISSC ISSC ISSC 39. IBM 5771-ABB FONT-SONORAN SANS SERIF ISSC ISSC ISSC ISSC 40. IBM 5771-ADB FONT-APL2 ISSC ISSC ISSC ISSC 41. IBM 5798-DXQ ICFRU ISSC ISSC ISSC ISSC 42. IBM 5685-059 INFO/SYS ISSC ISSC ISSC ISSC 43. IBM 5695-169 NETVIEW AUTOBRIDGE ISSC ISSC ISSC ISSC 44. IBM 5668-909 PL/1 ISSC ISSC ISSC ISSC January 10, 1995 ISSC/CES Confidential Schedule B Page 1 of 4 cesskdb Schedule B Systems Software Section B-1 IBM Systems Software (MVS) ITEM PROGRAM SOFTWARE RESPONSIBILITY NO. VENDOR NO. NAME/DESCRIPTION OPER FIN MAINT LIC 45. IBM 5685-029 RMF ISSC ISSC ISSC ISSC 46. IBM 5688-187 C/370 COMPILER ISSC ISSC ISSC ISSC 47. IBM 5688-188 C/370 LIBRARY ISSC ISSC ISSC ISSC 48. IBM 5798-DQD CACHE RMF REPORTER ISSC ISSC ISSC ISSC 49. IBM 5775-DNH CONCAID ISSC ISSC ISSC ISSC 50. IBM 5798-DZW DSF/TSO ISSC ISSC ISSC ISSC 51. IBM 5771-ADT FONT-MATH & SCIENC ISSC ISSC ISSC ISSC 52. IBM 5732-071 PASCAL-RUNTIME LIB ISSC ISSC ISSC ISSC 53. IBM 5688-190 PPFA ISSC ISSC ISSC ISSC 54. IBM 5686-191 OGL ISSC ISSC ISSC ISSC 55. IBM 5665-307 PMF ISSC ISSC ISSC ISSC 56. IBM 5695-047 JES2-MVS/ESA ISSC ISSC ISSC ISSC LEGEND: "OPER" = OPERATE "FIN" = FINANCIAL "MAINT" = MAINTENANCE "LIC" = LICENSEE January 10, 1995 ISSC/CES Confidential Schedule B Page 2 of 4 cesskdb Schedule B Systems Software Section B-2 Third Party Systems Software (MVS) ITEM VERSION SOFTWARE RESPONSIBILITY NO. VENDOR NO. NAME/DESCRIPTION OPER FIN MAINT LIC 1. ALTAI CURRENT ZEKE/ZEBB/GWS JOB SCHEDULER/RERUN RESTART ISSC CES CES CES 2. B&B STOP-X37 DASD SPACE MANAGER ISSC CES CES CES 3. CANDLE OMEGAMON II FOR CICS ISSC ISSC ISSC ISSC 4. CANDLE OMEGAMON II FOR DB2 ISSC ISSC ISSC ISSC 5. CANDLE OMEGAMON II FOR MVS ISSC ISSC ISSC ISSC 6. CANDLE OMEGAMON II FOR SMS ISSC ISSC ISSC ISSC 7. CANDLE OMEGAMON II FOR VTAM ISSC ISSC ISSC ISSC 8. CANDLE OMEGAVIEW ISSC ISSC ISSC ISSC 9. CHICAGO SOFTWARE CURRENT MVS/QUICKREF ON-LINE REFERENCE MANUALS ISSC CES CES CES 10. CHICAGO SOFTWARE CURRENT MVS/SOP ON-LINE STANDARDS & PROCEDURES ISSC CES CES CES 11. COMPUWARE CURRENT ABEND-AID XLF/DB2 ABEND DEBUG TOOL-BATCH ISSC CES CES CES 12. COMPUWARE CURRENT CICS ABEND-AID/RADAR/DB2 ABEND DEBUG TOOL-CICS ISSC CES CES CES 13. COMPUWARE CURRENT FILE AID MVS/DB2 OPT EXTEND ISPF UTILITIES ISSC CES CES CES 14. COMPUWARE CURRENT PLAYBACK/DB2 OPT TEST DATA CREATOR & GENERATOR ISSC CES CES CES 15. COMPUWARE CURRENT XPEDITER CICS ON-LINE DEBUG TRACE TOOL-CICS ISSC CES CES CES 16. COMPUWARE CURRENT XPEDITER TSO ON-LINE DEBUG TRACE TOOL-BATCH ISSC CES CES CES 17. LEGENT CURRENT ENDEVOR/ACM (AUTOMATED CONFIGURATION MANAGER) ISSC CES CES CES 18. LEGENT CURRENT ENDEVOR/EP EXTERNAL PROCESSORS ISSC CES CES CES 19. LEGENT CURRENT ENDEVOR/ESI EXTERNAL SECURITY INTERFACE ISSC CES CES CES 20. LEGENT CURRENT ENDEVOR/MVS AUTOMATED SOFTWARE MGT-MVS ENVIRMNT ISSC CES CES CES 21. LEGENT CURRENT ENDEVOR/PDM (PARALLEL DEVLMT MGR) ISSC CES CES CES 22. LEGENT CURRENT MICS SYSTEM DATA COLLECT, ANALYSIS & REPORT TOOLS ISSC ISSC ISSC ISSC 23. LEGENT 02.03.00 XCOM FILE TRANSFER ISSC CES CES CES 24. LEVI, RAY & SHOUP CURRENT VPS VTAM PRINTER SUPPORT SYSTEM ISSC CES CES CES 25. LEVI, RAY & SHOUP CURRENT VPS/PC & WINDOWS ISSC CES CES CES 26. LEVI, RAY & SHOUP CURRENT VPS FOR TCPIP ISSC CES CES CES 27. LEVI, RAY & SHOUP CURRENT VPS ADAPT SNA/DYNACOM ISSC CES CES CES 28. LEVI, RAY & SHOUP CURRENT VPS VMCF FOR VTAM & CICS ISSC CES CES CES 29. MERRILLE CURRENT MXG SAS COPY BOOKS FOR SMF ISSC ISSC ISSC ISSC 30. MERRILLE CURRENT MXG SAS COPY BOOKS FOR SMF ISSC CES CES CES 31. SAS INSTITUTE CURRENT SAS BASE REPORT WRITER, SMF ANALLSYS TOOL ISSC CES CES CES 32. SAS INSTITUTE CURRENT REPORT WRITER & GRAPHICS TOOLS FOR SAS ISSC CES CES CES 33. STERLING SOFTWARE CURRENT SUPERTRACS FILE TRANSFER (SNA RJE) ISSC CES CES CES 34. ? TBD AUTOMATED BALANCING PRODUCT ISSC CES CES CES 35. ? TBD DB2/DBA DEVELOPMENT TOOLS ISSC CES CES CES 36. ? TBD REPORT & OUTPUT DISTRIBUTION ISSC CES CES CES 37. ? TBD REPORT WRITERS ISSC CES CES CES 38. ? TBD SESSION MANAGER ISSC CES CES CES LEGEND: "OPER" = OPERATE "FIN" = FINANCIAL "MAINT" = MAINTENANCE "LIC" = LICENSEE NOTE ISSC has not performed due diligence on these products and reserves the right to perform due diligence and make appropriate adjustments to the Agreement after CES provides the applicable documentation to ISSC. NOTE The actual Software program for this item will be chosen from the CES list (SOFTGRP1.XLS) dated 12/12/94. January 10, 1995 ISSC/CES Confidential Schedule B Page 3 of 4 cesskdb Schedule B Systems Software Section B-3 Systems Software for CES-Retained Machines ITEM VER REV SOFTWARE RESPONSIBILITY NO. VENDONO. LEV PRODUCT NO. NAME/DESCRIPTI OPER FIN MAINT LIC 1. DEC 0.0 2 ALS-WM-92361-2084 BASE-VMS-25013 ISSC CES CES CES 2. DEC 0.0 1 ASP-MS-91312-2 BOOKBROWSER ISSC CES CES CES 3. DEC 0.0 4 AL2-WM-92339-2272 C ISSC CES CES CES 4. DEC 0.0 1 BIX-PK-93266-1-CLO-CLOEIS-3800 C ISSC CES CES CES 5. DEC 0.0 1 BIX-PK-93266-1-CLO-CLOEIS-3817 CDDS-3817 ISSC CES CES CES 6. DEC 0.0 1 BIX-PK-93266-1-CLO-CLOEIS-3818 CDD-PLUS8 ISSC CES CES CES 7. DEC 0.0 1 BIX-PK-93266-1-CLO-CLOEIS-3819 CDD-PLUS-USER ISSC CES CES CES 8. DEC 0.0 1 BIX-PK-93266-1-CLO-CLOEIS-3820 CDDADMIN0 ISSC CES CES CES 9. DEC 0.0 1 BIX-PK-93266-1-CLO-CLOEIS-3821 CDDADMIN-RTO ISSC CES CES CES 10. DEC 0.0 1 BIX-PK-93266-1-CLO-CLOEIS-3822 CDDADMIN-USER ISSC CES CES CES 11. DEC 0.0 1 AL2-WM-92339-2270 COMMSERVER-BSC ISSC CES CES CES 12. DEC 0.0 1 ALS-WM-92339-2269 COMMSERVER-V ISSC CES CES CES 13. DEC 0.0 1 ALS-WM-93081-832 DECPS-DC ISSC CES CES CES 14. DEC 0.0 1 ALS-WM-93081-833 DECPS-PA ISSC CES CES CES 15. DEC 0.0 1 BIX-PK-93266-1-CLO-CLEIS-4017 DECTRACE7 ISSC CES CES CES 16. DEC 0.0 1 ALJ-WM-92357-764 DMQ-RTO-V ISSC CES CES CES 17. DEC 0.0 1 ALS-WM-92339-2274 DVNETEND ISSC CES CES CES 18. DEC 0.0 1 BIX-PK-93266-1-CLO-CLEIS-4126 DVNETRTG6 ISSC CES CES CES 19. DEC 0.0 1 BIR-PK-91259-1-CLO-CLEIS-11645 DW-MOTIF45 ISSC CES CES CES 20. DEC 0.0 1 ALJ-WM-92339-2271 P.S.I.-ACCESS ISSC CES CES CES 21. DEC 0.0 1 BIX-MS-92041-1-CLO-CLEIS-7236 RDBS-7236 ISSC CES CES CES 22. DEC 0.0 1 BIX-MS-92041-1-CLO-CLEIS-7240 RDB-INTERACTIV ISSC CES CES CES 23. DEC 0.0 1 BIX-MS-92041-1-CLO-CLEIS-7246 RDB-RT246 ISSC CES CES CES 24. DEC 0.0 1 ALJ-WM-93005-883 SNA-API ISSC CES CES CES 25. DEC 0.0 1 ALS-WM-93005-882 SNA-VMS ISSC CES CES CES 26. DEC 0.0 1 BIX-PK-93266-1-CLO-CLEIS-5029 VAXSET029 ISSC CES CES CES 27. DEC 0.0 2 ALS-WM-92361-2082 VMS-USER ISSC CES CES CES 28. DEC 0.0 2 ALS-WM-92361-2083 VMS-USER ISSC CES CES CES 29. Novel0.0 NETWARE FOR SA ISSC CES CES CES LEGEND: "OPER" = OPERATE "FIN" = FINANCIAL "MAINT" = MAINTENANCE "LIC" = LICENSEE NOTE:ISSC will be responsible for operating the software specified in Section B-3 when the Machines listed in Schedule C are installed in the Data Center. NOTE ISSC has not performed due diligence on these products and reserves the right to perform due diligence and make appropriate adjustments to the Agreement after CES provides the applicable documentation to ISSC. January 10, 1995 ISSC/CES Confidential Schedule B Page 4 of 4 cesskdb ISSC / Ceridian Corporation
Agreement for Information Technology Services ----------------------------------------------------------------------------- Schedule C CES-Retained Machines ITEM MACHINE MACHINE DEC RESPONSIBILITY NO. QTY DESCRIPTION TYPE S/N MACHINE OPER FIN MAINT 1. 1 PC-ZENITH 386 YES ISSC CES CES 2. 1 PC-MONITOR ZENITH YES ISSC CES CES 3. 1 CPU 4700A DEC YES ISSC CES CES 4. 1 DISK CABINET W/ 8 DISKS DEC-ARRAY YES ISSC CES CES 5. 1 DISK CABINET W/ 8 DISKS DEC-ARRAY YES ISSC CES CES 6. 2 TF85 TAPEDRIVES DEC YES ISSC CES CES 7. 1 SNA SWITCH RAD YES ISSC CES CES 8. 1 COMSERVER DEC YES ISSC CES CES 9. 1 COMSERVER DEC YES ISSC CES CES 10. 1 COMSERVER DEC YES ISSC CES CES 11. 1 COMSERVER DEC YES ISSC CES CES 12. 1 COMSERVER DEC YES ISSC CES CES 13. 1 GATEWAY DEC YES ISSC CES CES 14. 1 GATEWAY DEC YES ISSC CES CES 15. 1 GATEWAY DEC YES ISSC CES CES 16. 1 GATEWAY DEC YES ISSC CES CES 17. 1 DELNI DEC YES ISSC CES CES 18. 1 DELNI DEC YES ISSC CES CES 19. 1 BRIDGE VITALNK YES ISSC CES CES 20. 1 CSU/DSU DOWTY YES ISSC CES CES 21. 1 DEC WORKSTATION 2000 YES ISSC CES CES 22. 1 DEC MONITOR DEC YES ISSC CES CES 23. 1 DEC KEYBOARD DEC YES ISSC CES CES 24. 1 DEC MOUSE DEC YES ISSC CES CES 25. 120 DEC TAPES TK85 YES ISSC CES CES 26. 1 PC PS/2 MOD 60 IBM YES ISSC CES CES 27. 1 EPSON PRINTER LQ1000 YES ISSC CES CES 28. 1 DEC CD READER DEC YES ISSC CES CES 29. 1 DEC TAPE DRIVE DEC YES ISSC CES CES 30. 1 DEC VAXSTATION SYS BOX YES ISSC CES CES 31. 1 DEC STORAGE EXP BOX YES ISSC CES CES 32. 1 DEC KEYBOARD DEC YES ISSC CES CES 33. 1 DEC MOUSE DEC YES ISSC CES CES 34. 1 DEC MONITOR DEC YES ISSC CES CES 35. 1 PC ZENITH 386 YES ISSC CES CES 36. 2 PC ZENITH 8088 YES ISSC CES CES 37. 1 MODEM ZOOM NO ISSC CES CES 38. 1 CSU RACAL NO ISSC CES CES 39. 1 ROUTER WELLFLEET NO ISSC CES CES 40. 1 HUB 3COM NO ISSC CES CES 41. 2 19" RACK RACAL NO ISSC CES CES 42. 2 SAA GATEWAY J&L NO ISSC CES CES LEGEND: "OPER" = OPERATE "FIN" = FINANCIAL "MAINT" = MAINTENANCE NOTE:ISSC will be responsible for operating these Machines when they are installed in the Data Center. January 10, 1995 ISSC/CES Confidential Schedule C Page 1 of 2 cesskdc Schedule C CES-Retained Machines NOTE:The items listed above are representative of the actual CES-Retained Machines to be installed in the Data Center. This Schedule C will be updated to reflect the actual CES-Retained Machines as they are installed. NOTE ISSC has not performed due diligence on these products and reserves the right to perform due diligence and make appropriate adjustments to the Agreement after CES provides the applicable documentation to ISSC. January 10, 1995 ISSC/CES Confidential Schedule C Page 2 of 2 cesskdc
ISSC / Ceridian Corporation Agreement for Information Technology Services ----------------------------------------------------------------------------- Schedule D ISSC Machines ITEM MACHINE MACHINE RESPONSIBILITY NO. TYPE/MODEL DESCRIPTION S/N OPER FIN MAINT 1. 9121-480 IBM Processor 00125 ISSC ISSC ISSC 2. 3990-6 IBM DASD Controller 91778 ISSC ISSC ISSC 3. 3390-3 IBM A38 DASD * A7585 ISSC ISSC ISSC 4. 3390-3 IBM B3C DASD * BH150 ISSC ISSC ISSC 5. 3390-3 IBM B3C DASD * B9784 ISSC ISSC ISSC 6. 3745-210 IBM Communications Controller 02975 ISSC ISSC ISSC 7. 3172-003 IBM Interconnect Controller 62918 ISSC ISSC ISSC 8. 9391-A10 RAMAC ISSC ISSC ISSC 9. 9392-B13 RAMAC ISSC ISSC ISSC 10. 9392-B13 RAMAC ISSC ISSC ISSC 11. 9392-B13 RAMAC ISSC ISSC ISSC 12. 9392-B13 RAMAC ISSC ISSC ISSC 13. 9392-B13 RAMAC ISSC ISSC ISSC 14. 9392-B13 RAMAC ISSC ISSC ISSC 15. 9392-B13 RAMAC ISSC ISSC ISSC 16. 9392-B13 RAMAC ISSC ISSC ISSC 17. 9392-B13 RAMAC ISSC ISSC ISSC 18. 9392-B13 RAMAC ISSC ISSC ISSC 19. 9392-B13 RAMAC ISSC ISSC ISSC 20. 9392-B13 RAMAC ISSC ISSC ISSC 21. 9392-B13 RAMAC ISSC ISSC ISSC 22. 9392-B13 RAMAC ISSC ISSC ISSC 23. 9392-B13 RAMAC ISSC ISSC ISSC 24. 9392-B13 RAMAC ISSC ISSC ISSC LEGEND: "OPER" = OPERATE "FIN" = FINANCIAL "MAINT" = MAINTENANCE NOTE CES's preferred solution is the acquisition of the RAMAC equipment described above. In the interim period until such RAMAC equipment can be obtained and installed, ISSC will provide CES with the asterisk (*) DASD. January 10, 1995 ISSC/CES Confidential Schedule D Page 1 of 1 cesskdd
ISSC / Ceridian Corporation Agreement for Information Technology Services ----------------------------------------------------------------------------- Schedule E SUPPORT SERVICES, PERFORMANCE STANDARDS AND OPERATIONAL RESPONSIBILITIES Confidential treatment has been requested for this schedule in its entirety. cesskde ISSC / Ceridian Corporation Agreement for Information Technology Services ----------------------------------------------------------------------------- Schedule F Procedures Manual Table of Contents The following is a sample of the Table of Contents for the Procedures Manual to be developed in accordance with Section 4.9(a) of the Agreement. The actual content and Table of Contents for the Procedures Manual developed for CES's production and applications test environments will be of a form and content necessary to provide support for the actual CES environment. The sample Table of Contents is shown below: [S] I. INTRODUCTION X. CONFIGURATION MANAGEMENT A. Purpose A. Scope B. Audience B. Objectives C. Layouts II. ENFORCEMENT OF STANDARDS XI. STORAGE AND DATA MANAGEMENT III. REQUIREMENTS PROCESS PROCESSES A. Introduction A. Tape Backup B. When are Requirements required? B. Data Security System (RACF) C. Requirements/Services Request Documentation XII. SYSTEMS MANAGEMENT CONTROLS D. How does the Requirements process work? A. Service Level Management B. Security IV. SECURITY C. Problem Management D. Change Management A. Data Center Security E. Recovery Management Requirements F. Batch Processing Management B. Physical Security G. Online Processing Management H. Performance Management V. DISASTER RECOVERY I. Capacity Management A. Overview B. Critical Applications C. Disaster Recovery Plan Outline D. Operations XIII. LEGEND OF ASSIGNEES VI. PRODUCTION XIV. HARDWARE LISTING A. Production Support A. Hardware in the ISSC Data Center and Configuration VII. ISSC SYSTEM HARDWARE SERVICE CALL PROCEDURES XV. CUSTOMER SOFTWARE REQUIREMENTS BY APPLICATION VERSUS SYSTEM A. ISSC System Hardware B. CES System Hardware (at ISSC A. Application Requirements Locations) B. System Software VIII. OPERATIONS HELP DESK XVI. CUSTOMER APPLICATIONS A. Scope A. List of Customer Applica- B. Help Desk Procedures Doc- tions umentation C. Escalation/Alert Process XVII. APPLICATION AVAILABILITY D. Executive Alert Process A. On-line and Batch Time IX. NETWORK CONFIGURATIONS Frames A. Data Center to Customer Con- nection January 10, 1995 ISSC/CES Confidential Schedule F Page 1 of 1 cesskdf ISSC / Ceridian Corporation Agreement for Information Technology Services ----------------------------------------------------------------------------- Schedule G Disaster Recovery Services Confidential treatment has been requested for this schedule in its entirety. cesskdg ISSC / Ceridian Corporation Agreement for Systems Operations Services ----------------------------------------------------------------------------- Schedule H Implementation Plan Confidential treatment has been requested for this schedule in its entirety. cesskdh
ISSC / Ceridian Corporation Agreement for Information Technology Services ----------------------------------------------------------------------------- Schedule I Operations Help Desk I. INTRODUCTION ISSC will provide an operations help desk to provide Data Center informa- tion and status and provide and/or coordinate Levels I, II and III Data Center Operations and Systems Software support for the Data Center. Calls to the ISSC operations help desk will be initiated by the CES help desk for CES. II. ISSC DATA CENTER HELP DESK RESPONSIBILITIES The ISSC Data Center help desk will perform the following typical func- tions for both the production and test environments: A. receive calls from the CES help desk; B. initiate a problem management record ("PMR") for all Services outages; C. perform Level I problem determination; D. route call to applicable services provider, e.g., maintenance vendor in the case of a data center ISSC Machine malfunction and/or ISSC Systems Software support for systems programming problems; E. monitor Data Center problems to resolution and report progress to CES help desk; F. close the PMR at problem resolution; G. confirm problem resolution with CES help desk; H. provide a monthly summary of all problems opened and closed during the reporting period in accordance with the Procedures Manual; I. provide assistance for problems pertaining to the procedures for the new environment; J. report on the status of batch jobs upon request; K. notify designated CES personnel of systems or equipment failures, or of an emergency, according to the Procedures Manual; and L. maintain and distribute an updated Help Desk telephone number listing. Hours of Operation The ISSC Operations Help Desk hours will be 24 hours a day, 7 days a week. III. CES RESPONSIBILITIES CES will: A. provide single-point-of-contact for CES users; B. contact the ISSC Data Center help desk for Data Center information and problems; C. provide feedback to CES users concerning information requests and problem status for problems referred to the ISSC Data Center help desk; D. route call to applicable services provider, e.g., maintenance vendor in the case of a data center CES-Retained Machine malfunction, appli- cations support for systems programming problems, CES help desk for LAN or WAN problems, CES AD/M personnel for Applications Software or applications problems, etc.; E. recycle, start and stop devices at CES end user or CES AD/M request; F. reset passwords; January 10, 1995 ISSC/CES Confidential Schedule I Page 1 of 3 cesskdi G. report on the status of batch jobs upon request; H. perform end user and applications support, operations and training; and I. maintain an updated listing for use by the ISSC Data Center help desk for contacting appropriate CES personnel for assistance/notification as specified above. IV. ISSC DATA CENTER HELP DESK FLOW +------------+ | USERS | | | +------|-----+ | +------|-----+ +--------------------->| CES |<------------------------------------+ | +-----------+ | Help Desk | | |---->| CES ---+ +------|-----+ +------------+ | | | AD/M | | | +-------------| CES |<---| | +-----------+ | | | | |COMMO SPT | | | | | | | +------------+ | | | | | | | | +----|--------|-----------|--+ | +------------+ | | | ISSC Data Center Help Desk | +-----| CES |<---| | +-------------|--------------+ |TECH SVCS | | | | +------------+ | | | | | | | | | | | +----|----+ +---------+ | | Info/Status | Info or | Problem | ISSC | No | +------------------------| Problem |----------------->| Problem |-------->| +---------+ +----|----+ | Yes| | +----|----+ | | Open | | | PMR | | +----|----+ | | | +---------------------------+ +-----|-----+ | +----|----+ +----|----+ | Dispatch | | |Escalate | No | Problem |<----------------| Svc Vendor| | | as |<----------------| Resolved| | &/or Route| | |Required | +----|----+ | to Tech. | | +---------+ Yes| +-----------+ | +----|----+ | | Close | Notify CES | | PMR |--------------------------------------+ +----|----+ | +----|----+ | Update | | Monthly | | Records | +---------+ V. SERVICES RESPONSIBILITIES MATRICES The Services Responsibilities Matrices attached as Exhibit I-1 to this Schedule summarizes the roles and responsibilities of the ISSC and CES help desks. January 10, 1995 ISSC/CES Confidential Schedule I Page 2 of 3 cesskdi Schedule I Operations Help Desk Exhibit I-1 Services Responsibilities Matrices +---------------------------------------------+-----------------------------+ ] ] RESPONSIBILITY ] ] HELP DESK - ISSC (DATA CENTER OPERATIONS ONL+--------------+--------------+ ] ] ISSC ] CES ] +---------------------------------------------+--------------+--------------+ ] ANSWER CALLS FROM CES HELP DESK ] X ] ] +---------------------------------------------+--------------+--------------+ ] PROBLEM MANAGEMENT ] ] ] +---------------------------------------------+--------------+--------------+ ] -- RECORD PROBLEMS ] X ] ] +---------------------------------------------+--------------+--------------+ ] -- TRACK PROBLEMS THROUGH RESOLUTION ] X ] ] +---------------------------------------------+--------------+--------------+ ] -- PROVIDE FEEDBACK TO CES HELP DESK ] X ] ] +---------------------------------------------+--------------+--------------+ ] PROBLEM SUPPORT (ISSC MACHINES) ] X ] ] +---------------------------------------------+--------------+--------------+ ] INVOKE PROPER PROBLEM RESOLUTION RESOURCES ] X ] ] +---------------------------------------------+--------------+--------------+ ] DISPATCH SERVICE PROVIDER (ISSC MACHINES) ] X ] ] +---------------------------------------------+--------------+--------------+ ] FOLLOW-UP FOR RESOLUTION STATUS (ISSC ] X ] ] ] MACHINES) ] ] ] +---------------------------------------------+--------------+--------------+ ] ESCALATE TO NEXT LEVEL OF SUPPORT (ISSC ] X ] ] ] MACHINES) ] ] ] +---------------------------------------------+--------------+--------------+ ] NOTIFY CES HELP DESK OF SYSTEMS ] X ] ] ] AVAILABILITY (EXCEPTION PROCESS ONLY) ] ] ] +---------------------------------------------+--------------+--------------+ +---------------------------------------------+-----------------------------+ ] ] RESPONSIBILITY ] ] HELP DESK - CES +--------------+--------------+ ] ] ISSC ] CES ] +---------------------------------------------+--------------+--------------+ ] ANSWER CALLS FROM USERS ] ] X ] +---------------------------------------------+--------------+--------------+ ] PROBLEM MANAGEMENT ] ] ] +---------------------------------------------+--------------+--------------+ ] -- RECORD PROBLEMS ] ] X ] +---------------------------------------------+--------------+--------------+ ] -- TRACK PROBLEMS THROUGH RESOLUTION ] ] X ] +---------------------------------------------+--------------+--------------+ ] -- PROVIDE FEEDBACK TO USERS ] ] X ] +---------------------------------------------+--------------+--------------+ ] -- INTERFACE WITH ISSC HELP DESK ] ] X ] +---------------------------------------------+--------------+--------------+ ] INVOKE PROPER PROBLEM RESOLUTION RESOURCES ] ] X ] +---------------------------------------------+--------------+--------------+ ] DISPATCH SERVICE PROVIDER (CES-RETAINED ] ] X ] ] MACHINES) ] ] ] +---------------------------------------------+--------------+--------------+ ] COORDINATE SERVICE/MAINTENANCE CALLS ] ] X ] ] (CES-RETAINED MACHINES) ] ] ] +---------------------------------------------+--------------+--------------+ ] FOLLOW-UP FOR RESOLUTION STATUS ] ] X ] +---------------------------------------------+--------------+--------------+ ] ESCALATE TO NEXT LEVEL OF SUPPORT ] ] X ] +---------------------------------------------+--------------+--------------+ ] NOTIFY USERS OF SYSTEMS AVAILABILITY ] ] X ] +---------------------------------------------+--------------+--------------+ ] LEVEL ONE AND LEVEL TWO SUPPORT OF CES ] ] X ] ] SYSTEMS & APPLICATIONS ] ] ] +---------------------------------------------+--------------+--------------+ ] LEVEL ONE AND LEVEL TWO SUPPORT OF ] ] X ] ] CES-RETAINED MACHINES ] ] ] +---------------------------------------------+--------------+--------------+ January 10, 1995 ISSC/CES Confidential Schedule I Page 3 of 3 cesskdi
Agreement for Information Technology Services ----------------------------------------------------------------------------- Schedule J ISSC Charges, Measures of Utilization and Financial Responsibilities Confidential treatment has been requested for this schedule in its entirety. cesskdj ISSC / Ceridian Corporation Agreement for Information Technology Services ----------------------------------------------------------------------------- Schedule K Application Installation Standards CES agrees that Applications Software provided to ISSC for execution will conform to the following standards: 1. Programs will be fully tested for compatibility and conformity to ISSC's specifications prior to transfer to ISSC for promotion into the pro- duction system; 2. Back out and recovery procedures will be documented; and 3. Programs will conform to the mutually agreed a. File allocation and naming conventions b. Sysout class c. Job execution class d. Forms standards e. Accounting fields f. Job Name Standards. As mutually agreed by ISSC and CES, programs will execute in the following target software environments. MVS ___ Operating System MVS/ESA Job Entry System JES2 Security RACF Transaction Processing CICS Storage Management DFRMM, DFSMS, DFHSM, DFDSS Problem/Change Management INFO Performance Management OMEGAMON Analysis/Reporting MICS Remote Operations NETVIEW On-line Viewing TBD Scheduling ZEKE Restart/Rerun ZEBB Output Processing TBD Network Software ACF/VTAM, ACF/NCP, EP, BTAM Compiler COBOL, COBOL2, ASSEMBLER H Interactive Development DFSORT, ENDEVOR,TSO/ISPF,DB2 Automation AOC All changes to the operating environment will be in accordance with the ISSC/CES Change Management Procedures. January 10, 1995 ISSC/CES Confidential Schedule K Page 1 of 1 cesskdk ISSC / Ceridian Corporation Agreement for Information Technology Services ----------------------------------------------------------------------------- Schedule L Security Procedures and Responsibilities I. ISSC WILL: A. provide physical security for the Data Center and other ISSC facili- ties, if any, required to provide the Services; B. restrict access to the Data Center to authorized personnel only; C. conduct periodic reviews of the Data Center access logs for unusual occurrences and perform follow-up activities; D. identify the protection requirements for operating system resources and implement this protection via the access control software; E. install, maintain and upgrade new or existing data access control software; F. implement the functions and features of the access control software which will satisfy CES's security standards and practices as defined in the Procedures Manual; G. grant system access to ISSC employees only to the extent necessary to perform activities required by this Agreement; H. provide storage and security for portable storage media including, but not limited to, tapes and disk packs under ISSC's control; I. keep abreast of the latest concepts and techniques associated with system and data security; J. review security policies and procedures for effectiveness and recom- mend improvements; and K. provide sufficient access to the Data Center to allow CES's security administrator to fulfill CES's responsibilities. II. CES WILL: A. provide ISSC with CES's most recent data security standards and prac- tices and updates as they occur; B. identify the protection requirements for application resources and protect them via the access control software; C. identify the protection requirements for end user data and protect it via the access control software; D. establish, change, deactivate and remove logon IDs and associated access authorities; E. reset logon ID passwords and disclose passwords to authorized per- sonnel; F. periodically review logon IDs and remove those for which management authorization no longer exists; G. review, approve and grant requests for group privileged user authori- ties; H. periodically review group privileged user authorities and remove those for which management approval no longer exists; I. implement and maintain security controls for those subsystems which do not use the access control software for their security (all sub- systems will use RACF); J. keep abreast of the latest concepts and techniques associated with system and data security; and K. review security policies and procedures for effectiveness and recom- mend improvements. III. SERVICES RESPONSIBILITIES MATRIX The Services Responsibilities Matrix attached as Exhibit L-1 to this Schedule summarizes the roles and responsibilities of ISSC and CES. January 10, 1995 ISSC/CES Confidential Schedule L Page 1 of 2 cesskdl Schedule L Security Procedures and Responsibilities Exhibit L-1 Services Responsibilities Matrix +---------------------------------------------+-----------------------------+ ] ] RESPONSIBILITY ] ] SECURITY +--------------+--------------+ ] ] ISSC ] CES ] +---------------------------------------------+--------------+--------------+ ] PHYSICAL SECURITY - CES FACILITIES ] ] ] +---------------------------------------------+--------------+--------------+ ] -- ADMINISTRATIVE AND TECHNICAL SUPPORT ] ] X ] +---------------------------------------------+--------------+--------------+ ] -- BADGE DISTRIBUTION, ALARM MONITORING ] ] X ] ] AND RESPONSE ] ] ] +---------------------------------------------+--------------+--------------+ ] -- EMERGENCY RESPONSE (FIRE, MEDICAL, ] ] X ] ] FIRST AID) ] ] ] +---------------------------------------------+--------------+--------------+ ] PHYSICAL SECURITY - ISSC FACILITIES ] ] ] +---------------------------------------------+--------------+--------------+ ] -- ADMINISTRATIVE AND TECHNICAL SUPPORT ] X ] ] +---------------------------------------------+--------------+--------------+ ] -- BADGE DISTRIBUTION, ALARM MONITORING ] X ] ] ] AND RESPONSE ] ] ] +---------------------------------------------+--------------+--------------+ ] -- EMERGENCY RESPONSE (FIRE, MEDICAL, ] X ] ] ] FIRST AID) ] ] ] +---------------------------------------------+--------------+--------------+ ] DATA SECURITY - ISSC MACHINES ] ] ] +---------------------------------------------+--------------+--------------+ ] -- ACCESS CONTROL SYSTEM ] ] ] +---------------------------------------------+--------------+--------------+ ] -- RACF INSTALLATION & MAINTENANCE ] X ] ] +---------------------------------------------+--------------+--------------+ ] -- RACF UPGRADES ] X ] ] +---------------------------------------------+--------------+--------------+ ] -- ADMINISTRATIVE SUPPORT ] ] ] +---------------------------------------------+--------------+--------------+ ] * SYSTEM ] X ] ] +---------------------------------------------+--------------+--------------+ ] * GROUP ] ] X ] +---------------------------------------------+--------------+--------------+ ] -- SYSTEMS PROFILE IDENTIFICATION ] ] X ] +---------------------------------------------+--------------+--------------+ ] -- LOGON ID ADMINISTRATION ] ] X ] +---------------------------------------------+--------------+--------------+ ] -- PASSWORD RESETS (HELP DESK) ] ] X ] +---------------------------------------------+--------------+--------------+ ] -- SUBSYSTEMS PASSWORD AUTHORIZATION ] ] X ] +---------------------------------------------+--------------+--------------+ ] -- SUBSYSTEMS PASSWORD ADMINISTRATION ] ] X ] +---------------------------------------------+--------------+--------------+ ] DATA SECURITY - CES-RETAINED MACHINES ] ] ] +---------------------------------------------+--------------+--------------+ ] -- ACCESS CONTROL SYSTEM ] ] ] +---------------------------------------------+-----------------------------+ ] -- SYSTEM INSTALLATION & MAINTENANCE ] ] X ] +---------------------------------------------+--------------+--------------+ ] -- SYSTEM UPGRADES ] ] X ] +---------------------------------------------+--------------+--------------+ ] -- ADMINISTRATIVE SUPPORT ] ] X ] +---------------------------------------------+--------------+--------------+ ] -- SYSTEMS PROFILE IDENTIFICATION ] ] X ] +---------------------------------------------+--------------+--------------+ ] -- LOGON ID ADMINISTRATION ] ] X ] +---------------------------------------------+--------------+--------------+ ] -- PASSWORD RESETS (HELP DESK) ] ] X ] +---------------------------------------------+--------------+--------------+ ] -- SUBSYSTEMS PASSWORD AUTHORIZATION ] ] X ] +---------------------------------------------+--------------+--------------+ ] -- SUBSYSTEMS PASSWORD ADMINISTRATION ] ] X ] +---------------------------------------------+--------------+--------------+ ] LAN SYSTEMS ] ] X ] +---------------------------------------------+--------------+--------------+ ] DATA NETWORK ] ] X ] +---------------------------------------------+--------------+--------------+ ] -- DIAL NETWORKS ] ] X ] +---------------------------------------------+--------------+--------------+ ] -- LEASED LINES ] ] X ] +---------------------------------------------+--------------+--------------+ ] VOICE NETWORK ] ] X ] +---------------------------------------------+--------------+--------------+ January 10, 1995 ISSC/CES Confidential Schedule L Page 2 of 2 cesskdl ISSC / Ceridian Corporation Agreement for Information Technology Services ----------------------------------------------------------------------------- Schedule M Confidential Information Categories I. Customer Lists II. Customer Information III.Account Information IV. Business Planning Documentation January 10, 1995 ISSC/CES Confidential Schedule M Page 1 of 1 cesskdm EX-11 16 EXHIBIT 11
Exhibit 11 CERIDIAN CORPORATION AND SUBSIDIARIES STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (Amounts in thousands, except per share data) Year Ended December 31 1994 1993 1992 Net earnings (loss) applicable to common stockholders - primary $ 65,626 $ (30,676) $ (392,800) Discontinued operations (321,600) Extraordinary loss (8,400) Change in accounting (FAS 106) (41,800) Earnings (Loss) from continuing operations 65,626 (22,276) (29,400) Restore dividends on convertible preferred stock (a) 12,980 325 Restore interest expense on convertible debentures (a) (b) 13,900 Net earnings (loss) for fully diluted earnings per share $ 78,606 $ (21,951) $ (15,500) Weighted average common shares outstanding 44,504 43,131 42,617 Common share equivalents from stock options (c) 1,361 Weighted average common shares and equivalents outstanding - primary 45,865 43,131 42,617 Shares issuable assuming conversion of preferred stock (a) 10,384 260 Shares issuable assuming conversion of debentures (a) 6,794 Weighted average common shares and equivalents outstanding - adjusted for full dilution 56,249 43,391 49,411 Primary earnings (loss) per share Continuing operations $ 1.43 $ (0.52) $ (0.69) Discontinued operations (7.55) Extraordinary loss (0.19) Change in accounting (FAS 106) (0.98) Total $ 1.43 $ (0.71) $ (9.22) Fully diluted earnings (loss) per share (c) $ 1.40 $ (0.51) $ (0.31) (a) Convertible preferred stock issued and convertible debentures redeemed in December 1993. (b) Net of income tax effect which is nil. (c) Common stock equivalents and shares issuable assuming conversion of convertible debentures not reported in 1993 and 1992 because the result is anti-dilutive or additional dilution is less than 3% as prescribed by APBO No. 15. This calculation is submitted in accordance with Regulation S-X item 601(b)(11).
EX-12 17 EXHIBIT 12
Exhibit 12 CERIDIAN CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in millions) Year Ended December 31, 1994 1993 1992 1991 1990 Earnings (Loss) before income taxes and other items(1) . . . . . . . $ 85.2 $ (18.2)$(186.3) $ 1.9 $ 15.9 Less undistributed earnings and non-guaranteed losses from less than 50% owned affiliates included above -- -- (0.6) (2.6) 1.3 Total earnings (loss) before income taxes and other items. . . $ 85.2 $ (18.2) (185.7) 4.5 14.6 Add: Interest . . . . . . . 1.6 16.4 17.7 25.4 43.8 Interest portion of rentals (2) . . . 11.9 12.4 17.2 31.8 31.6 Adjusted earnings (loss) before income taxes and other items. . . . $ 98.7 $ 10.6 $(150.8) $ 61.7 $ 90.0 Preferred stock dividends $ 13.0 $ 0.3 $ 0.3 $ 0.5 $ 0.5 Pre-tax to net income ratio (3) . . . 100% 100% 100% 100% 100% Preferred dividend factor on a pre-tax basis . . 13.0 0.3 0.3 0.5 0.5 Interest . . . . . . . . 1.6 16.4 17.7 25.4 43.8 Interest portion of rentals (2) . . . . 11.9 12.4 17.2 31.8 31.6 Total fixed charges and preferred dividends $ 26.5 $ 29.1 $ 35.2 $ 57.7 $ 75.9 Ratio of earnings to fixed charges and preferred dividends. . 3.72 - - 1.07 1.19 Earnings to combined fixed charges and preferred stock deficiency. . . $ 18.5 $ 186.0 (1) Results include discontinued operations. (2) Assumed to be one-third of rental expense. (3) A tax gross-up would not have a material effect in any year.
EX-13 18 EXHIBIT 13 SELECTED FIVE-YEAR DATA (Dollars in millions, except per share data) 1994 1993 1992 1991 1990 Revenue $ 916.3 $ 886.1 $ 830.3 $ 763.0 $ 936.2 Earnings (Loss) from continuing operations (1) $ 78.6 $ (22.0) $ (29.1) $ 66.1 $ 45.3 Loss from discontinued operations (2) - - (321.6) (74.7) (42.6) Extraordinary loss (3) - (8.4) - (1.2) - Cumulative effect of accounting change (FAS 106) (4) - - (41.8) - - Net Earnings (Loss) $ 78.6 $ (30.4) $(392.5) $ (9.8) $ 2.7 Net Earnings (Loss) Applicable to Common Stockholders (5) $ 65.6 $ (30.7) $(392.8) $ (10.3) $ 2.2 Primary Earnings Per Common Share Continuing operations $ 1.43 $ (0.52) $ (0.69) $ 1.54 $ 1.05 Net earnings (loss) $ 1.43 $ (0.71) $ (9.22) $ (0.24) $ 0.05 Shares used in calculation (in thousands) 45,865 43,131 42,617 42,526 42,517 Fully Diluted Earnings Per Common Share (6) Net earnings $ 1.40 Shares used in calculation (in thousands) 56,249 Balance Sheet Data Total assets $ 690.3 $ 615.7 $ 551.6 $ 974.7 $1,179.0 Debt obligations $ 18.7 $ 19.4 $ 187.6 $ 184.1 $ 337.9 Stockholders' equity (deficit) (7) $ 186.5 $ 111.3 $(100.9) $ 446.2 $ 448.4 Stockholders' Equity (Deficit) Per Common Share $ (1.09) $ (2.82) $ (2.36) $ 10.24 $ 10.29 Common shares outstanding at end of year (in thousands) 45,402 44,182 42,804 42,530 42,530 Number of Employees at End of Year (8) 7,500 7,600 8,800 9,600 10,500 (1) Includes restructuring loss (gain) of $67.0 in 1993, $76.2 in 1992, $(16.2) in 1991 and $1.5 in 1990 as described in Note B to the consolidated financial statements. (2) For additional information, see Note B to the consolidated financial statements. (3) The 1993 extraordinary loss relates to the early retirement of 8 1/2% Convertible Subordinated Debentures as described in Note K to the consolidated financial statements. (4) The Company adopted FAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," in 1992 as described in Note I to the consolidated financial statements. (5) As reduced by preferred stock dividends before calculation of primary earnings (loss) per share. (6) Fully diluted would not differ from primary earnings (loss) per share in years prior to 1994. (7) The Company has not declared a cash dividend on common stock since 1985. For information regarding the sale in 1993 of preferred stock with a redemption value of $236.0, see Note E to the consolidated financial statements. (8) Includes full-time and part-time personnel for continuing operations.
REPORT OF MANAGEMENT AND INDEPENDENT AUDITORS' REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations The following table sets forth revenue for the last three years for the Company, its two industry segments, and the businesses that comprise those segments. Additional financial information regarding the Company's industry segments is contained in Note G, Segment Data, to the consolidated financial statements.
Years Ended December 31, 1994 1993 1992 (Dollars in millions) Information Services Segment Arbitron $121.3 $172.2 $178.3 Ceridian Employer Services 303.3 232.6 209.9 Other Services(1) 5.4 20.0 20.5 Total Information Services 430.0 424.8 408.7 Defense Electronics Segment Computing Devices International(2) 486.3 461.3 412.4 Other(3) -- -- 9.2 Total Revenue $916.3 $886.1 $830.3 __________________
[FN] (1) Consists of revenue from TeleMoney Services and the Company's related network and computer center operations (collectively, "TeleMoney"), which were sold in May 1994. (2) Responsibility for the Company's Business Information Services operation ("BIS") was transferred to Computing Devices effective January 1, 1994. BIS' results for the period 1992-1994 are included in Computing Devices' results. (3) Consists of revenue from the Benefits Services division of Employer Services, which was sold during 1992. The following table sets forth the percentage of total revenue by industry segment, the gross profit of each industry segment as a percentage of that segment's revenue, and certain items in the consolidated statements of operations as a percentage of total revenue, for the periods indicated.
Years Ended December 31, 1994 1993 1992 Revenue: Information Services 46.9% 47.9% 49.2% Defense Electronics 53.1% 52.1% 49.7% Other -- -- 1.1% Total revenue 100.0% 100.0% 100.0% Gross profit: Information Services 54.2% 45.9% 43.2% Defense Electronics 19.5% 18.4% 18.7% Other -- -- 18.2% Total gross profit 35.8% 31.6% 30.7% Operating expenses Selling, general & administrative 22.4% 20.1% 19.8% Technical 5.4% 5.5% 5.6% Other expense (income) (0.3%) (0.4%) (0.8%) Restructure loss -- 7.6% 9.2% Total operating expenses 27.5% 32.8% 33.8% Earnings (loss) before interest & taxes 8.3% (1.1%) (3.1%) Interest income (expense) 1.0% (0.9%) 0.2% Earnings (loss) before income taxes 9.3% (2.1%) (2.9%) Income tax provision 0.7% 0.4% 0.6% Earnings (loss) from continuing operations 8.6% (2.5%) (3.5%)
Restructuring and Discontinued Operations The Company's results since the mid-1980s have been significantly affected by the performance and the subsequent sale, spin-off or closing of a large number of businesses. These restructuring actions were taken to remove from the Company businesses that were poor performers, that required greater investment than the Company was willing or able to commit, or that did not fit the Company's strategic focus on businesses that generate recurring revenue from long-term customer relationships. Three significant businesses which Ceridian has disposed of are shown as discontinued operations in Ceridian's consolidated financial statements. These businesses are the Computer Products business, which was separately incorporated as Control Data Systems, Inc. ("Control Data Systems") and whose stock was then distributed to Ceridian's stockholders as of July 31, 1992; the Automated Wagering division, which was sold in June 1992; and the Empros division, which Ceridian sold in March 1993. A larger number of businesses and operations disposed of did not meet the criteria for treatment as discontinued operations. Included among the latter dispositions are Imprimis Technology Incorporated ("Imprimis") (sold in 1989), ETA Systems Incorporated (closed in 1989), VTC Incorporated ("VTC") (disposed of in 1989), Micrognosis, Inc. (sold in 1990), Arbitron's syndicated television ratings service (discontinued at the end of 1993) and TeleMoney (sold in 1994). The results of the businesses and operations which did not meet the criteria for treatment as Page 22 discontinued operations, including restructure charges and gains associated with their disposition, are included in Ceridian's results from continuing operations and significantly affect the years 1989 through 1993. The cumulative effect of the actions outlined in the preceding paragraph has been to reduce the Company's revenue from $3.6 billion in 1988 to a low of $830.3 million in 1992, to reduce the number of employees from 33,500 at the end of 1988 to 7,500 at the end of 1994, and to reduce the aggregate floor space of facilities owned or leased by the Company from 15.1 million square feet at the end of 1988 to 4.3 million square feet by the end of 1994, 1.6 million square feet of which is either sublet or vacant. The reductions in facilities have been effected in large measure by assignments of leases and by subleases, often at significant cost to the Company. Such fundamental changes in the Company have been accompanied by large restructuring charges. At December 31, 1991, the Company reported accrued restructure liabilities of $118.1 million, principally involving obligations relating to the disposition of VTC, the sale of Imprimis (including under an indemnification provided to the purchaser for certain environmental liabilities), the Company's investments in wind energy ventures and Business and Technology Centers, and excess facilities. The following table summarizes the major components of restructuring reserves established and utilized during the three year period ended December 31, 1994, as well as the balance of such reserves at that date.
Restructure and Discontinued Employer Computing Operations Reserves (1) Arbitron Arbitron Services Devices (Dollars in millions) TV ScanAm Consolidation Severance Other Total Reserve Balance 12/31/91 $ - $ - $ - $ 5.1 $113.0 $118.1 1992 Restructure Loss (2) 29.9 8.8 1.1 44.0 83.8 Cash Payments (0.8) (1.7) (5.2) (79.2) (86.9) Asset Write-Off (28.5) (1.1) (2.4) (32.0) Discontinued Operations (3) 71.6 71.6 Adoption of FAS 106 (4) (14.0) (14.0) Other Non-cash Items 0.1 0.1 Reserve Balance 12/31/92 - 0.6 6.0 1.1 133.0 140.7 1993 Restructure Loss (2) 57.0 18.9 5.5 0.3 81.7 Cash Payments (4.1) (0.6) (4.0) (6.1) (44.9) (59.7) Asset Write-Off (26.8) (15.0) (41.8) Adoption of FAS 112 (4) (12.0) (12.0) Other Non-cash Items (0.9) (0.9) Reserve Balance 12/31/93 26.1 - 20.9 0.5 60.5 108.0 1994 Restructure Loss (2) 15.0 15.0 Sale of TeleMoney (5) 14.1 14.1 Cash Payments (17.4) (8.5) (0.5) (27.3) (53.7) Other Non-cash Items 2.4 2.5 4.9 Reserve Balance 12/31/94 $ 11.1 $ - $ 12.4 $ - $ 64.8 $ 88.3 (1) For additional information, see Note B to the consolidated financial statements. (2) Does not include restructure gains of $7.6 in 1992, $14.7 in 1993 and $15.0 in 1994. (3) Represents obligations related to the disposition of discontinued operations. (4) Represents the reclassification to other liabilities of FAS 106 and FAS 112 obligations as described in Notes A and I to the consolidated financial statements. (5) Represents obligations undertaken in connection with the sale of TeleMoney.
Page 23 The Company's net restructuring loss of $76.2 million in 1992 included a $30.9 million net restructure loss for Information Services, $1.1 million in severance costs for Computing Devices and $44.2 million in charges not attributable to either business segment. Information Services' net restructuring loss for 1992 was primarily composed of $29.9 million (primarily asset write-offs) related to the discontinuance of Arbitron's ScanAmerica service, which electronically measured and correlated household television viewing and product purchases through the use of people meters and product scanning wands, $8.8 million of charges in Employer Services that principally involved severance and surplus facilities costs related to the closing of its administrative offices in Greenwich, Connecticut and a corresponding consolidation of operations, and a gain of $7.6 million associated with the formation of the Competitive Media Reporting ("CMR") joint venture involving Arbitron and VNU Business Information Services, Inc. ("VNU"). The Company estimates that from 1992 to 1993, the ScanAmerica discontinuance reduced costs of services (primarily decreased amortization and depreciation) and technical expense for Arbitron by a total of about $6.7 million. Although the 1992 restructuring actions in Employer Services resulted in the elimination of about $4.1 million of annual employment and facilities costs, the Company estimates that a majority of the savings were offset by costs associated with increasing the level of automation and administrative staff in other locations. The restructure loss not attributable to either industry segment included $20.9 million of facilities, litigation and other costs related to past restructuring actions, $7.4 million primarily consisting of severance and related costs involving approximately 100 headquarters employees, a $12.0 million provision for postemployment welfare benefits provided to employees of businesses sold or discontinued, and a $3.7 million loss from the sale of the Benefits Services division. The latter charges have not materially benefited the Company's subsequent results of operations. The Company's 1993 net restructuring loss of $67.0 million included $75.9 million in restructuring charges for Information Services, $5.5 million in charges for Computing Devices, and a net restructure gain of $14.4 million not attributable to either industry segment. Information Services' charges included $57.0 million resulting from the October 1993 decision to discontinue Arbitron's syndicated television and cable ratings service. The principal components of this charge involved the write-off of metering and other assets, severance and other costs related to the termination of approximately 700 employees, and lease and other obligations related to facilities and equipment. The Company estimates that the discontinuance of the television ratings service benefited the Company's 1994 results by about $6 million. Information Services' 1993 restructuring charges also included $18.9 million of charges recorded by Employer Services. Of this amount, $11.7 million relates to actions to discontinue payroll data processing in Employer Services' district offices in conjunction with a program to consolidate such processing in centralized processing facilities, $4.8 million relates to actions to discontinue most telephonic customer support in district offices in conjunction with a program to consolidate such support activities into a single national center, and the $2.4 million balance primarily involves severance costs to downsize Employer Services' headquarters operations. The principal components of the Employer Services charges include severance and other costs related to the termination of about 330 employees, incremental costs to provide duplicate processing of payrolls and telephonic customer support during periods of customer transition, and lease and other obligations related to facilities and equipment. The centralization of customer Page 24 service operations is expected to improve responsiveness to customer inquiries while also increasing operational efficiencies once the transition is completed in early 1995. Benefits from the consolidation of payroll data processing are expected to be realized beginning in 1996, as discussed below under "1994 Compared with 1993 - Gross Margin." The restructuring charges recorded by Computing Devices in the fourth quarter 1993 involved actions taken to reduce employment levels by 205 employees in its U.S. and U.K. operations, generally in connection with programs that were completed or which were terminated, deferred or scaled back by the applicable government agency. Although these actions resulted in the elimination of approximately $8 million of annual employment expense, they were not expected to appreciably improve profitability, but rather were undertaken to enable Computing Devices to maintain competitive cost and expense levels. Because pricing of government contracts is typically predicated on a concept of "allowable" costs, actions to reduce costs tend to improve profitablility only on fixed price contracts currently in place. Cost reductions typically do not affect the profitability of cost reimburseable contracts, since reduced costs of contract performance result in reduced contract revenue, nor do they necessarily improve the profitablity of future fixed price contracts, since those must be bid reflecting a lower cost structure. The 1993 net restructuring gain not attributable to either industry segment consisted of a $0.3 million adjustment to prior year reserves and a gain of $14.7 million resulting from the Company's October 1993 receipt of a $35.5 million refund of taxes and related interest from the Internal Revenue Service. The refund related to restructure losses recorded by the Company during the 1980s. The restructuring activity in 1994 consisted of a net gain of $7.8 million from the sale of TeleMoney, a gain of $7.2 million from the final settlement of a tax sharing agreement relating to the Company's 1986 sale of Commercial Credit Company, and a $15.0 million charge for costs related to age discrimination litigation arising out of restructuring actions taken by the Company in past years. The following table summarizes the cash payments made during the three year period ended December 31, 1994 with respect to restructuring reserves, as well as the Company's estimate of remaining restructuring reserves expected to require cash outlays during 1995.
Restructure Cash Payments Actual Expected 1992 1993 1994 1995 Severance and Related Costs $ 11.4 $ 17.0 $ 14.7 $ 3.8 Equipment Lease Termination 12.8 4.0 4.9 1.7 Vacant Space 30.8 23.4 16.8 7.8 Costs to Dispose of Businesses 25.3 5.1 6.6 0.5 Legal Costs 3.2 4.3 4.3 0.6 Environmental Costs 0.7 1.1 1.2 0.7 Duplicate Processing/Support - - 3.2 3.7 Other 2.7 4.8 2.0 - Total $ 86.9 $ 59.7 $ 53.7 $ 18.8
Of the $69.5 million of restructuring reserves expected to require cash outlays after 1995, the largest portions relate to obligations with respect to vacant space (generally payable during 1996-1999), the obligation to indemnify the purchaser of Imprimis against certain environmental remediation costs related thereto (expected to be payable over ten years or more), and defense or settlement costs related to age discrimination litigation involving the Company (see Note O, Legal Matters, to the consolidated financial statements). Page 25 1994 Compared with 1993 For the year ended December 31, 1994, the Company reported net earnings applicable to common stockholders (after preferred stock dividends of $13.0 million) of $65.6 million, or $1.40 per fully diluted share of common stock, on revenue of $916.3 million, compared to a net loss applicable to common stockholders in 1993 of $30.7 million, or $.71 per common share, on revenue of $886.1 million. Included in the 1993 results is an $8.4 million extraordinary loss resulting from the redemption of the Company's 8 1/2% Convertible Subordinated Debentures Due June 15, 2011 (the "8 1/2% Debentures") and a net restructuring loss of $67.0 million. Revenue. The small increase in Information Services' revenue from 1993 to 1994 was a function of 30.4% revenue growth in Employer Services being largely offset by decreased revenue from Arbitron and the sale of TeleMoney business in April 1994. Somewhat more than half of Employer Services' revenue growth was attributable to acquisitions, most significantly the October 1993 acquisition of the Systems Tax Service ("STS") tax filing business and the June 1994 acquisition of Tesseract Corporation ("Tesseract"), which designs, develops and supports integrated payroll, human resource management and benefits administration software systems. Apart from acquisitions, Employer Services' revenue increased about 14% from 1993 to 1994, primarily reflecting increased payroll processing revenue, due largely to new customer installations and an increased year-end 1993 retention rate for existing customers, and increased revenue from payroll tax filing fees and investment income, due largely to a higher percentage of Employer Services' payroll processing customers also utilizing its tax filing service. The investment income component of the revenue increase reflects average balances of payroll tax filing deposits in 1994 that were approximately 25% greater than Employer Services' and STS' combined balances in 1993, and an average yield on investments that was 4.23% compared to 4.00% in 1993. Employer Services' revenue and profitability tend to be the greatest in the first and fourth quarters of each year because of customers' year-end reporting requirements and greater tax filing deposit balances in the first quarter. Apart from possible future acquisitions, Employer Services' revenue growth is expected to be between 15% and 20% in 1995. Such an increase would reflect a full year's revenue from Tesseract and from User Technology Services, Inc., which was acquired in October 1994, had fiscal 1994 revenue of $4.4 million and provides training and other services to facilitate the effective utilization of information management systems. Revenue should also increase as a result of the December 1994 acquisitions of the assets of Payroll Tax Management, Inc., a payroll tax filing processor which had fiscal 1994 revenue of $3.8 million, and the customer base of Human Effectiveness, Inc., a provider of employee assistance services, that generated approximately $1 million of revenue in 1994. Revenue in 1995 is also expected to benefit from increases in U.S. interest rates during 1994 and early 1995, which should result in an increased average investment yield on payroll tax filing deposits, and from a 20% increase from 1993 to 1994 in the annualized revenue value of orders received by Employer Services. Expected revenue growth may be moderated somewhat by a small decline in Employer Services' customer retention percentage from 1993 to 1994 and from the phased introduction of IRS regulatory changes that will reduce by one day the period of time the Company may earn investment income on tax filing deposits collected from its customers. Page 26 The Arbitron revenue decrease from 1993 to 1994 was primarily attributable to the discontinuance of its television ratings service, which had provided $44.9 million of revenue during 1993. Also contributing to the decrease was the year-end 1993 transfer from Arbitron to the CMR joint venture with VNU of certain contracts for commercial monitoring services, which decreased Arbitron's revenue in 1994 by $13.8 million. This transfer resulted from an agreement to shift marketing and sales responsibility for commercial monitoring services provided to larger advertising agencies from Arbitron to CMR. Partially offsetting this decrease was a revenue increase of approximately 7% in 1994 in the other aspects of Arbitron's business. The Company expects that continued moderate revenue growth in 1995 in Arbitron's radio ratings business will be augmented by revenue from two transactions concluded in December 1994. In the first transaction, the Company exchanged its interest in the CMR joint venture for an interest in the business of VNU's Scarborough Research Corporation subsidiary, which produces the "Scarborough Report" that provides information regarding product/service usage and media usage in 58 major U.S. markets. As a result of this transaction, the financial results of the partnership into which the Scarborough business has been placed will be consolidated with the Company's financial results with an expected modest increase in Arbitron's annual revenue. In the second transaction, the Company acquired the assets of MediaMaps International (now known as Media Marketing Technologies), which provides Arbitron with a proprietary marketing analysis system that creates block group-coded data bases of radio listeners and provides segmentation analyses and map displays of key listener segments. Computing Devices' revenue increased 5.4% from 1993 to 1994. Constraining the revenue increase were the near completion at year- end 1993 of a contract to manufacture equipment for Control Data Systems and the July 1993 sale of the Company's Barrios Technology subsidiary, activities which together provided $29.6 million more revenue in 1993 than in 1994. Apart from these items, Computing Devices' revenue increased 12.7% from 1993 to 1994. About 90% of this revenue increase was attributable to a $49.9 million increase in revenue from the Iris contract to provide a communications system to the Canadian defense department. Computing Devices' ongoing U.S. operations also reported an increase in revenue of 6.6% from 1993 to 1994. Despite a 25% increase over 1993 in the dollar value of orders received during 1994 by Computing Devices, the Company expects only a modest revenue increase in Computing Devices during 1995, which would include revenue from Paragon Imaging, Inc., a provider of imaging software to U.S. defense department intelligence agencies and service commands, which was acquired in December 1994 and had fiscal 1994 revenue of $4.2 million. A relatively larger portion of the 1994 orders involves multi-year contracts as compared to orders received in 1993, resulting in a larger portion of the backlog attributable to 1994 orders not expected to be reflected in revenue during the next fiscal year. In addition, because Computing Devices' Canadian operations have accounted for an increasing portion of its revenue during the past three years and for slightly more than half of the 1994 order value, the weakening of the Canadian dollar is expected to constrain overall revenue growth. Orders received by Computing Devices U.S. operations in 1994 have tended to be add-ons to existing programs, reflecting the cancellation or deferral of new procurement programs due to government budgetary constraints and increasing competition for the remaining new procurement programs. Page 27 Gross Margin. The Company's gross margin improvement from 31.6% in 1993 to 35.8% in 1994 was primarily due to Information Services. The most significant factor in the gross margin improvement in Information Services was the discontinuance of Arbitron's unprofitable syndicated television ratings service at the end of 1993. The Company estimates that the discontinuance of the television ratings service contributed 4.5 percentage points of the segment's gross margin improvement. The two other significant factors in the gross margin improvement in Information Services were the previously mentioned decrease in Arbitron's commercial monitoring revenue (the cost of such revenue having been a 90% royalty payable to the CMR joint venture) and the sale of TeleMoney in May 1994. These two factors contributed an estimated 3.0 percentage points of the segment's gross margin increase. Employer Services' gross margin was essentially unchanged from 1993 to 1994, as margin improvements in its tax filing operations and as a result of the acquisition of Tesseract were offset by decreased gross margins in payroll processing operations and an increase in lower margin revenue associated with a human resources information software consulting service. The margin improvement in tax filing operations primarily reflected the consolidation of Ceridian's tax filing activity on STS' more highly automated system. The margin decrease in payroll processing was due largely to costs to establish and equip a national customer service center in connection with the consolidation of Employer Services' telephonic customer service operations and costs of related actions to upgrade communications systems. In January 1995, the Company entered into technology services and marketing agreements with Integrated Systems Solutions Corporation ("ISSC"), a wholly-owned subsidiary of International Business Machines Corporation. Under the technology services agreement, the term of which extends through December 31, 2004, ISSC will provide the centralized payroll data processing services required by Employer Services as part of the program to consolidate payroll data processing from 31 district offices into centralized processing centers. Annual service charges payable by the Company during the term of the agreement are expected to total approximately $110 million, based on current expectations regarding future system usage, and are subject to cost of living and other adjustments. Employer Services believes that the technology services agreement with ISSC represents the most expeditious, cost-effective and technologically sound and secure means for it to effect the consolidation of its payroll data processing. Although consolidation of the data processing is expected to result in significant savings to the Company over the term of the technology services agreement, costs associated with the transition from data processing in district offices to processing in the ISSC centers are expected to defer the realization of such savings until a sizeable percentage of customers have completed the transition. The timing of this transition will principally be determined by the timing of the Company's introduction of its enhanced payroll processing software. The Company expects that beta testing of the enhanced software with selected new and existing payroll processing customers will begin in mid-1995, that all new customers and additional existing customers will begin utilizing the enhanced software in the first quarter 1996, and that the transition of the remainder of the existing customer base to the enhanced software will begin in mid- 1996 and continue for approximately eighteen months. Under the marketing agreement, ISSC will remarket Employer Services' payroll services and Tesseract software and services, and Employer Services will jointly market with ISSC the information technology services of ISSC. Page 28 The increase in Computing Devices' gross margin from 1993 to 1994 was attributable to a four percentage point improvement in its U.S. operations, primarily reflecting actions taken in 1993 to reduce employment levels and a reduction in low margin revenue from the manufacture of equipment for Control Data Systems, Inc. Lessening Computing Devices' overall gross margin improvement was a decrease in gross margin in its U.K. operations, primarily reflecting provisions established in 1994 for costs to complete certain contracts, including a development contract for an avionics system for the European Fighter Aircraft, and the increase in the relative revenue contribution from the Iris contract. Although the gross margin on the Iris contract improved from 1993 to 1994, it has lower gross margins than most other aspects of Computing Devices' business. Operating Expenses. The Company's selling, general and administrative ("SG&A") expenses increased 15.4% from 1993 to 1994, due largely to additional SG&A expenses resulting from the acquisitions of STS and Tesseract, including amortization of the goodwill and other intangible assets associated with those acquisitions, increased selling expense in other aspects of Employer Services' operations, and additional compensation expense associated with a performance restricted stock plan implemented by the Company (see Note J, Stock Plans, to the consolidated financial statements). As a percentage of revenue, SG&A expenses for the Company increased from 20.1% to 22.4%, due principally to an increase in Information Services from 31.5% of revenue in 1993 to 35.7% of revenue in 1994. This percentage increase was attributable to Arbitron, reflecting the sizeable decrease in Arbitron's revenue and the proportionately smaller decrease in its SG&A expenses. In part this reflects the past dependence of Arbitron's radio and television services on a common support structure. Also contributing to the increase were provisions established for certain administrative proceedings involving Arbitron. SG&A expenses as a percentage of revenue did, however, decrease in Employer Services from 1993 to 1994. Computing Devices' SG&A expenses increased modestly from 1993 to 1994 in both dollars and as a percentage of revenue. The Company's technical expense, which includes research and development, product improvement and bid and proposal costs, increased slightly in dollars from 1993 to 1994, but decreased from 5.5% to 5.4% of revenue. In the Information Services segment, technical expense decreased in dollars and as a percentage of revenue (from 6.2% to 5.6%) from 1993 to 1994. The decrease was due to the discontinuance of Arbitron's television ratings service and the sale of TeleMoney. Technical expense did, however, increase in Employer Services in dollars and slightly as a percentage of revenue, primarily reflecting the acquisition of Tesseract. Technical expense also increased in Computing Devices, both in dollars and as a percentage of revenue (from 4.8% to 5.2%), primarily due to concept development efforts intended to attract additional government funding for product development efforts. Earnings (Loss) Before Interest and Taxes. The Company's earnings before interest and taxes ("EBIT") in 1994 totaled $76.2 million as compared to a loss before interest and taxes of $10.1 million in 1993. Excluding the $67.0 million net restructure loss from 1993 results, the Company's EBIT increased 33.9% from 1993 to 1994, from 6.4% of revenue in 1993 to 8.3% of revenue in 1994. Information Services was the primary contributor to this improvement, with EBIT (computed without regard to restructuring) Page 29 increasing $21.8 million, or 59.0%, from 1993 to 1994. Most of this increase in Information Services' EBIT was due to Arbitron and Employer Services, each contributing about an equal amount of the increase, with the balance reflecting the sale of TeleMoney, which had a loss in 1993. As a percentage of revenue, EBIT (without regard to 1993 restructuring) for Information Services increased from 8.7% in 1993 to 13.6% in 1994. Computing Devices' EBIT (without regard to 1993 restructuring) increased $3.6 million, or 13.5%, from 1993 to 1994, and as a percentage of revenue from 5.9% to 6.3% of revenue in the year-to-date comparison. Interest Income and Expense. The $14.8 million decrease in interest expense from 1993 to 1994 principally reflected the redemption at the end of 1993 of $163.5 million in principal amount of the Company's 8 1/2% Debentures with the majority of the proceeds of the sale of the Company's 5 1/2% Cumulative Convertible Exchangeable Preferred Stock ("5 1/2% Preferred Stock"). The annual dividend obligation in connection with the 5 1/2% Preferred Stock is $13.0 million. The increase in interest income over the same period reflected higher balances of cash and short-term investments during 1994, primarily as a result of the 5 1/2% Preferred Stock offering, and generally increasing interest rates during 1994. Taxes and Net Operating Loss Carryforwards. The provisions for income taxes for the years 1992-1994 primarily represent tax charges related to the Company's international operations. The Company's U.S. operations have net operating loss carryforwards ("NOLs") for financial statement purposes of approximately $1.28 billion, which if unused will begin to expire in 1997 and which may be used, to the extent available, to offset earnings from U.S. operations during the carryforward period. Section 382 of the Internal Revenue Code of 1986, as amended, contains complex rules that place an annual limit on the amount of NOLs that a company may utilize after stockholders who own 5% or more of the Company's stock increase their aggregate percentage ownership in the Company by more than 50 percentage points over the lowest percentage owned by those shareholders during the previous three years. Because the amount of the annual limit is computed utilizing the then current market value of the stock of the Company, the higher the market value of the Company's stock, the less stringent the resulting annual limit. Although the Company does not believe that such an annual limit on NOLs is currently applicable, it is possible that a combination of stock transfers and issuances in the past, and future transfers and issuances of the Company's stock could result in the limitation being imposed in the future. 1993 Compared with 1992 For the year ended December 31, 1993, the Company reported a net loss applicable to common stockholders of $30.7 million, or $.71 per common share, on revenue of $886.1 million, compared to a net loss applicable to common stockholders in 1992 of $392.8 million, or $9.22 per common share, on revenue of $830.3 million. Included in the 1993 results is the previously discussed $8.4 million extraordinary loss, while 1992 results included losses from discontinued operations of $321.6 million and a $41.8 million charge for a change in accounting for postretirement health care benefits. On a continuing operations basis, the Company reported a 1993 net loss of $22.0 million, or $.52 per common share, compared with a 1992 net loss of $29.1 million, or $.69 per common share. Page 30 Revenue. The revenue growth in Computing Devices from 1992 to 1993 was primarily due to a $36.1 million revenue increase from the Iris contract, the September 1992 acquisition of the remaining 56% equity interest in a U.K. defense electronics systems provider, and sales of equipment to Control Data Systems which began in August 1992. Revenue from such sales of equipment did, however, steadily decrease during the course of 1993. That trend, coupled with the July 1993 sale of a 90% interest in Barrios Technology to the management of that subsidiary, restrained revenue growth during 1993. The dollar value of orders received by Computing Devices during 1993 was 28% greater than during 1992, reflecting increases in its U.S. and Canadian operations and the U.K. acquisition noted above. Information Services' revenue increased 3.9% from 1992 to 1993, principally reflecting 10.8% revenue growth in Employer Services and a 3.5% revenue decrease in Arbitron. The revenue growth in Employer Services from 1992 to 1993 was due to increased business volume in its payroll processing and tax filing operations, the acquisition of the software applications division of Revelation Technologies, Inc. in late 1992, the purchase of STS in October 1993 and increased investment income due to larger average balances of payroll tax filing deposits during 1993. Arbitron's revenue decrease from 1992 to 1993 was almost entirely due to reduced revenue from local market television and cable ratings, a service which Arbitron discontinued at the end of 1993. This revenue decrease was only partially offset by about a 7% revenue increase in the other aspects of Arbitron's business. Gross Margin. The Company's gross margin increased from 30.7% in 1992 to 31.6% in 1993. Overall margin improvement for the Company in 1993 was restrained in part by the revenue growth in Computing Devices, which has historically had a lower gross margin (but also lower operating expenses as a percentage of revenue) than the Information Services segment. The gross margin for Information Services increased from 43.2% in 1992 to 45.9% in 1993. Arbitron's gross margin improvement from 1992 to 1993 primarily reflected the discontinuance of the syndicated television ratings service and decreased amortization and other costs totaling about $5.2 million from its 1992 discontinuance of the ScanAmerica service. The gross margin increase in Employer Services from 1992 to 1993 primarily resulted from its increased revenue, benefits from previously discussed 1992 restructuring actions and increased investment income from tax filing deposits. The improvement resulting from these factors was partially offset by costs relating to the closing of Employer Services' tax filing operations in Baltimore as a result of the STS acquisition. Partially offsetting these margin improvements in Arbitron and Employer Services were increased costs in TeleMoney due largely to costs associated with equipment upgrades and low margins on telecommunications services provided to businesses divested or spun- off by the Company in 1992. Computing Devices' gross margin decreased slightly from 18.7% in 1992 to18.4% in 1993. Its gross margin did, however, improve during the second half of 1993 as compared to the first half of 1993 and the second half of 1992, due primarily to increased gross margins on the Iris contract as Computing Devices achieved certain developmental milestones, and to reduced revenue from equipment sales to former Company operations, which had lower gross margins than most other aspects of Computing Devices' business. Page 31 Operating Expenses. The Company's SG&A expenses increased from 19.8% of revenue in 1992 to 20.1% of revenue in 1993. In Information Services, SG&A expenses increased as a percentage of revenue from 30.0% in 1992 to 31.5% in 1993. The increase was due to increased expense levels in Employer Services, primarily selling expense, as Employer Services expanded its sales force and marketing programs, particularly in the second half of 1993. Partially offsetting this increase were reduced SG&A expenses, in dollars and as a percentage of revenue, in Arbitron in 1993, in large measure reflecting the elimination of certain amortization expense as a result of the contribution of Arbitron's commercial monitoring operations to the CMR joint venture in 1992. Computing Devices' SG&A expenses decreased from 8.3% of revenue in 1992 to 7.8% in 1993. Technical expense for the Company decreased from 5.6% of revenue in 1992 to 5.5% in 1993. Technical expense increased in dollars and as a percentage of revenue in Information Services in 1993 due to increases in Employer Services related to product and system improvements and to maintaining and upgrading existing system software. Technical expense for Computing Devices was essentially unchanged in dollars but decreased as a percentage of revenue from 1992 to 1993, due in part to the increase in revenue from the Iris contract, which requires little Company-funded research and development. The decrease in other income from 1992 to 1993 primarily reflected decreased earnings from the CMR joint venture and foreign currency translation gains during the first half of 1992 arising from Computing Devices' operations in Canada. CMR's performance in 1993 was adversely affected by Arbitron's decreased revenue from commercial monitoring services, for which it paid a royalty to CMR. Earnings (Loss) Before Interest and Taxes. The Company's loss before interest and taxes decreased from $25.5 million in 1992 to $10.1 million in 1993. Excluding the previously mentioned net restructuring losses and the extraordinary loss from the Company's results for 1992 and 1993, the Company's EBIT increased 12.3% from 1992 to 1993, from 6.1% of revenue in 1992 to 6.4% of revenue in 1993. Computed on the same basis, EBIT increased from 8.2% to 8.7% of revenue in Information Services, and from 5.0% to 5.9% of revenue in Computing Devices. Also apart from restructuring gains and losses, the Company's loss not attributable to either industry segment increased from 1992 to 1993 due in part to certain unusual gains in 1992 related to reshaping activities. Interest Income and Expense. Interest expense was little changed from 1992 to 1993, but interest income decreased $9.5 million. This decrease was primarily due to lower average cash balances as a result of the Company's 1992 reshaping efforts, generally lower interest rates, and the September 1992 prepayment of certain notes receivable held by the Company with above market interest rates. Financial Condition The Company's cash and short-term investments decreased from $215.8 million at December 31, 1993 to $171.4 million at December 31, 1994. The portion of the December 31, 1993 balance that represented amounts subject to restrictions was $22.7 million, the majority of which represented the remaining portion of a customer advance received in connection with Computing Devices' Iris contract. None of the December 31, 1994 cash and short-term investments balance was subject to any restrictions. Page 32 During 1994, operating cash flows provided $35.5 million of cash, compared to $44.0 million in 1993 and $12.0 million in 1992. Net earnings adjusted to a cash basis provided cash of $111.0 million in 1994, $46.2 million in 1993 and $69.8 million in 1992. Reducing these cash flows in 1994 and 1993 were $10 million and $20 million, respectively, in voluntary contributions to the Company's primary U.S. defined benefit retirement plan, intended to improve the funded status of that plan. An increase in working capital utilized $21.8 million of cash in 1994, while reductions in working capital provided $57.5 million and $29.1 million of cash in 1993 and 1992, respectively. The 1994 working capital increase included an increase in trade and other receivables, particularly in Employer Services reflecting increased business volume and end of year billings, and a decrease in customer advances, particularly in Computing Devices as the last of a series of semiannual customer advances on the Iris contract was received in April 1994. Included in the 1993 cash received from working capital items was the previously mentioned refund of $35.5 million from the Internal Revenue Service, of which $10.0 million benefited working capital and $14.7 million reduced restructure reserves established. Investing activities utilized $33.8 million of cash during 1994 and $61.7 million during 1993, but provided $87.6 million of cash during 1992. The net use of cash during 1994 included expenditures of $65.6 million for business acquisitions, $54.3 of which represented the amount to acquire Tesseract (net of Tesseract's cash balances at acquisition), $37.5 million for capital assets and $13.5 million for capitalized software. Cash received from the liquidation of short-term investments during 1994 totaled $48.8 million, while cash of $33.5 million received during 1994 from the sale of businesses and investments was primarily attributable to the sale of TeleMoney and to the final settlement of obligations under the Commercial Credit Company tax sharing agreement discussed earlier. The net use of cash for investing activities during 1993 reflected additions to short-term investments of $39.0 million and expenditures of $27.8 million for capital assets and $6.5 million for capitalized software, as well as proceeds of $11.4 million from sales of investments. The increase in capital expenditures from 1993 to 1994 was primarily due to the acquisition of equipment to upgrade Employer Services' communications and service delivery capabilities, to further automate Computing Devices production facilities, and to implement an electronic diary processing and retrieval system in Arbitron. The increased expenditures for capitalized software from 1993 to 1994 related primarily to the acquisition of Tesseract and to ongoing projects in Employer Services to introduce enhanced payroll processing software and human resource software applications. Investing activities provided $87.6 million of cash during 1992, reflecting capital expenditures of $19.3 million, expenditures for the purchase of businesses of $21.8 million (including the Company's U.K. subsidiary and Barrios Technology), the receipt of $76.6 million from sales of businesses and assets (most significantly Automated Wagering), and the collection of $43.9 million from notes related to prior year business sales (most significantly Imprimis). The Company's capital expenditures presently planned for 1995 total approximately $44 million, with the expected increase over 1994's level of spending to be about evenly divided between Employer Services and Computing Devices. Planned capital expenditures for 1995 generally involve equipment and leasehold improvements to expand and improve Employer Services' communications and service delivery capabilities, equipment for Computing Devices' engineering and manufacturing facilities, and Page 33 leasehold improvements for Arbitron's new Columbia, Maryland production and service facility. The Company also expects to capitalize in 1995 approximately $13 million of software development costs, primarily for software to be used in Employer Services' payroll and tax filing operations. Financing activities provided $3.0 million in cash during 1994, primarily reflecting the receipt in January of an additional $15.5 million in net cash proceeds from the sale by the Company of additional shares of 5 1/2% Preferred Stock as a result of the underwriters' exercise of their over-allotment option, and the payment of $13.0 million in dividends on that stock. Financing activities produced $42.6 million in cash during 1993, primarily from the sale by the Company through an underwritten public offering of the 5 1/2% Preferred Stock. Net cash proceeds of $213.0 million from the 1993 sale were received by the Company during December 1993, $168.1 million of which was used to redeem the remaining $163.5 million principal amount of the Company's 8 1/2% Debentures. The prepayment of other debt during 1993 related primarily to a mortgage involving Computing Devices' Canadian operations. During 1992, financing activities used $124.6 million of cash, the largest portion of which related to the spin-off of Control Data Systems and included $102 million to capitalize Control Data Systems and $10.9 million to redeem the Company's 4 1/2% cumulative preferred stock in connection therewith. The use of $13.6 million in 1992 to repay debt relates principally to the parent company-funded payment of outstanding short-term debt of the Company's U.K. subsidiary. During the first three years of the Iris contract, Computing Devices received semiannual advance payments from the Canadian government, generally in April and October of each year, each such payment covering a substantial portion of the expected contract billings prior to the next scheduled advance payment. The last of these semiannual advance payments was received in April 1994. Computing Devices now receives monthly progress payments which may be supplemented from time to time by customer advances tied to the achievement of significant contractual milestones. Computing Devices received a $15 million customer advance in the third quarter 1994 as a result of achieving such a milestone. Because of actions taken with respect to other aspects of Computing Devices' business to reduce working capital requirements, these changes in the contractual payment mechanism under the Iris contract are not expected to materially increase the overall working capital requirements of Computing Devices. The portion of the Company's revenue derived from operations outside of the U.S. (Computing Devices' operations in Canada and the U.K.) has increased from 20.1% in 1992 to 24.4% in 1993 to 28.2% in 1994. Despite this trend, the Company believes that its foreign currency exposure is relatively small and largely limited to a risk that profits of its overseas operations denominated in Canadian dollars or pounds will be worth less in U.S. dollars if those currencies weaken against the U.S. dollar. Almost 90% of the Company's non-U.S. revenue is from the Canadian operations, and about three-fourths of the revenue of the Canadian operations is provided by contracts, principally the Iris contract, which are denominated in Canadian dollars but contain provisions which protect the Company from any currency exposure on non-Canadian dollar costs. In the case of the U.K. operation, which provides the remainder of Page 34 non-U.S. revenue, approximately 90% of its revenue and costs are based in pounds. Approximately 10% of the Company's non-U.S. revenue is U.S. dollar based. During 1994, Standard and Poor's Ratings Group raised its rating on the Company's 5 1/2% Preferred Stock to "BB-" from "B" with an implied senior debt rating of "BB+". Also during 1994, Moody's Investors Service upgraded its rating on the 5 1/2% Preferred Stock from "b3" to "b2" and its outlook on the Company from neutral to positive. In January 1995, Standard and Poor's Ratings Group affirmed the foregoing rating on the 5 1/2% Preferred Stock and revised its outlook on the Company from stable to positive. Also during 1994, the Company's Board of Directors authorized the Company to repurchase up to 2,000,000 shares of its common stock in open market or privately negotiated transactions. Purchases may be made from time to time at the discretion of Company management, depending on share price and market conditions. The principal reason for adopting the repurchase program is to provide shares to be issued under the Company's employee stock plans, thereby reducing dilution from such plans. As of December 31, 1994, the Company had repurchased 70,000 shares in the open market at an average purchase price of $25.50. The Company's domestic revolving credit agreement limits the amount of cash the Company may expend in connection with this program to 25% of the amount of the Company's net income in profitable quarters after the first quarter of 1993. As of December 31, 1994, the additional amount the Company could expend in connection with this program totaled $22.6 million. During May 1994, the Company concluded a one year extension of its $35 million domestic revolving credit facility with five commercial banks. Under the terms of the extension, the Company has credit availability equal to the lesser of $35 million or 75% of the amount of its eligible accounts receivable until May 30, 1995, all of which may be used to obtain revolving loans or standby letters of credit which may not have a final expiration date later than May 30, 1996. The credit facility as extended is unsecured. At December 31, 1994, there were $1.6 million in letters of credit and no revolving loans outstanding under the facility. Under the terms of the extended facility, the Company must maintain a minimum consolidated net worth which is subject to increase based on the Company's net earnings after December 31, 1993 and certain equity contributions to the Company after the same date. As of December 31, 1994, the Company was in compliance with this covenant by $29.0 million. The Company is also required to achieve a prescribed level of operating earnings on a rolling four quarter basis, and is subject to additional covenants which limit debt, liens, contingent obligations, operating leases, investments, cash dividends on common stock, cash repurchases of stock, acquisitions and divestitures. The Company continues to be in compliance with all covenants associated with this credit facility. The Company expects to meet its operating cash needs (including accrued restructure liabilities), expenditures for capital assets and software, dividend obligations with respect to the 5 1/2% Preferred Stock, expenditures for strategic acquisitions of moderate size and expenditures to repurchase common stock from its existing cash balances, cash flow from operations and proceeds from the exercise of stock options. Page 35 Report of Management The consolidated financial statements and other related financial information of Ceridian published in this Annual Report were prepared by Company management, which acknowledges its responsibility therefor. Such statements and information were prepared in accordance with generally accepted accounting principles and were necessarily based in part on reasonable estimates, giving due consideration to materiality. Ceridian maintains a system of internal controls which, in the opinion of management, provides reasonable assurance that assets are adequately safeguarded, that financial records accurately reflect all transactions and can be relied upon in all material respects in the prep-aration of financial statements, and that the Company's business is conducted in compliance with its policy on business ethics. The control system is supported by written policies and procedures, and its effectiveness is monitored by a regular program of internal auditing. Our independent auditors, KPMG Peat Marwick LLP, in their audit of Ceridian's consolidated financial statements, considered the internal control structure of the Company to gain a basic understanding of the accounting system in order to design an effective and efficient audit approach, not for the purpose of providing assurance on the system of internal control. The Audit Committee, consisting of outside directors, is responsible to the Board of Directors for reviewing the financial controls and reporting practices and for recommending appointment of the independent auditors. The committee meets periodically with representatives of the internal audit department and the independent auditors, both with and without Ceridian management being present. Lawrence Perlman Chairman, President and Chief Executive Officer John R. Eickhoff Chief Financial Officer Page 36 Independent Auditors' Report The Board of Directors and Stockholders of Ceridian Corporation: We have audited the accompanying consolidated balance sheets of Ceridian Corporation and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations and cash flows for each of the years in the three-year period ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opin-ion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ceridian Corporation and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Notes A and I to the consolidated financial state- ments, the Company changed its method of accounting for postretirement benefits other than pensions in 1992. KPMG Peat Marwick LLP Minneapolis, Minnesota January 24, 1995 Page 37 CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in millions, except per share data) Years Ended December 31, 1994 1993 1992 Revenue Product sales $515.9 $442.0 $ 392.7 Services 400.4 444.1 437.6 Total 916.3 886.1 830.3 Cost of revenue Product sales 401.3 353.1 316.4 Services 187.2 252.9 258.7 Total 588.5 606.0 575.1 Gross profit 327.8 280.1 255.2 Operating expenses Selling, general and administrative 205.5 178.1 164.5 Technical expense 49.3 48.6 46.9 Other expense (income) (3.2) (3.5) (6.9) Restructure loss - 67.0 76.2 Earnings (Loss) before interest and taxes 76.2 (10.1) (25.5) Interest income 10.6 8.3 17.8 Interest expense (1.6) (16.4) (16.3) Earnings (Loss) before income taxes 85.2 (18.2) (24.0) Income tax provision 6.6 3.8 5.1 Earnings (Loss) from continuing operations 78.6 (22.0) (29.1) Discontinued operations: Loss from operations - - 164.8 Loss from disposition - - 156.8 Extraordinary loss - 8.4 - Cumulative effect of accounting change (FAS 106) - - 41.8 Net earnings (loss) $ 78.6 $ (30.4) $(392.5) Preferred stock dividends 13.0 0.3 0.3 Net earnings (loss) applicable to common stockholders $ 65.6 $ (30.7) $(392.8) Primary earnings (loss) per share: Continuing operations $ 1.43 $ (0.52) $ (0.69) Discontinued operations - - (7.55) Extraordinary loss - (0.19) - Cumulative effect of accounting change (FAS 106) - - (0.98) Total $ 1.43 $ (0.71) $ (9.22) Fully diluted earnings per share $ 1.40 Shares used in calculations (in thousands): Primary 45,865 43,131 42,617 Fully diluted 56,249 See notes to consolidated financial statements.
Page 38 CONSOLIDATED BALANCE SHEETS (Dollars in millions, except per share data) December 31, 1994 1993 ASSETS Current assets Cash and equivalents $ 116.8 $ 112.4 Short-term investments 54.6 103.4 Trade and other receivables Trade, less allowance of $6.2 and $5.4 73.9 69.2 Unbilled 57.3 45.5 Other 10.2 18.3 Total 141.4 133.0 Inventories 25.8 30.9 Other current assets 7.5 7.5 Total current assets 346.1 387.2 Investments and advances 14.5 28.2 Property, plant and equipment, net 97.8 88.7 Prepaid pension cost 78.0 64.0 Goodwill and other intangibles 128.0 37.4 Other noncurrent assets 25.9 10.2 Total assets $ 690.3 $ 615.7 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Short-term debt and current portion of long-term obligations $ 1.2 $ 3.1 Accounts payable 30.7 40.0 Customer advances and deferred income 85.7 70.5 Accrued taxes 56.9 54.2 Employee compensation and benefits 53.5 44.4 Restructure reserves, current portion 18.8 44.8 Other accrued expenses 60.0 59.4 Total current liabilities 306.8 316.4 Long-term obligations, less current portion 17.5 16.3 Deferred income taxes 7.7 6.4 Restructure reserves, less current portion 69.5 63.2 Employee benefit plans 80.5 83.2 Deferred income and other noncurrent liabilities 21.8 18.9 Stockholders' equity 5 1/2% Cumulative Convertible Exchangeable Preferred Stock, $100 par value (liquidation preference of $236.0 million), authorized 50,600 shares, issued and outstanding 47,200 4.7 4.7 Common Stock, $.50 par, authorized 100,000,000 shares, issued 45,515,123 and 44,263,369 22.8 22.1 Additional paid-in capital 849.6 824.2 Accumulated deficit (664.2) (729.8) Other stockholders' equity items (26.4) (9.9) Total stockholders' equity 186.5 111.3 Total liabilities and stockholders' equity $ 690.3 $ 615.7 See notes to consolidated financial statements.
Page 39 CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in millions, except per share data) Years Ended December 31, 1994 1993 1992 Cash Flows from Operating Activities Net earnings (loss) $ 78.6 $ (30.4) $(392.5) Adjustments to reconcile net earnings (loss) to net cash provided by (used for) operating activities: Loss from discontinued operations - - 164.8 Loss from disposition of discontinued operations - - 156.8 Extraordinary loss - 8.4 - Cumulative effect of accounting change (FAS 106) - - 41.8 Restructure reserves: Reserves established - 67.0 76.2 Reserves utilized (53.7) (59.7) (86.9) Depreciation 26.1 25.5 22.9 Amortization of deferred assets 6.8 3.4 6.5 Net change in working capital items (21.8) 57.5 29.1 Other (0.5) (27.7) (6.7) Net cash provided by (used for) operating activities 35.5 44.0 12.0 Cash Flows from Investing Activities Expended for capital assets (37.5) (27.8) (19.3) Capitalized software (13.5) (6.5) (1.7) Short-term investments 48.8 (39.0) 9.9 Proceeds from sales of businesses and assets 33.5 11.4 76.6 Expended for business acquisitions, less cash acquired (65.6) - (21.8) Collection of notes from asset sales 0.5 0.2 43.9 Net cash provided by (used for) investing activities (33.8) (61.7) 87.6 Cash Flows from Financing Activities Short-term debt (1.6) 1.6 - Retirement of public debt - (168.1) - Repayment of other debt (1.6) (5.8) (13.6) Redemption of preferred stock - - (10.9) Payment to capitalize Control Data Systems - - (102.0) Sale of 5 1/2% Preferred Stock 15.5 213.0 - Preferred dividends (13.0) (0.3) (0.3) Other 3.7 2.2 2.2 Net cash provided by (used for) financing activities 3.0 42.6 (124.6) Effect of exchange rate changes on cash (0.3) (0.9) (5.8) Net Cash Flows Provided (Used) 4.4 24.0 (30.8) Cash and equivalents at beginning of year 112.4 88.4 119.2 Cash and equivalents at end of year $ 116.8 $ 112.4 $ 88.4 See notes to consolidated financial statements.
Page 40 CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in millions, except per share data) Years Ended December 31, 1994 1993 1992 Net Change in Working Capital Items Decrease (Increase) in trade and other receivables $ (12.1) $ 9.8 $ 5.4 Decrease (Increase) in inventories 4.9 12.1 21.4 Decrease (Increase) in net assets of discontinued operations - - (14.9) Decrease (Increase) in other current assets 3.1 (1.0) 3.5 Increase (Decrease) in accounts payable (18.6) 13.0 1.3 Increase (Decrease) in customer advances and deferred income (1.0) 15.5 7.7 Increase (Decrease) in other current liabilities 1.9 8.1 4.7 Net change in working capital items $ (21.8) $ 57.5 $ 29.1 Notes to the Consolidated Statements of Cash Flows Cash flow from other operating activities includes cash contributions to pension plans as further described in Note I, "Retirement Plans." The receivable due from the exercise of the underwriters' overallotment option at the end of 1993 and the related increase in stockholders' equity, as described in Note E, "Stockholders' Equity." The write-off of deferred debt issue costs related to the early retirement of debt in 1993, and the 1992 addition of $6.7 in mortgage debt and the equivalent amount of capital expenditures financed, as described in Note K, "Financing Arrangements." The effects of foreign currency translation (except on cash balances). Amounts charged to earnings for restructuring or discontinued operations. Payments of the underlying obligations are shown as restructure reserves utilized. Such amounts and related recoveries are described in Note B, "Restructure Loss and Discontinued Operations."
Years Ended December 31, Interest and Income Taxes Paid (Refunded) 1994 1993 1992 Interest paid $ 1.7 $ 17.0 $ 17.4 Income taxes paid $ 5.7 $ 8.6 $ 3.6 Income taxes refunded $ (2.2) $ (36.2) $ (0.2)
Page 41 Notes to Consolidated Financial Statements For the three years ended December 31, 1994 INDEX TO NOTES 42 A. Accounting Policies 44 B. Restructure Loss and Discontinued Operations 45 C. Income Taxes 46 D. Noncurrent Assets and Liabilities 46 E. Stockholders' Equity 47 F. Supplementary Data to Statements of Operations 48 G. Segment Data 49 H. Property, Plant and Equipment 50 I. Retirement Plans 52 J. Stock Plans 53 K. Financing Arrangements 54 L. Investing Activity 55 M. Leasing Arrangements as Lessee 55 N. Commitments andContingencies 56 O. Legal Matters A. ACCOUNTING POLICIES Basis of Consolidation The consolidated financial statements of Ceridian Corporation ("Ceridian" or the "Company") include the accounts of all majority- owned subsidiaries. Investments in other affiliated companies where Ceridian has significant influence are accounted for by the equity method. The remaining investments are accounted for by the cost method. All material intercompany transactions have been eliminated from the consolidated financial statements. Change in Accounting for Postretirement and Postemployment Benefits Effective January 1, 1992, Ceridian adopted Financial Accounting Standard No. 106 ("FAS 106") with respect to its postretirement health care and life benefit plans. FAS 106 requires that the expected cost of these benefits be charged to expense during the periods in which the employees render service. Under the previous accounting rules, the expense for these benefits was generally recorded upon receipt of health care claims or premium invoices. Effective January 1, 1993, the Company adopted FAS 112, "Employers' Accounting for Postemployment Benefits," which establishes accounting standards for employers who provide benefits to former or inactive employees and their dependents after employment but before retirement. FAS 112 requires accrual accounting for these benefits. After consideration of restructuring provisions of $12.0 in June 1992 and $4.3 in September 1989 primarily related to the continuation of such benefits to former employees of disposed businesses, the adoption of FAS 112 did not have a material effect on the Company's financial position or results of operations. Changes in Presentation In certain cases, prior year amounts have been reclassified to conform to the current year's presentation. Cash and Short-term Investments The Company has an arrangement with an independent investment manager to invest its cash in excess of estimated current requirements in investment-grade fixed income securities which may have final maturities of up to two years. Investments which are readily convertible to cash within three months of purchase are classified in the balance sheet as cash equivalents. Investments with longer maturities are considered available-for-sale under FAS 115, adopted January 1994, and reported in the balance sheet as short-term investments. The fair value of short-term investments is not materially different from their amortized cost, and the amount of investments expected to be held more than one year beyond the balance sheet date is not considered material. Net changes in short-term investments, which are shown as investing cash flows in the Statements of Cash Flows, relate to investment decisions by the independent investment manager as well as to changes in the cash needs of the Company. Property, Plant and Equipment Property, plant and equipment are carried at cost and depreciated for financial statement purposes using straight-line and accelerated methods at rates based on the estimated lives of the assets, which are generally as follows: Buildings 40-50 years Building improvements 5-20 years Machinery and equipment 3-8 years Computer equipment 3-6 years Repairs and maintenance are expensed as incurred. Gains or losses on dispositions are included in results of operations. Page 42 Goodwill Goodwill, which represents the excess purchase price over the fair value of net assets of businesses acquired, is assigned to operating units based on the benefits derived from the acquisition and amortized on a straight line basis over the expected periods to be benefited, ranging up to 20 years. Recorded amounts are regularly reviewed and recoverability assessed. The review considers factors such as whether the amortization of the goodwill balance for each business segment over its remaining life can be recovered through forecasted future operations (undiscounted and without interest). Earnings (Loss) Per Share For 1994, primary earnings per share is calculated by dividing the net earnings applicable to common stockholders by the weighted average of outstanding common stock and common stock equivalents. Common stock equivalents includes the impact of outstanding dilutive stock options and restricted stock. Fully diluted earnings per share assumes that the Company's 5 1/2% Preferred Stock was converted to common shares at the beginning of the reporting period. Therefore, the calculation uses net earnings without reduction for preferred stock dividends divided by weighted average common shares and common share equivalents plus the additional common shares which would have resulted from the assumed conversion. In the years presented prior to 1994, fully diluted loss per share would not differ from primary because the result is antidilutive. Income Taxes The provision for income taxes is based on income recognized for financial statement purposes and includes the effects of temporary differences between such income and that recognized for tax return purposes. The Company and its eligible subsidiaries file a consoli- dated U.S. federal income tax return. Certain subsidiaries which are consolidated for financial reporting are not eligible to be included in the consolidated U.S. federal income tax return and separate provisions for income taxes have been determined for these entities. The tax benefit of losses from U.S. operations in prior years has been provided as the losses are utilized. Except for selective dividends, Ceridian intends to reinvest the unremitted earnings of its non-U.S. subsidiaries and postpone their remittance indefinitely. Accordingly, no provision for U.S. income taxes was required on such earnings during the three years ended December 31, 1994. Revenue Recognition Revenue from product sales is related primarily to fixed price, long- term contracts with government customers and is recognized on a percentage of completion basis. Percentage of completion is determined by reference to the extent of contract performance, future performance risk and cost incurrence. Costs and estimated earnings in excess of billings on uncompleted contracts are reported as unbilled receivables, a portion of which represents a holdback reserve which is billable as allowed under the contract terms. Contracts in progress are reviewed quarterly, and sales and earnings are adjusted in current accounting periods based on revisions in contract value and estimated costs at completion. Provisions for estimated losses on contracts are recorded when identified. Revenue from sales of services is recognized when the services are performed and billable, except for the portion of Employer Services tax filing revenue which is recognized as earned from the investment of customer deposits. Inventories Inventories consist primarily of electronic components which are purchased in anticipation of funding for specific contracts and programs and are stated at the lower of first in, first out or average cost or net realizable value. Although inventories include costs related to long-term contracts, most of the inventoried costs are expected to be charged to cost of sales within one year. Payments received in advance of billings on long-term contracts are recorded as a liability for customer advances until contract milestones are accomplished. Payroll Processing and Payroll Tax Filing Services In connection with the Company's payroll processing and payroll tax filing services, the Company files federal, state and local tax returns, handles related regulatory correspondence and amendments, absorbs regulatory charges for certain penalties and interest, collects funds for payment of taxes due, holds such funds in trust until payment is due, and remits the funds to the appropriate taxing authority. For services provided, the Company receives fees from customers and an investment return on funds which are held in trust. The trust invests in a diversified portfolio composed of obligations of the United States government and its agencies and obligations of corporations rated single A or better by nationally recognized debt rating agencies. The amount of collected but unremitted funds varies significantly during the year and averaged $867.5 in 1994, $460.0 in 1993 and $298.4 in 1992. The increase in such balances was due primarily to the acquisition of Systems Tax Service, Inc. in October 1993. The amount of such funds at December 31, 1994, was $918.2. Page 43 B. RESTRUCTURE LOSS AND DISCONTINUED OPERATIONS Restructure Loss During second quarter 1994, the Company recorded restructure gains of $7.8 from the sale of its TeleMoney Services and related data services operations and $7.2 from the final settlement of a tax-sharing arrangement with a former subsidiary. These gains were offset by a $15.0 provision for costs related to age discrimination litigation arising out of downsizing actions taken by the Company in past years. In 1993, the net restructure loss of $67.0 included charges of $75.9 for Information Services and $5.5 for Defense Electronics. These charges were offset in part by a gain of $14.4, not attributable to either industry segment, which includes a gain of $14.7 resulting from the receipt of a refund of taxes and related interest as further described in Note C and a $0.3 net adjustment of prior years' restructuring provisions. The $75.9 Information Services charges include a charge of $57.0 related to the discontinuance of Arbitron's syndicated television and cable ratings service, which primarily involves the write-off of metering and other equipment, severance and other costs related to the termination of employees, and lease and other obligations related to facilities and equipment. Also included is a charge of $18.9 for Employer Services, primarily to consolidate its payroll processing activities into centralized processing facilities and its customer service operations into a single national center, beginning in 1994. The $5.5 charge relates to actions taken by Computing Devices to reduce employment levels in its U.S. and U.K. operations in relation to the completion, deferral or termination of certain government contract programs. In 1992, the net restructure loss of $76.2 included a write-off of $29.9 from the discontinuance of Arbitron's ScanAmerica service, $8.8 for the consolidation of certain Employer Services administrative operations, litigation and other costs largely related to past restructuring actions of $20.9, severance costs of $8.5, a $12.0 provision for postemployment benefit obligations to employees of businesses sold or discontinued by the Company, a gain of $7.6 from the formation of the Competitive Media Reporting ("CMR") joint venture, and a loss of $3.7 from the sale of the Benefits Services division. Discontinued Operations In second quarter 1992, the Company sold its Automated Wagering division, adopted a plan of disposal for its Empros energy management division (sold in March 1993), and substantially completed preparations to separately incorporate its Computer Products business as Control Data Systems, Inc. ("Control Data Systems") and make a dividend distribution of its stock as of July 31, 1992. In light of the dependence of these businesses on a common proprietary technology and their dissimilarity to the continuing operations of the Company, these operations have been separately reported as discontinued operations in the accompanying consolidated financial statements. The sale of Automated Wagering resulted in cash proceeds of $42.3 and the recording of a loss of $55.0 in June 1992. The sale of Empros in March 1993 required a payment of $8.0 to the buyer at the date of sale, which had been provided for by the recording of a loss of $45.0 in June 1992. The spin-off of Control Data Systems involved cash payments by Ceridian to Control Data Systems of $50.0 on July 31, 1992, and $52.0 on December 31,1992, along with the contribution on July 31, 1992, of net assets valued at $34.3, resulting in a dividend valued at $136.3 to Ceridian stockholders in the form of the common stock of Control Data Systems. Ceridian recorded a loss of $25.2 related to the spin-off of Control Data Systems and an additional loss of $31.6 related to its headquarters building, a major portion of which the Company decided to sublet. The total Company loss arising from disposition of the discontinued businesses amounted to $156.8, or $3.68 per share. Operating losses of the three discontinued businesses for 1992, including restructuring charges of $130.5, totaled $164.8, or $3.87 per share, on revenue of $380.4. Page 44 C. INCOME TAXES The cumulative amount of undistributed earnings of international subsidiaries for which U.S. income taxes have not been provided was approximately $28.3 at December 31, 1994. It is not practical to estimate the amount of unrecognized deferred U.S. taxes on these undistributed earnings. In October 1993, Ceridian received $35.5 from the Internal Revenue Service representing a refund of taxes and related interest determined to be owed to the Company as a result of the audit of Ceridian's U.S. income tax returns for the years 1978-1987. Of that amount, $10.8 was paid by Ceridian to or on behalf of third parties in accordance with the tax sharing agreements relating to past restructuring actions, $10.0 was recorded in accrued taxes and the remaining $14.7 was recorded as a restructuring gain. Under tax sharing agreements existing at the time of the disposition of certain former operations of the Company, Ceridian remains subject to income tax audits in various jurisdictions for the years 1985-1992. Ceridian considers its tax accruals adequate to cover any U.S. and international tax deficiencies not recoverable through deductions in future years. The Company has U.S. net operating loss carryforwards, future tax deductions and general business and alternative minimum tax credits of $976.8, $302.0 and $26.8, respectively, which will be available to offset substantially all of its U.S. earnings during the carryforward period. The tax benefits of these items are reflected in the accompanying table of deferred tax assets and liabilities. If not used, these carryforwards begin to expire in 1997. U.S. tax rules impose limitations on the use of net operating losses following certain changes in ownership. If such a change were to occur with respect to the Company, the limitation could reduce the amount of these benefits that would be available to offset future taxable income each year, starting with the year of ownership change. Components of Earnings and Taxes 1994 1993 1992 Earnings (Loss) Before Income Taxes U.S. $69.8 $(27.3) $(39.3) International 15.4 9.1 15.3 Total $85.2 $(18.2) $(24.0) Income Tax Provision Current U.S. $ 0.7 $ - $ - International 3.1 2.6 2.7 State and other 0.6 0.6 0.5 4.4 3.2 3.2 Deferred International 2.2 0.6 1.9 Total $ 6.6 $ 3.8 $ 5.1
Effective Rate Reconciliation 1994 1993 1992 U.S. statutory rate 35% 35% 34% Income tax provision (benefit) at U.S. statutory rate $29.8 $(6.4) $(8.2) International rate differences (0.7) (0.8) (0.6) State income taxes, net 0.6 0.6 0.5 Losses for which no tax benefit was provided 0.7 10.4 13.4 Utilization of loss carryforwards (24.5) - - Other 0.7 - - Income tax provision $ 6.6 $ 3.8 $ 5.1
Tax Effect of Items That Comprise a Significant Portion of Deferred Tax Assets and Liabilities at December 31, 1994 Deferred Tax Deferred Tax Item Description Asset Liability Net operating loss carryforwards $ 383.4 $ - Restructuring and other accruals 92.2 International (7.7) Other 27.0 Total 502.6 (7.7) Less valuation allowance (502.6) Deferred income taxes $ - $ (7.7) The net deferred tax asset at December 31, 1994, is fully offset by a valuation allowance. During 1994, both the deferred tax asset and the valuation allowance decreased by $21.4. The amount of the valuation allowance is reviewed annually.
Page 45 D. NONCURRENT ASSETS AND LIABILITIES Company policy regarding accounting for goodwill is presented in Note A, "Accounting Policies. " The increase in goodwill and other intangibles in 1994 primarily represents purchased technology and customer base and goodwill acquired in the purchase of Tesseract Corporation ("Tesseract") as further described in Note L, "Investing Activity. " In 1993, the Company began incurring capitalizable costs, incremental to normal operations, of internally developed software which will become an integral part of its revenue-producing payroll processing system. The net amounts of these capitalized costs at December 31, 1994 and 1993 are $12.9 and $4.1, respectively, and are included in other noncurrent assets. Amortization of these costs will be over a 3 to 5 year period beginning in 1995 as elements of the payroll processing system become operational. Prepaid pension cost includes the net pension asset related to funded plans for U.S. and Canadian employees and the intangible asset related to the Company's supplemental plan, as further described in Note I. The liability for employee benefit plans includes postretirement and postemployment plans and the supplemental pension plan as further described in Note I. December 31, Goodwill and Other Intangibles 1994 1993 Goodwill $ 97.1 $ 37.2 Accumulated amortization 5.2 1.8 91.9 35.4 Other intangible assets 41.6 6.5 Accumulated amortization 5.5 4.5 36.1 2.0 $128.0 $ 37.4
E. STOCKHOLDERS' EQUITY Preferred Stock From a class of preferred stock with 750,000 authorized shares (the "Preferred Stock"), the Company's Board of Directors designated a series consisting of 50,600 such shares as 5 1/2% Cumulative Convertible Exchangeable Preferred Stock, par value $100 per share (the "5 1/2% Preferred Stock"). In December 1993, the Company completed the sale in an underwritten public offering of 4,400,000 depositary shares, each representing a one one-hundredth interest in a share of 5 1/2% Preferred Stock, for $50 per share, or net cash proceeds of $213.0, and received a commitment from the underwriters to purchase an additional 320,000 depositary shares, at $50 per share. The underwriters' commitment is reported as an other receivable of $15.5 at December 31, 1993, which was collected in early January 1994. The proceeds were used primarily to retire the Company's 8/% Convertible Subordinated Debentures Due June 15, 2011 (the "8/% Debentures") with the remainder to be used for working capital and other general corporate purposes. Dividends on the 5 1/2% Preferred Stock and depositary shares are cumulative from the date of issuance and payable on a quarterly basis commencing on March 31, 1994. The depositary shares are convertible at the option of the holder into common stock of the Company at a conversion price of $22.72 per common share, subject to adjustment under certain conditions. The depositary shares are redeemable, in whole or in part, at the option of the Company, at any time on or after December 31, 1996, initially at a redemption price per share of $51.10 and thereafter at prices declining to $50.00, in all cases plus accrued and unpaid dividends to the redemption date. The depositary shares are exchangeable, in whole but not in part, at the option of the Company, on any quarterly dividend payment date on or after December 31, 1995, for the Company's 5 1/2% Convertible Subordinated Debentures due 2008 at a rate of $50.00 principal amount of such Debentures for each depositary share. The 5 1/2% Preferred Stock and depositary shares are non-voting except that holders will be entitled to vote as a separate class to elect two directors if the equivalent of six or more quarterly dividends shall be in arrears, until the dividends in arrears are paid in full. The 108,591 shares of 4 1/2% Cumulative Preferred Stock issued and outstanding at December 31, 1991, were redeemed at par value of $100 per share in July 1992 in connection with the spin-off of Control Data Systems. Page 46 Common Stock, Shares Additional Additional Paid-In Capital Treasury Common Paid-In Accumulated and Accumulated Deficit Outstanding Stock Issued Stock Capital Deficit Balance December 31, 1991 42,530,122 196,738 42,726,860 $21.4 $582.8 $(170.0) Exercises of stock options 277,750 277,750 0.1 2.2 Forfeitures of restricted stock (4,000) 4,000 Net loss (392.5) Preferred stock dividends (0.3) Dividend of Control Data Systems stock (136.3) Balance December 31, 1992 42,803,872 200,738 43,004,610 21.5 585.0 (699.1) Exercises of stock options 252,851 252,851 0.1 2.3 Restricted stock awards 119,000 (119,000) (0.2) Net loss (30.4) Sale of 5 1/2% Preferred Stock depositary shares 223.8 Preferred stock dividends (0.3) Issued for purchase of Systems Tax Service 1,005,908 1,005,908 0.5 13.3 Balance December 31, 1993 44,181,631 81,738 44,263,369 22.1 824.2 (729.8) Repurchase of common shares (70,000) 70,000 Exercises of stock options 462,462 (33,708) 428,754 0.2 4.4 Restricted stock awards 827,500 (4,500) 823,000 0.5 21.4 Net earnings 78.6 Sale of 5 1/2% Preferred Stock depositary shares (0.4) Preferred stock dividends (13.0) Balance December 31, 1994 45,401,593 113,530 45,515,123 $22.8 $849.6 $(664.2) Authorized but unissued or treasury common shares reserved for future issuance as of December 31, 1994, included 4,770,619 shares for exercise of stock options and awards of restricted stock, as discussed in Note J, and 10,384,000 shares for conversion of 5 1/2% Preferred Stock depositary shares.
December 31, Other Stockholders' Equity Items 1994 1993 1992 Foreign currency translation adjustment $ (2.2) $ (2.0) $ (1.0) Restricted stock awards (17.6) (2.2) (0.5) Pension liability adjustment (4.2) (4.1) (2.9) Treasury stock, at cost (2.4) (1.6) (3.9) Total $(26.4) $ (9.9) $ (8.3)
F. SUPPLEMENTARY DATA TO STATEMENTS OF OPERATIONS Years Ended December 31, Other Expense (Income) 1994 1993 1992 Foreign currency translation expense (income) $ (0.1) $ (0.4) $ (2.3) Loss (Gain) on sale of assets 0.6 (0.9) 0.2 Other expense (income) (2.8) (1.0) (1.6) Equity in loss (earnings) of affiliates 0.3 --- 0.6 Share of partnership loss (earnings) (1.2) (1.2) (3.8) Total $ (3.2) $ (3.5) $ (6.9)
Other Data Provision for doubtful accounts $ 0.9 $ 1.7 $ 1.0 Research and development $ 35.4 $ 33.4 $ 30.5 Amortization of goodwill $ 3.4 $ 1.5 $ 0.6 Royalty costs $ 12.7 $ 28.4 $ 30.8
Page 47 G. SEGMENT DATA Industry Segments Information concerning the continuing operations of Ceridian appears in the accompanying Industry Segment Data table. The two industry segments are Information Services and Defense Electronics. The Information Services segment consists of Employer Services and Arbitron, along with a small services business sold in May 1994. The Information Services businesses collect, manage and analyze data on behalf of customers, and report information resulting from that process to customers. The products and services provided by the Information Services businesses address specific information management needs of other businesses to enable them to operate more efficiently and effectively. The technology-based product and services of the Information Services businesses are typically provided through long-term customer relationships that result in a high level of recurring revenue. Employer Services offers a broad range of services designed to help employers manage their work forces more effectively, including payroll processing, payroll tax filing, human resource information services, consulting services and employee assistance programs. During 1994, Employer Services acquired a number of businesses, the largest of which was Tesseract, as further described in Note L, "Investing Activity. " Arbitron is the leading provider of radio audience measurement information in terms of revenue and market share, and also provides media and marketing information, including information regarding product purchasing decisions, to broadcasters, cablecasters, advertising agencies and advertisers. Arbitron's proprietary data regarding radio audience size and demographics is provided to customers through multi-year subscription agreements. The Defense Electronics segment, consisting of Computing Devices International, develops, manufactures and markets electronic systems, subsystems and components, and provides systems integration and other services, primarily to government defense agencies. The "other" category includes corporate center operations, businesses disposed of but reported as continuing operations, and net assets of discontinued operations. Intersegment sales are not material. Major Customers Revenue in 1994, 1993 and 1992, respectively, included sales under prime contracts or subcontracts to the U.S. government of $226, $232 and $239 and the Canadian government of $173, $137 and $95, substantially all of which are reported in the Defense Electronics segment. Of the sales to the Canadian government, $154 in 1994, $105 in 1993 and $69 in 1992 were from the Iris contract. Information Defense Industry Segment Data Services Electronics Other Consolidated 1994 Revenue $430.0 $486.3 $ --- $916.3 Earnings (Loss) before interest and taxes $ 58.6 $ 30.6 $(13.0) $ 76.2 Identifiable assets $247.3 $210.0 $233.0 $690.3 Capital expenditures $ 23.5 $ 13.4 $ 0.6 $ 37.5 Depreciation $ 14.4 $ 10.1 $ 1.6 $ 26.1 1993 Revenue $424.8 $461.3 $ --- $886.1 Earnings (Loss) before restructure, interest and taxes $ 36.9 $ 27.0 $ (7.0) $ 56.9 Restructure gain (loss) (75.9) (5.5) 14.4 (67.0) Earnings (Loss) before interest and taxes $(39.0) $ 21.5 $ 7.4 $(10.1) Identifiable assets $133.8 $209.7 $272.2 $615.7 Capital expenditures $ 16.3 $ 10.6 $ 0.9 $ 27.8 Depreciation $ 15.7 $ 8.7 $ 1.1 $ 25.5 1992 Revenue $408.7 $412.4 $ 9.2 $830.3 Earnings (Loss) before restructure, interest and taxes $ 33.4 $ 20.8 $ (3.5) $ 50.7 Restructure gain (loss) (30.9) (1.1) (44.2) (76.2) Earnings (Loss) before interest and taxes $ 2.5 $ 19.7 $(47.7) $(25.5) Identifiable assets $128.7 $232.1 $190.8 $551.6 Capital expenditures $ 10.0 $ 8.8 $ 0.5 $ 19.3 Depreciation $ 13.5 $ 7.9 $ 1.5 $ 22.9
Geographic Segments Page 48 The Company's international operations consist of defense electronics operations primarily in Canada and, to a much lesser extent, in the United Kingdom. The United Kingdom operations are included in the consolidated financial statements from September 1992, the date of the acquisition of the 56% interest not previously held by the Company. Intersegment and export sales are not material. Geographic information concerning the Company's continuing operations appears in the accompanying Geographic Segment Data table. The amounts of the parent company's equity in net assets of and advances to international subsidiaries and branches were $47.9 and $37.0 at December 31, 1994 and 1993, respectively. Local currencies have been determined to be functional currencies for these operations. Foreign currency balance sheets are translated at the end-of-period exchange rates and earnings statements at the average exchange rates for each period. The resulting translation gains or losses are recorded as "foreign currency translation adjustment" in the stockholders' equity section of the balance sheet. Gains and losses from translation of assets and liabilities denominated in other than the functional currency of the operation are recorded in results of operations as "other expense (income)." Canadian operations include a significant number of contracts which either provide for exchange rate adjustments or are denominated in the U.S. dollar, which benefits the management of exchange rate risk. Geographic Segment Data United States International Consolidated 1994 Revenue $ 658.2 $ 258.1 $ 916.3 Earnings before interest and taxes $ 60.1 $ 16.1 $ 76.2 Identifiable assets $ 554.4 $ 135.9 $ 690.3 1993 Revenue $ 670.2 $ 215.9 $ 886.1 Earnings before restructure, interest and taxes $ 44.8 $ 12.1 $ 56.9 Restructure loss (65.5) (1.5) (67.0) Earnings (Loss) before interest and taxes $ (20.7) $ 10.6 $ (10.1) Identifiable assets $ 482.6 $ 133.1 $ 615.7 1992 Revenue $ 663.5 $ 166.8 $ 830.3 Earnings before restructure, interest and taxes $ 42.6 $ 8.1 $ 50.7 Restructure loss (76.0) (0.2) (76.2) Earnings (Loss) before interest and taxes $ (33.4) $ 7.9 $ (25.5) Identifiable assets $ 423.5 $ 128.1 $ 551.6
H. PROPERTY, PLANT AND EQUIPMENT December 31, 1994 1993 Property, plant and equipment At cost Land $ 2.9 $ 3.4 Buildings and improvements 72.8 75.3 Machinery and equipment 179.1 162.7 Total 254.8 241.4 Accumulated depreciation 157.0 152.7 Property, plant and equipment, net $ 97.8 $ 88.7
Page 49 I. RETIREMENT PLANS Pension Benefits Ceridian maintains two defined benefit pension plans for U.S. employees which were closed to new participants effective January 1, 1995. Ceridian's Canadian and U.K. subsidiaries have defined benefit pension plans available to substantially all their employees which constitute a minor portion of the amounts reported in the accompanying tables. The plans' assets consist principally of equity securities, U.S. government securities, and other fixed income obligations and do not include securities of the Company. Benefits under these plans are calculated on maximum or career average earnings and years of participation in the plans. U.S. employees participate in these plans by means of salary reduction contributions. Certain former employees are inactive participants in the plans. Employer cash contributions to the U.S. plans, during the respective plan years, amounted to $13.8 in 1994, $24.9 in 1993 and $2.3 in 1992. Retirement plan funding amounts are based on independent consulting actuaries' determination of the Employee Retirement Income Security Act of 1974 ("ERISA") funding requirements in the U.S. and local statutory requirements in other countries. Vested U.S. plan participants who have terminated employment after 1989 can elect to immediately receive a lump sum distribution as an alternative to receiving monthly benefits. These distributions totalled $32.7, $36.0 and $49.0 in the 1994, 1993 and 1992 plan years, respectively, and did not result in the recognition of any curtailment gain or loss. The Company also sponsors a nonqualified supplemental retirement plan for certain current and former U.S. employees which is not subject to ERISA benefit limitations, nor does it qualify for the benefit protection provided by ERISA. The projected benefit obligation at September 30, 1994 and 1993 for this plan was $19.2 and $19.7, respectively, and the net periodic pension cost was $2.1 for 1994, $2.2 for 1993 and $2.2 for 1992. The Company recorded a reduction in stockholders' equity of $0.1 in 1994, $1.2 in 1993 and $1.7 in 1992, which represents the increase in the excess of its minimum liability under this plan over the allowed carrying amount of the related intangible asset. A defined contribution plan, satisfying the requirements of IRC 401(k) and to which the Company may make contributions, has been available to most U.S. employees, but effective January 1, 1995, is available only to those U.S. employees who participate in a company-sponsored defined benefit pension plan. The cost recognized by the Company with respect to this plan was $2.9 in 1994, $1.9 in 1993 and $1.8 in 1992. A second 401(k) defined contribution plan, to which the Company may also make contributions, was established effective January 1, 1995, for U.S. employees not participating in a Company-sponsored defined benefit plan. Funded Status of Defined Benefit September 30, Retirement Plans at Measurement Date 1994 1993 Actuarial present value of obligation: Vested benefit obligation $ 585.5 $ 641.5 Accumulated benefit obligation 589.4 645.2 Projected benefit obligation $ 648.7 $ 703.7 Plan assets at fair value 654.5 698.4 Plan assets in excess of (less than) projected benefit obligation 5.8 (5.3) Unrecognized net (gain) or loss 44.8 39.6 Prior service cost 35.4 39.7 Unrecognized net asset (12.7) (15.3) Net pension asset recognized in the consolidated balance sheet $ 73.3 $ 58.7 The assumptions used in determining the funded status information are as follows:
Rate of Long-term Rate DiscountRate Salary Progression of Return on Assets U.S. International U.S. International U.S. International 1994 8.25% 7.5 - 8.0% 4.5% 6.0 - 7.0% 9.0% 8.0 - 9.0% 1993 7.25% 7.5 - 8.0% 4.0% 6.0 - 7.0% 9.0% 8.0 - 9.0% 1992 8.0% 8.0 - 9.0% 4.5% 6.0 - 8.0% 9.5% 8.0 - 9.0%
Net Periodic Pension Cost (Credit) 1994 1993 1992 Service cost $ 6.1 $ 6.0 $ 6.2 Interest cost on projected benefit obligation 51.5 52.2 54.3 Actual return on plan assets (14.7) (103.0) (45.2) Net amortization and deferral (41.8) 47.5 (12.8) Total $ 1.1 $ 2.7 $ 2.5
Page 50 Postretirement Benefits Ceridian provides health care and life insurance benefits for eligible retired employees, including individuals who retired from operations of the Company that were subsequently sold or discontinued. The Company sponsors several health care plans for both pre- and post-age 65 retirees. Plans offered include a managed care option, HMOs where available, and a catastrophic plan for pre-age 65 retirees. Post-age 65 retirees have the choice of a company-sponsored Medicare supplement plan or HMO Medicare plan. Company contributions to these plans differ for various groups of retirees and future retirees. Employees hired on or after January 1, 1992, will be allowed to enroll in company-sponsored plans at retirement, but receive no company subsidy. For employees hired before January 1, 1992, and retiring in 1992 or later, the Company subsidizes pre-age 65 coverage only. The Company's subsidy is a fixed dollar contribution determined at retirement equal to 2.5% of the catastrophic plan cost for each year of service. Employees who retired prior to 1992 are subject to various cost-sharing policies depending on when retirement began and eligibility for Medicare. This is a closed group of retirees. Most retirees outside the United States are covered by governmental health care programs, and the Company's cost is not significant. As described in Note A, Ceridian adopted FAS 106, effective January 1, 1992, with respect to retiree health care and life benefits. The cumulative effect of this change in accounting was a charge of $41.8, which, combined with $14.0 previously accrued in connection with the disposition of businesses, provided an accrued benefit obligation of $55.8. The following tables present the funded status of the plan, reconciled to the accrued postretirement benefit cost recognized in the Company's balance sheet at December 31, 1994 and 1993, and the components of the net periodic postretirement benefit cost for the three years ended December 31, 1994. The Company does not prefund these costs. Funded Status of Postretirement Health Care and Life Plans December 31, 1994 1993 Accumulated postretirement benefit obligation: Retirees $42.9 $47.3 Fully eligible active participants 3.2 5.0 Other active participants 6.8 11.2 52.9 63.5 Unrecognized net gain (loss) 3.7 (7.6) Accrued benefits cost $55.6 $56.9 Current portion $ 6.0 $ 6.0 Noncurrent portion 50.6 49.9 Total $56.6 $55.9
Net Periodic Postretirement Benefit Cost 1994 1993 1992 Service cost of benefits earned $0.3 $0.4 $0.4 Interest cost on benefit obligation 4.0 4.4 4.0 Other --- --- (2.0) Net periodic benefit cost $4.3 $4.8 $2.4
The assumed health care cost trend rate used in measuring the benefit obligation is 14.0% pre-age 65 and 10% post-65 in 1994, declining at a rate of 1% per year to an ultimate rate of 5.75% in 2003 pre-age 65 and 1999 post-age 65. A one percent increase in this rate in each year would increase the benefit obligation at December 31, 1994 by $3.5 and the aggregate service and interest cost for 1994 by $0.3. The weighted average discount rates used in determining the benefit obligation at December 31, 1994 and 1993 are 8.25% and 7.25%, respectively. Page 51 J. STOCK PLANS During 1993, the 1993 Long-Term Incentive Plan ("1993 LTIP") was adopted to succeed a similar plan adopted in 1990. The 1993 LTIP authorizes the issuance until February 1996 of up to 3,000,000 common shares in connection with awards of stock options, restricted stock, stock appreciation rights and performance units to key executive and managerial employees. The exercise price of stock options issued under the 1993 LTIP may not be less than the fair market value of the underlying stock at the date of grant. An option generally becomes exercisable as to one-third of the shares subject to the grant each January 1 falling at least six months after the date of grant, and expires not later than ten years after grant. The 1993 LTIP provides for the accelerated exercisability of options and the accelerated lapse of transfer restrictions on restricted stock if a participant's employment terminates for specified reasons within two years of a change of control of the Company. During 1994, 828,000 common shares, restricted as to transferability and subject to possible forfeiture, were awarded pursuant to the 1993 LTIP to senior executives under a performance restricted stock program. Under the terms of these awards, up to one-third of the shares awarded are eligible to vest as of April 30, 1996 and 1997 with the remaining one-third and any shares not previously vested eligible to vest on April 30, 1998, but vesting will occur only if the executive is still employed by the Company on those dates and only to the extent that the total return to holders of Ceridian common stock over two, three and four year performance periods ending on those dates meets certain prescribed levels as compared to other companies in the S&P 500. Of the shares eligible to vest on any given date, generally 25% of the shares would vest if the Company's total return to stockholders over the applicable performance period is at least at the 60th percentile of companies in the S&P 500, 50% would vest at the 75th percentile, and 100% would vest at the 90th percentile. If the 60th percentile is not achieved, no shares would vest on that date. Shares which have not yet vested as of the end of the third performance period will be forfeited. In 1993, the Company established the 1993 Non-Employee Director Stock Plan which provides for the issuance of up to 50,000 common shares in connection with awards of stock options and restricted stock to non-employee directors of the Company. Under this plan, each such director receives a one-time grant of 1,000 shares of restricted stock upon election to the Board, and receives an annual stock option grant covering 1,000 shares upon re-election. Options to purchase 14,000 shares and 9,000 shares of restricted stock have been awarded under this plan as of December 31, 1994. In connection with the 1994 acquisition of Tesseract, the Company adopted the Tesseract Long-Term Incentive Plan pursuant to which options to acquire up to 500,000 shares of the Company's common stock may be awarded to employees of Tesseract. In connection with the 1993 acquisition of Systems Tax Service, the Company adopted the STS Special Incentive Plan pursuant to which 107,000 shares of restricted stock were awarded to senior executives of STS. In July, 1994, the Company's Board of Directors authorized the repurchase by the Company of up to 2,000,000 of its outstanding common shares for the purpose of providing shares to be issued under the Company's stock-based compensation plans, thereby reducing dilution of common stockholders' equity. At December 31, 1994, the Company had repurchased 70,000 shares for this purpose. Accounting for restricted stock awards does not affect total stockholders' equity. The restricted stock award account, representing unearned compensation, will be reduced as compensation expense is charged to operations. Compensation expense is estimated based on the number of awarded shares expected to become unrestricted at each vesting date and the market price of Ceridian common stock at the end of the reporting period. The amount of compensation expense charged to 1994 operations under the performance-based program was $5.9. Option Price Available Stock Plans Per Share Outstanding Exercisable for Grant At December 31,1991 $ 8.25-$52.81 2,210,454 763,466 543,631 Spin-off adjustment 7.09-40.24 309,067 104,904 --- Granted 8.75-15.88 1,002,272 (1,002,272) Became exercisable 7.09-18.57 729,377 Exercised 7.52-12.38 (277,750) (277,750) Canceled 8.38-52.81 (462,264) (370,625) 462,043 Expired 26.00-30.81 (4,320) (4,320) At December 31, 1992 $ 7.09-$40.24 2,777,459 945,052 3,402 Authorized 3,157,000 Granted 14.25-19.13 1,069,965 (1,069,965) Became exercisable 7.09-15.96 401,174 Exercised 7.30-16.27 (252,851 (252,851) Canceled 7.52-14.75 (40,557) (93) 40,557 Expired 7.30-32.29 467 467 Awards of restricted stock (119,000) At December 31, 1993 $ 7.09-$40.24 3,554,483 1,093,749 2,011,994 Authorized 500,000 Granted 19.13-26.38 1,388,855 (1,388,855) Became exercisable 7.52-23.63 731,702 Exercised 7.52-24.45 (462,462) (462,462) Canceled 7.52-24.13 (261,394) (4,278) 265,821 Expired 24.44-40.24 (5,928) (5,928) (1,895) Awards of restricted stock (830,000) At December 31, 1994 $ 7.09-$31.74 4,213,554 1,352,783 557,065 Average option price $16.92
Page 52 K. FINANCING ARRANGEMENTS Debt obligations activity in 1994 involved minor transactions primarily involving short-term debt of the Company's U.K. subsidiary, payment of maturities on existing debt of the Company's Canadian and U.K. subsidiaries and obligations related to business acquisitions. U.K. subsidiary debt of $6.4 at December 31, 1994, was secured by a lien on the subsidiary's assets which were carried at $39.9 at that date. During May 1994, the Company concluded a one year extension of its $35 million domestic revolving credit facility. Under the terms of the extension, the Company will be provided with credit availability equal to the lesser of $35 million or 75% of the amount of its eligible accounts receivable until May 30, 1995, all of which may be used to obtain revolving loans or standby letters of credit which may not have a final expiration date later than May 30, 1996. The credit facility as extended is unsecured. At December 30, 1994, there were $1.6 in letters of credit and no revolving loans outstanding under the facility. Letter of credit fees are generally equal to 0.60 % per annum of the amount of each letter of credit, unless the letter of credit involves a payment guarantee, in which case the rate is 1.20 % per annum. The commitment fee on the unused portion of the facility is 0.30 % per annum. Borrowings under the Credit Agreement are available at Bank of America's reference rate. Under the terms of the extended facility, the Company must maintain a minimum consolidated net worth which is subject to increase based on the Company's net earnings after December 31, 1993, and certain equity contributions to the Company after the same date. As of December 31, 1994, the Company was in compliance with this covenant by $29.0. The Company is also required to achieve a prescribed level of operating earnings on a rolling four quarter basis, and is subject to additional covenants which limit debt, liens, contingent obligations, operating leases, investments, cash dividends on common stock, cash repurchases of stock, acquisitions and divestitures. The Company continues to be in compliance with all covenants associated with this credit facility. In December 1993, the Company redeemed at 102.55% the $163.5 outstanding principal amount of its 8 1/2% Debentures resulting in a cash expenditure of $168.1 and an extraordinary loss from early retirement of debt of $8.4, including $3.8 of unamortized debt issuance costs. Other debt activity in 1993 primarily involved prepayment of $4.4 on a mortgage on the headquarters of the Company's Canadian subsidiary and utilization of credit lines maintained by the Company's U.K. subsidiary. The primary changes in debt during 1992 included the payment of $7.4 of secured notes of a windpower partnership, the establishment of a $6.7 mortgage obligation on a new facility in Canada, the addition of $15.5 of revolving and medium-term debt through the acquisition of the U.K subsidiary, and the payment of $6.9 of such revolving debt before the end of 1992. December 31, Debt Obligations 1994 1993 Short-term debt $ -- $ 1.6 Mortgages payable 9.7 10.1 Other long-term debt obligations 9.0 7.7 Total debt obligations 18.7 19.4 Less short-term debt and current portions of long-term debt 1.2 3.1 Long-term obligations, less current portions $ 17.5 $16.3
Aggregate Amounts of Maturities at December 31, 1994 1995 1996 1997 1998 1999 Thereafter Total Mortgages payable* $ 0.2 $ 0.2 $ 0.2 $ 0.2 $ 0.2 $ 8.7 $ 9.7 Other 1.0 1.4 5.8 0.8 -- -- 9.0 Total $ 1.2 $ 1.6 $ 6.0 $ 1.0 $ 0.2 $ 8.7 $ 18.7 *$3.6 prepaid in January 1995.
Page 53 L. INVESTING ACTIVITY In May 1994, Ceridian sold TeleMoney Services and related network and computer center operations to First Data Resources Inc. and received $24.3 of net cash proceeds. Under the sale agreement, the Company committed to use certain data services to be provided by the sold operation on a take-or-pay basis over a period ending April 30, 1995, to provide at no cost temporary facilities for certain of the sold operations, and to certain other obligations, all of which were recorded as restructure reserves. After consideration of these obligations and the carrying value of net assets sold, the Company recognized a restructuring gain from the sale of $7.8. In June 1994, Ceridian acquired all of the outstanding stock of Tesseract Corporation. Tesseract provides integrated payroll, human resource management and benefits administration software systems, and related services. The acquisition, which was accounted for as a purchase, used $54.3 in cash, including the purchase price of $60.0 and direct acquisition costs of $1.5, reduced by cash acquired of $7.2. In addition to cash acquired, the Company received assets valued at $9.9 and liabilities, primarily deferred income, of $28.2. The Company also recorded intangible assets, primarily related to Tesseract's customer base and technology, valued at $37.0 with amortization periods ranging from 10 to 20 years, and goodwill of $35.6 with a life of 20 years. Over the course of 1994, but primarily in fourth quarter, Ceridian acquired or invested in several small businesses which, collectively, resulted in a net cash expenditure of $11.3 and the recording of $5.6 of assets, $14.4 of liabilities and $20.1 of goodwill and other intangible assets with amortization periods ranging from 5 to 15 years. These acquisitions had little impact on Ceridian's 1994 operations. In October 1993, the Company purchased Systems Tax Service, Inc. ("STS"), a California-based payroll tax filing processor, for 1,005,908 shares of Ceridian common stock. After consideration of restrictions on resale of the shares and other direct acquisition costs, the transaction was valued at $18.8 and resulted in the recording of goodwill and other intangible assets of $21.1 to be amortized over a 15-year period. In June 1993, the Company sold a 90% interest in its Barrios Technology, Inc. subsidiary to the management of that business and received a $5.2 promissory note. In fourth quarter 1994, the carrying value of the note was reduced to an estimated realizable value of $0.8 by a $3.7 charge to operations. Effective January 1, 1992, Ceridian contributed capital assets and deferred assets of Arbitron to the CMR joint venture formed with VNU Business Information Services, Inc. ("VNU") in return for $32.5 in cash and a half interest in the venture valued at $9.8. As a result of this transaction, the Company recognized a restructure gain of $7.6, representing the excess of the cash received over the carrying amount of the assets contributed to the venture. In December 1994, the Company sold its interest in the CMR joint venture to VNU in exchange for a 50.5% interest in a partnership into which the business and assets of VNU's Scarborough Research Corporation subsidiary had been placed, resulting in no gain or loss. During third quarter 1992, the Company received a prepayment of $37.9 on its 12% note receivable, due October 1, 1995, from Seagate Technology, Inc. and agreed to reduce the interest rate on the remaining balance of $10.0 to 7.7%. The Company also received a prepayment of the $6.0 remaining balance on a 12% long-term note receivable from Information Resources, Inc. At the end of third quarter 1992, Ceridian purchased the remaining 56 percent equity interest in an affiliated U.K. company, Computing Devices Company Limited ("CDCL UK"), for $10.8, of which $5.4 was recorded as goodwill to be amortized over a 20-year period. December 31, Investments and Advances 1994 1993 1992 Beginning balance $ 28.2 $ 30.3 $ 57.3 Investment in CMR joint venture (11.6) 0.2 11.4 Partial payment of note from Seagate (37.9) Adjustment for consolidation of CDCL UK (4.3) Other activity, net (2.1) (2.3) 3.8 Ending balance $ 14.5 $ 28.2 $ 30.3 At December 31, 1994, all investments were accounted for by the cost method.
Page 54 M. LEASING ARRANGEMENTS AS LESSEE Ceridian conducts a substantial portion of its operations in leased facilities. Most such leases contain renewal options and require payments for taxes, insurance, and maintenance. Although in most cases management expects that leases will be renewed or replaced by other leases in the normal course of business, downsizing activities in recent years have resulted in a diminished need for such renewals and replacements, and increased subletting of leased facilities and assignment of leases. In connection with these assigned leases, Ceridian remains secondarily liable for future rental obligations totaling $41.4 at December 31, 1994. The Company does not anticipate any material nonperformance by the assignees of these leases, which principally involve Control Data Systems and Seagate Technology, Inc. Virtually all leasing arrangements for equipment and facilities are operating leases and are not included in the consolidated balance sheets. The rental payments under these leases are charged to operations as incurred. The amounts in the accompanying tables do not include obligations related to idle or disposed facilities which have been recorded as liabilities in the consolidated balance sheet as the result of restructuring actions. The amounts of rental expense and sublease income for each of the three years ended December 31, 1994 appear in the following table. Rental Expense 1994 1993 1992 Rental expense $38.5 $41.2 $49.3 Sublease rental income (2.7) (2.4) (4.0) Net rental expense $35.8 $38.8 $45.3
Future minimum noncancelable lease payments and related sublease income, on operating leases existing at December 31, 1994 which have an initial term of more than one year, are described in the following table. Future Minimum Lease Payments Sublease Lease Rental Payments Income Net 1995 $30.9 $2.6 $28.3 1996 26.7 2.3 24.4 1997 23.7 2.4 21.3 1998 19.4 2.3 17.1 1999 17.7 2.3 15.4 Thereafter 47.0 10.0 37.0
N. COMMITMENTS AND CONTINGENCIES In January 1995, Ceridian entered into a technology services agreement with Integrated Systems Solutions Corporation ("ISSC"), a wholly-owned subsidiary of IBM Corporation. Under the technology services agreement, whose term extends through December 31, 2004, ISSC will provide centralized computer processing services required by the Company's Employer Services business for payroll processing customers nationwide. While the Company expects to spend approximately $110.0 over the term of the agreement, the future minimum noncancelable annual service charges payable by the Company are $4.0 in 1995, $5.6 in 1996, $3.5 in 1997 and $2.4 in 1998. At December 31, 1994, Ceridian held intermediate-term interest rate swap agreements with two financial institutions for an aggregate notional amount of $175.0 with no collateral required. The purpose of these agreements is to effectively convert a portion of the interest which the Company earns from deposits held by Employer Services on behalf of payroll tax filing customers from a floating to a fixed rate basis. The Company considers the risk of accounting loss through non- performance under these agreements to be negligible. Largely as a result of divestitures and the formation of certain cooperative ventures in recent years, the Company has agreed to incur or retain a variety of contingent liabilities. Most significantly, in connection with the spin-off of Control Data Systems, Ceridian agreed to indemnify the U.S. Pension Benefit Guaranty Corporation ("PBGC") if the Control Data Systems defined benefit pension plan is terminated in a distress termination and the PBGC is unable to recover the full amount of any unfunded benefit liabilities. The maximum amount of this contingent liability, included in the total below, is $16.0, which will decrease by $4.0 each July 31 beginning in 1996. The Company monitors all such contingent liabilities and has established restructure or other reserves for those which it believes are probable of payment. With respect to these contingent obligations, other than litigation, the Company believes that there is a possibility that it may be exposed to estimated losses totaling $25.0 as of December 31, 1994, if third parties fail to meet certain performance requirements. The Company does not anticipate such nonperformance. Page 55 O. LEGAL MATTERS Age Discrimination Litigation. Certain former employees, purporting to act on behalf of a class of former employees of the Company who were terminated after the age of 40, filed suit against the Company in U.S. District Court in Minnesota in 1990 alleging violations of the Age Discrimination in Employment Act. An earlier administrative proceeding before the Equal Employment Opportunity Commission involving some of the named plaintiffs was dismissed in October 1988. With the court's permission, plaintiffs invited all individuals in the alleged class to join as additional plaintiffs. About 1,100 former employees indicated a desire to do so. In addition, certain of the plaintiffs in this action, along with other individuals, filed two parallel age discrimination class action lawsuits in state court in Minnesota, which have been stayed pending resolution of the federal court action. In December 1992, the federal district court denied plaintiffs' motion for certification of the requested class of former employees, but ordered that putative class members would be allowed to file individual age discrimination claims against the Company. In response, eight complaints covering 419 of the putative class members were filed against the Company in early 1993. Later that year the Company made individual settlement offers to these plaintiffs, 92 of whom accepted offers in an aggregate amount of $0.6. In late 1993, the parties agreed to commence by September 1994 a series of three six-week test trials, each involving twelve randomly selected plaintiffs, that were to be determinative as to issues of liability, but not damage amounts (if any), with respect to the plaintiffs involved. The Company agreed to the test case process and has explored settlement opportunities principally because of the costs of defending these actions. In light of settlement discussions that occurred in the second quarter 1994 and the Company's estimates of costs to defend these actions, the Company established reserves totaling $15 million with respect to these cases in June 1994. The Company indicated at that time that it was prepared to either absorb that amount in settlement costs if settlement were to occur within a reasonable period of time or commit that amount to the defense of these actions, as a result of which the Company firmly believes it would prevail. The first test trial did not begin by the specified time, and counsel for the plaintiffs took the position that he did not wish to reinstitute the test trial process. As a result, the parties are proceeding with discovery pursuant to a schedule established by an earlier order of the court which contemplates discovery continuing into 1997. In late 1994, the federal district judge to whom these cases were assigned was appointed to the Eighth U.S. Circuit Court of Appeals, so the cases were reassigned to another district judge. That judge indicated in early 1995 that he wished to reconsider the earlier order denying collective treatment of these matters. Seagate Securities Litigation. In 1991, the Company and Lawrence Perlman, its chairman, president and CEO, were named as co-defendants in a lawsuit filed in U.S. District Court for the Northern District of California against Seagate Technology, Inc., certain of its present or former officers, and three investment banking firms. The plaintiffs purport to act on behalf of a class consisting of all purchasers of Seagate common stock during the period October 11, 1990 through June 26, 1991 (the "Class Period"). During the Class Period, the Company sold 10.7 million shares of Seagate common stock in a registered public offering. The plaintiffs allege that during the Class Period, the defendants acted in concert with each other to issue false and misleading public statements regarding Seagate's earnings, products and future prospects which artificially inflated the price of Seagate common stock during the Class Period and permitted the Company and the individual defendants to profit from stock sales during the Class Period. The plaintiffs allege that such conduct violated federal securities laws and also allege "controlling person" liability under those laws against, among others, the Company and Mr. Perlman. The Company believes that the claims against it and Mr. Perlman are without merit, and has notified Seagate that this matter and any expenses the Company incurs in connection therewith are subject to an indemnification obligation undertaken by Seagate at the time it issued the 10.7 million shares to the Company as partial payment for Seagate's purchase of the Company's Imprimis subsidiary. Other Matters. The Company is also involved in a number of other judicial and administrative proceedings considered normal in the nature of its current and past operations, including employment- related disputes, contract disputes and tort claims. It is anticipated that final disposition of some of these proceedings may not occur for several years. In the opinion of management, the final disposition of all current judicial and administrative proceedings will not, considering the merits of the claims and available reserves, have a material adverse effect on the Company's financial position or results of operations. Page 56 SUPPLEMENTARY QUARTERLY DATA (Unaudited) (Dollars in millions, except per share data) 1994 1993 4th 3rd 2nd 1st 4th 3rd 2nd 1st Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Revenue $234.1 $242.4 $218.5 $221.3 $226.9 $208.9 $225.9 $224.4 Cost of revenue 146.3 160.1 143.5 138.6 155.1 138.7 159.9 152.3 Gross profit 87.8 82.3 75.0 82.7 71.8 70.2 66.0 72.1 Selling, general and administrative 57.2 51.3 48.2 48.8 47.9 44.4 42.8 43.0 Technical expense 13.1 13.6 11.7 10.9 11.4 12.6 12.4 12.2 Other expense (income) (2.5) (1.2) 0.1 0.4 (2.3) (0.6) (0.6) - Restructure loss (1) - - - - 67.0 - - - Earnings (Loss) before interest and taxes 20.0 18.6 15.0 22.6 (52.2) 13.8 11.4 16.9 Interest income 2.8 2.7 3.2 1.9 2.6 2.0 2.1 1.6 Interest expense (0.4) (0.4) (0.4) (0.4) (4.2) (4.1) (4.1) (4.0) Earnings (Loss) before income taxes 22.4 20.9 17.8 24.1 (53.8) 11.7 9.4 14.5 Income tax provision 1.6 1.7 1.4 1.9 0.2 1.0 1.0 1.6 Earnings (Loss) before extraordinary item 20.8 19.2 16.4 22.2 (54.0) 10.7 8.4 12.9 Extraordinary loss (2) - - - - 8.4 - - - Net earnings (loss) $ 20.8 $ 19.2 $ 16.4 $ 22.2 $(62.4) $ 10.7 $ 8.4 $ 12.9 Net earnings (loss) applicable to common stockholders (3) $ 17.5 $ 16.0 $ 13.1 $ 19.0 $(62.7) $ 10.7 $ 8.4 $ 12.9 Primary earnings (loss) per share: Before extraordinary item $ 0.38 $ 0.35 $ 0.29 $ 0.42 $(1.24) $ 0.25 $ 0.20 $ 0.30 Extraordinary loss - - - - (0.19) - - - Net earnings (loss) $ 0.38 $ 0.35 $ 0.29 $ 0.42 $(1.43) $ 0.25 $ 0.20 $ 0.30 Fully diluted earnings per share (4) $ 0.37 $ 0.34 $ 0.29 $ 0.40 Shares used in calculations (in thousands): Primary 46,017 46,191 45,840 45,584 43,844 42,957 42,883 42,833 Fully diluted 56,401 56,575 56,224 55,968 Common Stock-per share Market price ranges (5) High 27 1/8 27 1/2 25 5/8 24 3/4 19 7/8 18 1/2 16 1/8 16 1/8 Low 23 1/2 24 21 1/2 18 1/2 17 1/2 14 3/8 13 14 3/8 No cash dividends have been declared on common stock during the periods presented. (1) For details on restructuring activity, see Note B, "Restructure Loss and Discontinued Operations." (2) For details on the early retirement of debentures, see Note K, "Financing Arrangements." (3) As reduced by preferred stock dividends for calculation of primary earnings (loss) per share. (4) Fully diluted would not differ from primary earnings (loss) per share in 1993. (5) Source: New York Stock Exchange-Composite Transactions.
Page 57 EX-21 19 EXHIBIT 22 Exhibit 22 CERIDIAN CORPORATION SUBSIDIARIES AT DECEMBER 31, 1994 State or other Jurisdiction Name of Incorporation CD Plus S.A. France Ceridian Properties, Inc. Delaware Computing Devices Canada Ltd. Canada Computing Devices Company Limited (Hastings) United Kingdom Computing Devices Hastings Limited United Kingdom Computing Devices Eastborne Limited United Kingdom Computing Devices International Employment, Inc. Delaware Earth Energy Systems, Inc. New Jersey Paragon Imaging, Inc. Florida ScanAmerica, L.P. (Limited Partnership) Delaware Scarborough Research Delaware Tesseract Corporation California User Technology Services Inc. New York VTC C-MOS Incorporated Delaware EX-23 20 EXHIBIT 24 Exhibit 24 CONSENT OF INDEPENDENT AUDITORS BOARD OF DIRECTORS OF CERIDIAN CORPORATION We consent to incorporation by reference in Registration Statements Nos. 2-97570, 2-67753, 33-15920, 2-93345, 2-81865, 33-26839, 33-34045, 33- 49601, 33-54379, 33-56325 and 33-56833 on Forms S-8 of Ceridian Corporation of our reports dated January 24, 1995. Such reports relate to the consolidated financial statements and related financial statement schedule of Ceridian Corporation and subsidiaries as of December 31, 1994 and 1993 and for each of the years in the three-year period ended December 31, 1994 and are included or incorporated by reference in the 1994 Annual Report on Form 10-K of Ceridian Corporation. KPMG Peat Marwick LLP Minneapolis, Minnesota March 21, 1995 EX-24 21 EXHIBIT 25 Exhibit 25 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a Director of Ceridian Corporation (the "Company"), a Delaware corporation, do hereby make, nominate and appoint JOHN R. EICKHOFF, STEVEN J. OLSON and JOHN A. HAVEMAN, and each of them, to be my attorney in fact for three months from the date hereof, with full power and authority to sign his name on the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended; provided that such Form 10-K is first reviewed by the Audit Committee of the Board of Directors of the Company and by my attorney in fact; and his name, when thus signed, shall have the same force and effect as though I had manually signed such Form 10-K. IN WITNESS WHEREOF, I have signed this Power of Attorney as of February 3, 1995. /s/Lawrence Perlman /s/George R. Lewis Lawrence Perlman George R. Lewis /s/Ruth M. Davi /s/Charles Marshall Ruth M. Davis Charles Marshall /s/Allen W. Dawson /s/Carole J. Uhrich Allen W. Dawson Carole J. Uhrich /s/Ronald James /s/Richard W. Vieser Ronald James Richard W. Vieser /s/Richard G. Lareau /s/Paul S. Walsh Richard G. Lareau Paul S. Walsh EX-27 22 ART. 5 FDS FOR 1994
5 1000 YEAR Dec-31-1994 Dec-31-1994 116,800 54,600 147,600 6,200 25,800 346,100 254,800 157,000 690,300 306,800 18,700 22,800 0 4,700 159,000 690,300 515,900 916,300 401,300 588,500 (3,200) 0 1,600 85,200 6,600 78,600 0 0 0 78,600 1.43 1.40
-----END PRIVACY-ENHANCED MESSAGE-----