April 28, 2005
This letter outlines our understandings concerning your position as
Chairman and Chief Executive Officer of Automatic Data Processing, Inc. ("ADP").
1. Employment. You shall be employed by ADP as its Chairman and Chief
Executive Officer, subject to the direction and control of its Board
of Directors. You shall also be a member of ADP's Board of Directors
and a member of the Board's Executive Committee.
a) ADP shall pay you a salary of at least $850,000 per annum.
b) Your target bonus for each fiscal year (i.e. July 1 to June 30)
shall be at least $750,000. The actual bonus paid for each fiscal
year shall be based upon your accomplishments in relation to pre-
established performance goals (including business growth, increased
profitability and other significant items) established by the
Compensation Committee of ADP's Board of Directors (the
"Compensation Committee") pursuant to the terms of ADP's 2001
Executive Incentive Compensation Plan (the "Incentive Plan").
c) (i) ADP will continue to sell you restricted stock under the
Incentive Plan, such that restrictions will lapse during each
fiscal year on the number of shares of restricted stock which had,
on the date you originally purchased them, an aggregate market
value of at least $1 million. You will also, at all times, own
sufficient shares of ADP restricted stock on which restrictions
will lapse during each of the following two fiscal years which
satisfy the foregoing fiscal year minimum market value test. The
Compensation Committee may, at its sole discretion, require that
lapsing of restrictions on your restricted stock in any fiscal year
will only occur upon the attainment of pre-established performance
goals pursuant to the Incentive Plan.
(ii) In addition, ADP will, provided that the pre-established
performance goals have been met, sell you additional restricted
stock under the terms of ADP's broad-based restricted stock program
in which all "letter grade" associates may participate.
(iii) If you retire, your restricted stock shall continue to be
owned by you and the restrictions on such stock will continue to
lapse in the same manner as would have been the case had you
continued to be an ADP employee.
d) You will be granted stock options on an annual basis. The option
grants will be for a minimum of 170,000 shares per year. Vesting
will be determined by the Compensation Committee (which may, at its
sole discretion, determine that vesting will only occur upon the
attainment of pre-established performance goals); however, all of
your stock options will vest on your retirement.
e) The above salary, bonus and stock arrangements will be reviewed
annually by the Compensation Committee and may be increased in its
sole discretion. You shall also be entitled to participate in all
of ADP's then current pension, 401(k), medical and health, life,
accident, disability and other insurance programs, stock purchase
and other plans and arrangements that are generally available to
other ADP executives.
3. Term. The initial term of this letter agreement shall be for a period
of one year. This letter agreement shall automatically continue after
its initial term for successive one-year periods, unless and until
either of us gives the other written notice at least six months prior
to the end of the applicable one-year term that this letter agreement
shall terminate as at the end of such term.
4. Termination. If your employment with ADP is terminated, you will
receive the following compensation:
a) If you are discharged for cause, ADP's obligation to make payments
to you shall cease on the date of such discharge. As used herein,
the term "for cause" shall cover circumstances where ADP elects to
terminate your employment because you have (i) been convicted of a
criminal act, (ii) failed or refused to perform your obligations as
Chairman and Chief Executive Officer, (iii) committed any act of
negligence in the performance of your duties hereunder and failed
to take appropriate corrective action, or (iv) committed any act of
b) If ADP terminates your employment for any reason other than "for
cause", for permanent or serious disability or on account of a
"Change in Control", you will, for 18 months after such termination
date, (i) receive the compensation provided for under Paragraph
2(a) above, (ii) have the restrictions on your restricted stock
continue to lapse (without regard to any performance goals), and
(iii) have your Company stock options continue to vest.
c) If you become permanently and seriously disabled, either physically
or mentally, so that you are absent from your office due to such
disability and otherwise unable substantially to perform your
services hereunder, ADP may terminate your employment. ADP shall
continue to pay you your full compensation up to and including the
effective date of your termination for disability. For 36 months
after such termination date, you will receive the compensation
provided for under Paragraph 2(a) above and have the restrictions
on your restricted stock continue to lapse (without regard to any
performance goals). All of your outstanding and unvested ADP stock
options shall automatically vest on the date of your termination
d) If you elect to voluntarily leave ADP in the absence of a Change in
Control, ADP's obligation to make any payment to you under this
Paragraph 4 shall cease on the date your employment ends.
e) If a Change in Control occurs and if your employment is terminated
(other than for cause) or you resign for "Good Reason" within two
years after such Change in Control event, you will receive a
termination payment equal to 300% of your "Current Total Annual
Compensation". This termination payment will be reduced to either
200% or 100% of your Current Total Annual Compensation if such
termination or resignation occurs during the third year, or more
than three years, after such Change in Control event, whichever is
applicable. In addition, all of your ADP stock options will become
fully vested, and all of your ADP restricted stock having
restrictions lapsing within three years after the date of such
termination or resignation shall have such restrictions
automatically removed (without regard to any performance goals).
ADP will also pay you a tax equalization payment in an amount which
when added to the other amounts payable to you under this Paragraph
4(e) will place you in the same after-tax position as if the excise
tax penalty of Section 4999 of the Internal Revenue Code of 1986 or
any successor statute of similar import did not apply.
f) The termination of this letter agreement or your employment shall
not affect those provisions of this letter agreement that apply to
any period or periods subsequent to such termination.
5. For purposes of this Agreement, the following definitions shall apply:
a) "Change in Control" shall mean the occurrence of any of the
following: (A) any "Person" (as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")),
excluding ADP, any subsidiary of ADP, or any employee benefit plan
sponsored or maintained by ADP (including any trustee of any such
plan acting in his capacity as trustee), becoming the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act) of
securities of ADP representing 25% or more of the total combined
voting power of ADP's then outstanding securities; (B) the merger,
consolidation or other business combination of ADP (a
"Transaction"), other than a Transaction immediately following
which the stockholders of ADP immediately prior to the Transaction
continue to be the beneficial owners of securities of the resulting
entity representing more than 65% of the voting power in the
resulting entity, in substantially the same proportions as their
ownership of ADP voting securities immediately prior to the
Transaction; or (C) the sale of all or substantially all of ADP's
assets, other than a sale immediately following which the
stockholders of ADP immediately prior to the sale are the
beneficial owners of securities of the purchasing entity
representing more than 65% of the voting power in the purchasing
entity, in substantially the same proportions as their ownership of
ADP voting securities immediately prior to the Transaction.
b) "Good Reason" shall mean: (A) any action which results in a
diminution in any respect in your current position, authority,
duties or responsibilities as ADP's Chairman and Chief Executive
Officer; or (B) a reduction in the overall level of your
compensation or benefits.
c) "Current Total Annual Compensation" shall be the total of the
following amounts: (A) the greater of your current annual salary
for the calendar year in which your employment terminates or for
the calendar year immediately prior to the year of such
termination; and (B) the average of your annual bonus compensation
(prior to any bonus deferral election), for the two most recent
calendar years immediately preceding the year in which your
6. Retirement. If you elect to retire from ADP, ADP will: (a) provide you
with appropriate office and secretarial support until your 72nd
birthday, which office will not, in any event, be located in an ADP
facility; (b) allow you to keep your company car; and (c) allow you to
use the ADP travel group to make your personal travel arrangements
using your own funds.
7. SORP. Under the Automatic Data Processing, Inc. Supplemental Officers
Retirement Plan (the "SORP"), if your employment hereunder terminates
other than for cause: (i) your "Future Service" period shall be deemed
to be 17 years as of the date of your termination; (ii) your "Final
Average Annual Pay" shall, to the extent applicable, be deemed to
include the applicable compensation attributable to the periods covered
by the termination payments made to you hereunder; and (iii) if the
Compensation Committee deems it to be in ADP's best interests that you
retire prior to your 65th birthday, any early retirement benefit
payable under the SORP will not be actuarially reduced to reflect the
payment of benefits before your "Normal Retirement Date". Your Final
Average Annual Pay will not, in any event, be less than the aggregate
of the minimum annual salary, bonus and restricted stock amounts
payable to you under Paragraphs 2(a), 2(b) and 2(c)(i) above.
This letter supersedes and replaces the letter dated as of August 13,
2001 between us.
If the foregoing correctly sets forth our understandings, please sign
this letter agreement where indicated, whereupon it will become a binding
agreement between us.
Very truly yours,
AUTOMATIC DATA PROCESSING, INC.
CORPORATE VICE PRESIDENT
ACCEPTED AND AGREED: