EXULT INC
EXHIBIT 10.21
<DOCUMENT>
<TYPE>EX-10.21
<SEQUENCE>2
<FILENAME>a70658ex10-21.txt
<DESCRIPTION>EXHIBIT 10.21
<TEXT>

<PAGE>   1
                                                                   EXHIBIT 10.21

                              EMPLOYMENT AGREEMENT

        This Employment Agreement ("AGREEMENT") is made as of October 31, 2000
by and between Exult, Inc. (the "COMPANY"), and James C. Madden, V
("EXECUTIVE").

        Executive has been employed by the Company pursuant to a previously
executed employment agreement (the "OLD AGREEMENT"). In connection with various
changes being made to the terms of Executive's employment and agreements between
the Company and Executive related to termination of Executive's employment, as
well as issuance to Executive of stock options pursuant to a special incentive
program for key personnel, the Company and Executive are entering into this
Agreement to replace the Old Agreement and govern Executive's employment with
the Company. Therefore, the Company and Executive hereby agree as follows:

        1. DUTIES AND RESPONSIBILITIES.

        (a) Title and Reporting. Executive shall serve as the Company's Chairman
of the Board, President and Chief Executive Officer and shall report to and
perform the duties and responsibilities assigned to Executive by the Company's
Board of Directors.

        (b) Duties. Executive's duties will include leading the Company's
executive management committee and management of and responsibility for all of
the Company's business and operations. The Board may assign specific or
additional duties and responsibilities to Executive that are reasonably related
to the foregoing.

        (c) Location. Executive shall be based at the Company's corporate
headquarters in Orange County, California, but Executive shall be required to
travel to other geographic locations in connection with the performance of his
executive duties.

        2. CASH COMPENSATION.

        (a) Base Salary. Executive's initial base salary shall be $450,000 per
year payable in accordance with the Company's standard payroll policies.
Executive's base salary shall be subject to annual review by the Company, and
may be increased or decreased in the Company's discretion, provided that the
Company will not decrease Executive's base salary more than once in any 365-day
period. Decrease of Executive's base salary as provided in the preceding
sentence will not constitute a breach by the Company of this Agreement, but may
trigger certain rights of Executive pursuant to a separate written severance
arrangement with the Company.

        (b) Incentive Compensation. Executive will be eligible to participate in
incentive compensation programs established by the Company from time to time for
its executive officers. The terms of any such incentive compensation program and
Executive's participation therein will be subject to the discretion of the
Company's Board of Directors. Any incentive payment is intended to reward
contribution to the Company's performance over an entire fiscal year, and
(unless other commitments are made in writing to Executive) consequently will be
paid only if Executive is employed and in good standing at the time of incentive
compensation payments, which generally occurs within 45 days after the close of
the Company's



<PAGE>   2

fiscal year. Incentive compensation determinations will be made in the Company's
sole discretion.

        (c) Withholding. The Company may deduct and withhold any and all
applicable federal, state and local income and employment withholding taxes and
any other amounts required to be deducted or withheld by the Company under
applicable statutes, regulations, ordinances or orders from the compensation
payable to Executive in connection with Executive's employment.

        3. EQUITY COMPENSATION. The Company has previously issued stock options
to Executive in connection with his employment. Additional stock options may be
granted to Executive in Exult's discretion, but no additional options are
promised. All stock options granted to Executive are subject to Exult's
applicable stock option plan and any terms or conditions imposed by Exult in
connection with the options. No representations or promises are made to
Executive regarding the value of Exult stock or options or Exult's business
prospects. Executive acknowledges that information about investment in Exult
stock, including financial information and related risks, is contained in
Exult's SEC reports on Form 10-Q and Form 10-K, which have been made available
from Exult's Human Resources department for Executive's review at any time
before Executive's acceptance of this Agreement or at any time during
Executive's employment. Further, Executive understands that Exult does not
provide tax advice and acknowledges Exult's recommendation that Executive
consult with a tax specialist regarding Executive's employment compensation.

        4. EXPENSE REIMBURSEMENT. In addition to the compensation specified in
Section 2, Executive shall be entitled, in accordance with the Company's
reimbursement policies in effect from time to time, to receive reimbursement
from the Company for reasonable business expenses incurred by Executive in the
performance of Executive's duties hereunder, provided Executive furnishes the
Company with vouchers, receipts and other details of such expenses in the form
required by the Company sufficient to substantiate a deduction for such business
expenses under all applicable rules and regulations of federal and state taxing
authorities.

        5. FRINGE BENEFITS.

        (a) Benefit Programs. Executive shall, throughout the period of
Executive's employment with the Company (the "EMPLOYMENT PERIOD"), be eligible
to participate in all executive life and disability insurance programs, group
term life insurance plans, group health plans, accidental death and
dismemberment plans and disability programs and other executive perquisites that
are made available to the Company's executive officers and for which Executive
qualifies.

        (b) Vacation. Executive shall earn vacation time during the Employment
Period at the rate of four (4) weeks per year. Vacation shall accrue and be
taken pursuant to the Company's vacation benefit policy set forth in the
Company's Employee Handbook. Executive also shall be eligible to participate in
any "floating holiday" or "personal day off" programs offered by the Company.


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        (c) Death Benefit. If Executive dies during the Employment Period other
than as a result of suicide, Executive's legal representatives shall be entitled
to receive an amount equal to one year of Executive's annual salary (but in no
case in excess of $500,000), payable in equal installments in accordance with
Company's standard payroll schedule (subject to all applicable withholdings
required by law), but reduced (but not below 0) by the aggregate amount of the
proceeds of any death benefits paid to Executive's survivors under policies of
life insurance for which the Company paid all premiums as part of the Company's
standard death benefit arrangements made available to employees generally.

        (d) Disability Benefit. If during the Employment Period Executive
suffers Permanent Disability as defined at the time of Permanent Disability in
the Company's 2000 Equity Incentive Plan, or a successor plan thereto, other
than as a result of attempted suicide, the Company may, without any liability
under this Agreement and by written notice to Executive, at any time thereafter
suspend or terminate the Employment Period without any severance obligation,
except that Executive shall be entitled to continue to receive payments of his
salary, as in effect at the time of the incapacitation or disability leading to
Permanent Disability, in accordance with the Company's regular payroll schedule
for a period 180 days after such suspension or termination, provided that such
obligation will be reduced (but not below 0) by the sum of (A) salary paid in
excess of accrued vacation during periods that Executive did not work due to the
incapacitation or disability leading to Permanent Disability, plus (B) the
aggregate amount of any monthly disability benefits paid to Executive under
policies of disability insurance for which the Company paid all the premiums as
part of the Company standard disability benefit arrangements made available to
employees generally.

        6. EMPLOYMENT ATTRIBUTES.

        (a) At-Will. Executive's employment with the Company is at-will and not
for a specific term and may be terminated by either the Company or Executive at
any time, for any reason without cause or advance notice.

        (b) Changes. The Company may change Executive's responsibilities,
duties, title, and reporting relationships at any time for any reason. Such
changes will not constitute a breach by the Company of this Agreement, but may
trigger certain rights of Executive pursuant to a separate written severance
arrangement with the Company.

        (c) No Severance. Upon termination of Executive's employment for any
reason, the Company will have no severance obligation under this Agreement other
than (i) as specifically provided in Section 5, and (ii) for payment of accrued
but unpaid compensation, vacation and expenses. Executive may, however, be
entitled to severance benefits in accordance with one or more separate written
severance agreements with the Company.

        7. OTHER AGREEMENTS. Nothing in this Agreement alters or affects the
Employee Proprietary Information and Inventions Agreement previously executed
and delivered by Executive. Executive's obligations pursuant to the Proprietary
Information and Inventions Agreement will survive termination of Executive's
employment with the Company.


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        8. REPRESENTATIONS.

        In order to induce the Company to enter into this Agreement and the
Related Documents referred to in Section 10(c) and to continue Executive's
employment, Executive represents, warrants and undertakes to the Company as
follows:

        (a) Executive understands and has had the opportunity to discuss with
counsel independent of the Company his obligations under and the terms of all
agreements and other obligations applicable to his relationship with all prior
employers or parties engaging Executive's services (collectively, the "PRIOR
EMPLOYERS"). Executive does and will rely upon his own judgment and the advice
he receives from counsel independent of the Company in any action he takes (or
decides not to take) in relation to all of the matters referred to in this
Agreement, but Executive will keep the Company fully informed of the nature and
extent of his obligations to all Prior Employers at any time and any steps
Executive proposes to take to effect his disengagement from all Prior Employers.

        (b) Executive has been fully advised by counsel independent of the
Company of his obligations under and the terms of this Agreement and the other
documents referenced in Section 10(c).

        (c) Executive is under no contractual restriction or other restrictions
or obligations that are inconsistent with the execution of this Agreement or the
performance of Executive's duties and covenants hereunder, and will not breach
any obligations to any Prior Employer.

        (d) Executive is under no physical or mental impairment that would
interfere with Executive's ability to perform his duties hereunder.

        (e) Executive has full right and power to enter into this Agreement and
perform his duties and covenants hereunder without any consent from any third
party.

        (f) Executive's performance of his duties and covenants hereunder will
not infringe the rights, including intellectual property rights, of any third
party.

        (g) All information provided by Executive to the Company is true,
correct and complete.

        9. CERTAIN COVENANTS.

        (a) Focus on Company. During the Employment Period, Executive shall
devote his full business time and energy solely and exclusively to the
performance of his duties to the Company, and shall render his services under
this Agreement fully, faithfully, diligently, and to the best of his ability.
During the Employment Period, Executive shall not directly or indirectly provide
services of any kind or character to or through any person, firm or other entity
except the Company, unless otherwise authorized in writing by the CEO. However,
Executive shall have the right to perform such incidental services as are
necessary in connection with (a) Executive's private passive investments, but
only if Executive is not obligated or required to (and shall not in fact) devote
any managerial efforts which interfere with Executive's services to


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the Company, or (b) Executive's charitable or community activities, or
participation in trade or professional organizations, but only if such
incidental services do not interfere with Executive's services to the Company.

        (b) Prior Employers. Executive will not, in connection with his
employment with the Company, breach any obligation to any Prior Employer or
other third party, including without limitation by improperly using or
disclosing any confidential information, proprietary information or trade
secrets belonging to any Prior Employer, or bringing onto the premises of the
Company or in any other way using or referring to any unpublished document or
any property belonging to any Prior Employer unless consented to in writing by
such Prior Employer, and will return all property and confidential information
belonging to any Prior Employer. This is in addition to all obligations of
Executive under the Employee Proprietary Information and Inventions Agreement.

        (c) Non-Solicitation. During the Employment Period and for one (1) year
following termination of Executive's employment, Executive shall not encourage
or solicit any of the Company's employees to leave the Company's employ for any
reason or interfere in any other manner with employment relationships at the
time existing between the Company and its employees; or solicit any client of
the Company, induce any of the Company's clients to terminate its existing
business relationship with the Company or interfere in any other manner with any
existing business relationship between the Company and any client or other third
party. Executive acknowledges that monetary damages may not be sufficient to
compensate the Company for any economic loss that may be incurred by reason of
his breach of the foregoing restrictive covenants. Accordingly, in the event of
any such breach, the Company shall, in addition to any remedies available to the
Company at law, be entitled to obtain equitable relief in the form of an
injunction precluding Executive from continuing such breach.

        10. GENERAL

        (a) Successors and Assigns. This Agreement is personal in its nature and
the Executive shall not assign or transfer his rights under this Agreement.

        (b) Notices. Any notices, demands or other communications required or
desired to be given by any party shall be in writing and shall be validly given
to another party if served either personally or if deposited in the United
States mail, certified or registered, postage prepaid, return receipt requested.
If such notice, demand or other communication shall be served personally,
service shall be conclusively deemed made at the time of such personal service.
If such notice, demand or other communication is given by mail, such notice
shall be conclusively deemed given forty-eight (48) hours after the deposit
thereof in the United States mail addressed to the party to whom such notice,
demand or other communication is to be given as hereinafter set forth:

        To the Company:      Exult, Inc.
                             4 Park Plaza, Suite 1000
                             Irvine, California  92614
                             Attention:  Chief Executive Officer

        With a copy to:      General Counsel

        To Executive:        At his address of record as maintained in the
                             Company's employment files



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Any party may change its address for the purpose of receiving notices, demands
and other communications by providing written notice to the other party in the
manner described in this paragraph.

        (c) Entire Agreement. This Agreement, any separate document pursuant to
which the Company undertakes severance or incentive compensation obligations to
Executive (including without limitation the Severance Agreement and Stock Option
Addendum entered into by Executive and the Company concurrently herewith), the
Company's Proprietary Information and Inventions Agreement, and the separate
documentation related to Executive's stock options (collectively, the "RELATED
DOCUMENTS") together constitute the entire agreement and understanding of the
Company and Executive with respect to the terms and conditions of Executive's
employment with the Company and the provision by the Company of any
consideration or benefits, and supersede all prior written or verbal agreements
and understandings between Executive and the Company relating to such subject
matter. This Agreement may only be amended by written instrument signed by
Executive and an authorized officer of the Company. Any and all prior
agreements, understandings or representations other than the Related Documents
relating to the Executive's employment with the Company (including, without
limitation, the Old Agreement), are terminated and cancelled in their entirety
and are of no further force or effect.

        (d) Governing Law; Severability. This Agreement will be construed and
interpreted under the laws of the State of California applicable to agreements
executed and to be wholly performed within the State of California. If any
provision of this Agreement as applied to any party or to any circumstance is
adjudged by a court of competent jurisdiction to be void or unenforceable for
any reason, the invalidity of that provision shall in no way affect (to the
maximum extent permissible by law) the application of such provision under
circumstances different from those adjudicated by the court, the application of
any other provision of this Agreement, or the enforceability or invalidity of
this Agreement as a whole. If any provision of this Agreement becomes or is
deemed invalid, illegal or unenforceable in any jurisdiction by reason of the
scope, extent or duration of its coverage, then such provision shall be deemed
amended to the extent necessary to conform to applicable law so as to be valid
and enforceable or, if such provision cannot be so amended without materially
altering the intention of the parties, then such provision will be stricken and
the remainder of this Agreement shall continue in full force and effect.

        (e) Remedies. All rights and remedies provided pursuant to this
Agreement or by law shall be cumulative, and no such right or remedy shall be
exclusive of any other. A party may pursue any one or more rights or remedies
hereunder or may seek damages or specific performance in the event of another
party's breach hereunder or may pursue any other remedy by law or equity,
whether or not stated in this Agreement.

        (f) Arbitration. Any and all disputes and claims between Executive and
the Company that arise out of Executive's employment with the Company or
termination thereof shall be resolved through final and binding arbitration.
This shall include, without limitation,


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disputes relating to this Agreement or any Related Documents, claims for
wrongful termination or breach of contract or breach of the covenant of good
faith and fair dealing, public policy violation, harassment, discrimination, or
other claims under any federal, state or local law or regulation now in
existence or hereinafter enacted and as amended from time to time. The only
claims not covered by this Agreement are claims for benefits under the workers'
compensation or unemployment insurance laws, which will be resolved pursuant to
those laws, and claims that are deemed by a court of competent jurisdiction not
to be subject to mandatory arbitration under applicable law. Any demand for
arbitration must be made within 365 days of the date on which the dispute first
arose (unless a longer period of time is required by law), or it will be deemed
waived by both parties. Binding arbitration will be conducted in Orange County,
California in accordance with the rules and regulations of the American
Arbitration Association. Executive understands and agrees that the arbitration
shall be instead of any civil litigation and that this means that Executive is
waiving his right to a jury trial as to such claims. The parties further
understand and agree that the arbitrator's decision shall be final and binding
to the fullest extent permitted by law and enforceable by any court having
jurisdiction. The prevailing party in any arbitration conducted pursuant to this
Section 10(f), and any appeal therefrom or related thereto, or any litigation
between Executive and the Company related to Executive's employment or
termination thereof that occurs notwithstanding this arbitration provision (all
of the foregoing being referred to as "PROCEEDINGS"), shall be entitled to
recover from the non-prevailing party all costs incurred by the prevailing party
in the Proceedings, including without limitation attorneys' costs and fees. The
identity of the prevailing party in any Proceeding will be determined by the
arbitrator or other trier of fact or tribunal in the Proceeding as the party
most nearly achieving the result sought, although the arbitrator or other trier
of fact or tribunal may decide in any Proceeding that there is no prevailing
party if, on the basis of all of the facts and circumstances, the interests of
justice so require. In addition, the Company shall propose a reasonable set of
rules to guide any Proceedings. Such rules shall be designed to lead to a prompt
and just result without undue delay or expense, but will not be unduly
prejudicial to either party. If Executive agrees to such proposed rules and
guidelines, the Company will pay on Executive's behalf or advance to Executive
all of Executive's reasonable costs incurred in the Proceedings. Executive's
acceptance of such payments or advances will constitute Executive's agreement to
reimburse the Company therefor if the Company is found by the arbitrator or
other trier of fact or tribunal to be the prevailing party in the Proceeding.

        (g) Waivers; Amendments. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
later breach of that provision. This Agreement may be modified only by written
agreement signed by Executive and the Company.

        (h) Counterparts. This Agreement may be executed in more than one
counterpart, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument. Facsimile or
photographic copies of originally signed copies of this Agreement will be deemed
to be originals.


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        IN WITNESS WHEREOF, the Company and Executive have entered into this
Agreement as of the date first above written.

                                        EXULT, INC.



                                        By:
                                           -------------------------------------
                                           Douglas L. Shurtleff
                                           Executive Vice President & CFO



                                           -------------------------------------
                                           James C. Madden, V


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<PAGE>   9

                              SEVERANCE AGREEMENT

        This Severance Agreement (this "AGREEMENT") is entered into as of
October 31, 2000 by and between Exult, Inc. (the "COMPANY") and James C. Madden,
V ("EXECUTIVE").

        Executive has entered into an employment agreement with the Company
dated October 31, 2000 (the "EMPLOYMENT AGREEMENT"). In consideration of the
Employment Agreement, the provisions hereof, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Company and Executive hereby agree as follows:

        1. If a Triggering Event occurs, but subject to Sections 2 and 3:

               (a) (i) Covered Options that had not vested as of the date of the
Triggering Event but that would have vested if Executive had remained employed
with the Company until the first anniversary of the date of the Triggering Event
will vest and become exercisable, and (ii) all shares previously issued upon
exercise of Covered Options prior to vesting that would have become free of
repurchase rights if Executive had remained employed with the Company until the
first anniversary of the date of the Triggering Event will become free of
repurchase rights, as of the date of the Triggering Event, notwithstanding any
unsatisfied vesting conditions applicable thereto. Covered Options that
accelerate in accordance with this Section 1(a) will be governed by the Plan
pursuant to which they were granted, including for purposes of the period for
which they will remain exercisable, except to the extent the plan is modified by
a written agreement between Executive and the Company. Covered Options that had
not vested as of the date of the Triggering Event and that do not accelerate
according to this provision will, unless otherwise provided by the Stock Option
Addendum entered into by Executive and the Company concurrently herewith, be
cancelled.

               (b) The Company or its successor will pay Executive the Severance
Payment in a lump sum within 15 days after the date of the Triggering Event or,
if later, on the date the condition described in Section 3 is satisfied.

               (c) If Executive qualifies to continue to receive insurance
coverage under the Consolidated Omnibus Budget Reconciliation Act ("COBRA"), the
Company will reimburse Executive for the cost of coverage for Executive and
Executive's eligible dependents who were covered under Company-sponsored
insurance on the date of notice of the Triggering Event for a period of 365 days
after the date of the Triggering Event under COBRA. The amount of reimbursement
shall be equal to the actual premiums Executive pays.

        2. (a) If in connection with a Triggering Event not involving any Change
in Control (as defined at the time thereof in the Company's 2000 Equity
Incentive Plan or the successor plan thereto) and not involving any breach by
the Company of Executive's Employment Agreement or any other material legal
obligation to Executive in any material respect, Executive receives benefits
under Section 1 of this Agreement, then within five (5) days of the Triggering
Event the Company's CEO may specify a list of companies deemed, in the CEO's
reasonable good-faith judgment, to be engaged or planning to engage in business
activities competitive with the Company ("LISTED COMPANIES"). If, without prior
written

<PAGE>   10

consent of the Company's CEO, at any time within 365 days after the Triggering
Event Executive directly or indirectly (i) participates in the ownership,
management, operation or control of, or is employed or contracted by, or
otherwise engaged in any business relationship for Executive's compensation or
remuneration or investment with, any of the Listed Companies, or (ii) agrees to
do any of the things described in (i), then the Company shall be entitled
without consideration or obligation to Executive to cease payments to Executive
under this Agreement and to recover from Executive any cash payments made to
Executive pursuant to Section 1(b) of this Agreement, and to cancel any stock
options that vested pursuant to Section 1(a) of this Agreement but have not been
exercised, and to rescind any exercise of any stock options that vested pursuant
to Section 1(a) of this Agreement. Any restrictions imposed and Company rights
under this Section 2(a) will be (or become) void if the Triggering Event occurs
at any time during the period from 60 days before until 548 days after a Change
in Control.

               (b) If at any time before the third anniversary of the Triggering
Event Executive (i) breaches in any material respect any contractual, legal or
fiduciary obligation to the Company, and if such breach is susceptible of cure,
fails to cure such breach within 30 days of the Company's delivery to Executive
of notice of the breach and demand for cure, or (ii) disparages in any material
respect the Company or any other person or entity included among the "Released
Parties" as defined in Exhibit A, then the Company shall be entitled without
consideration or obligation to Executive to cease payments to Executive under
this Agreement and to recover from Executive any cash payments made to Executive
pursuant to Section 1(b) of this Agreement, and to cancel any stock options that
vested pursuant to Section 1(a) of this Agreement but have not been exercised,
and to rescind any exercise of any stock options that vested pursuant to Section
1(a) of this Agreement. Any obligation of the Company to provide benefits to
Executive will be suspended during any applicable cure period.

               (c) The Company may exercise its rights under this Section 2 in
whole or part by giving Executive written notice at any time or from time to
time within 180 days after becoming aware of the activities described above.
Within ten days after receiving such notice from the Company, Executive shall
repay to the Company the cash payments made to Executive pursuant to Section
1(b) of this Agreement, and return to the Company all shares of stock Executive
received in connection with any rescinded option exercise, or if Executive has
transferred such shares, then pay to the Company in cash the equivalent value
thereof at the time of their transfer. If Executive returns shares to the
Company pursuant to the foregoing, the Company will return to Executive the
aggregate exercise price Executive paid for the shares, in the Company's
discretion either by paying Executive cash, or by reduction of amounts Executive
owes the Company. If Executive has transferred shares and is therefore obligated
to pay the Company the value thereof pursuant to the foregoing, Executive may
deduct from that payment any portion of the aggregate exercise price Executive
paid to the Company for the shares that has not been paid to Executive by the
Company in its discretion either in cash or by reduction of amounts Executive
owes the Company.

        3. The benefits provided to Executive under this Agreement will in each
case be contingent upon and subject to Executive's execution and delivery to the
Company, and the effectiveness upon any applicable period of revocability, of a
written release substantially in the form attached hereto as Exhibit A.


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<PAGE>   11

        4. The benefits provided to Executive under this Agreement will be
subject to appropriate income tax withholding and other deductions required by
applicable laws or regulations or approved by Executive, and Executive will be
responsible for all income taxes payable as a result of receipt of benefits
under this letter, without gross-up or other assistance from the Company except
as may be provided by separate written agreement between the Company and
Executive. Notwithstanding anything herein to the contrary, the Company's
obligation to pay or provide any benefits under this Agreement may be reduced in
offset by the amount of any (i) monetary obligation Executive has to the Company
or any of its Affiliates and/or (ii) liability of the Company or any of its
Affiliates to a third-party as a result of any conduct by Executive that is
outside the scope of Executive's employment with the Company.

        5. The following definitions apply for purposes of this Agreement:

        "AFFILIATE" of the Company means any person or entity controlling,
controlled by, or under common control with the Company.

        "CAUSE" means (i) Executive has engaged in any "Misconduct" as defined
at the time thereof in the Company's 2000 Equity Incentive Plan or the successor
plan thereto; or (ii) Executive's conviction of, or plea of nolo contendere to,
any felony or misdemeanor in which the actions forming the basis for the charges
for which Executive was convicted or to which Executive pled nolo contendere
manifested moral turpitude or fraud by Executive, or that has a material adverse
effect (including without limitation reputational effect) upon the Company, or
that demonstrates that Executive is manifestly unfit for a position of
leadership and trust in the Company.

        "COVERED OPTIONS" means all options to purchase capital stock of the
Company or its successor issued to Executive at any time before or after
execution of this Agreement and all options or other securities issued in
replacement for such options, provided that with respect to any stock options
originally issued to Executive after the date of this Agreement ("SUBSEQUENT
OPTIONS") the Company may specify at any time within 30 days before or after the
original date of issuance thereof that such Subsequent Options are not Covered
Options for purposes hereof.

        "DISABILITY" means Permanent Disability as defined in the Company's 2000
Equity Incentive Plan, or the successor plan thereto.

        "EXECUTIVE OFFICERS" means officers of the Company or its Affiliates in
favor of whom the Company has entered into a severance agreement substantially
in the form hereof.

        Resignation with "GOOD REASON" means (i) breach by the Company of
Executive's Employment Agreement or any other material legal obligation to
Executive in any material respect and failure to cure such breach within 15 days
of receipt from Executive of a written demand for cure delivered to the Company
within 60 days after Executive became aware of the breach, followed by
resignation by Executive of Executive's employment within 30 days after the end
of such 15-day cure period; or (ii) resignation by Executive of Executive's
employment within 30 days after (A) being directed to relocate Executive's
primary work location by more than 25 miles, which relocation would increase
Executive's commuting distance over the


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distance to Executive's primary work location before the change; (B) Executive's
level of responsibility, duties, title or reporting relationships are diminished
in any material way; (C) Executive's annual salary is reduced below $450,000 or
by more than 15% in any 365-day period; (D) Executive's bonus or other incentive
compensation eligibility or participation is reduced disproportionately to other
Executive Officers, taking into account relative annual salary levels (provided
that non-payment to Executive of incentive compensation because of Executive's
failure to achieve reasonable performance milestones consistent with a written
incentive compensation plan that was fairly administered will not constitute
Good Reason); or (E) any successor to the Company or its business fails in any
acquisition of the Company or its business, or any other reorganization or
change-in-control transaction to assume in full all of the obligations of the
Company under this Agreement.

        "SEVERANCE PAYMENT" means an amount equal to the sum of (i) Executive's
annual salary as in effect on the first day of the fiscal year in which the
Triggering Event occurs or immediately before the Triggering Event, whichever is
greater, plus (ii) Executive's target bonus for the year in which the Triggering
Event occurs as in effect on the first day of the fiscal year in which the
Triggering Event occurs or immediately before the Triggering Event, whichever is
greater, provided that Executive's target bonus for this purpose will in no case
be less than 50% of the amount referred to in part (i) of this definition. For
these purposes, non-cash bonus components will be converted to and paid in their
cash equivalent calculated as of the time of the Triggering Event.

        "TRIGGERING EVENT" means the Company or its successor terminates
Executive's employment under any circumstances other than for Cause, death or
Disability; or Executive resigns Executive's employment with Good Reason. The
date of the Triggering Event will be the date Executive's employment terminates.

        6. (a) Except as described in the third sentence of this Section 6(a),
this Agreement supersedes any and all (i) previous agreements, plans or addenda
related to severance benefits payable to Executive, all of which are hereby
terminated and of no further force or effect, and (ii) contrary provisions of
any plan pursuant to which Covered Options are granted. In addition, the
benefits payable to Executive hereunder are in lieu of any other severance
benefits under any other plan or agreement of the Company implemented or entered
into before the date of this Agreement. However, this Agreement is a supplement
to, and not a limitation of, the rights of Executive under the plans pursuant to
which the Covered Options were issued, and nothing in this Agreement limits
acceleration of stock options or other benefits provided to Executive under
stock option plans of the Company or separate written agreements entered into by
the Company on or after the date hereof.

        (b) If Executive becomes entitled to the benefits provided under this
Agreement, then Section 4.14 of the Company's 2000 Equity Incentive Plan, and
any similar provisions of any other plan or agreement otherwise applicable to
Executive or Covered Options, will cease to apply in circumstances described in
item (a) of the definition of "Misconduct" in the 2000 Equity Incentive Plan
(describing competitive activities), but this will not limit Section 2(a) of
this Agreement.


                                       4
<PAGE>   13

        7. Sections 10(b) [Notices], 10(d) [Governing Law; Severability], 10(e)
[Remedies], 10(f) [Arbitration], 10(g) [Waivers; Amendments] and 10(h)
[Counterparts] of the Employment Agreement shall be applicable to this Agreement
as though set forth herein. Without limiting the foregoing, it is specifically
intended that the prevailing party in disputes hereunder be entitled to recover
attorneys' fees and costs as set forth in Section 10(f) of the Employment
Agreement.

        In witness whereof, the Company and Executive have entered into this
Agreement as of the date first above set forth.

EXULT, INC.


By:
   ---------------------------------          ----------------------------------
    Douglas L. Shurtleff                      James C. Madden, V
    Executive Vice President & CFO

                                       5
<PAGE>   14


                             STOCK OPTION ADDENDUM

        This Stock Option Addendum (this "ADDENDUM") is entered into as of
October 31, 2000 by and between Exult, Inc. (the "COMPANY") and James C. Madden,
V ("OPTIONEE").

        Optionee has entered into an employment agreement with the Company dated
October 31, 2000 (the "Employment Agreement"). In consideration of the
Employment Agreement, the provisions hereof, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Company and Optionee hereby agree as follows:

        1. Upon an Involuntary Termination that occurs at any time from 60 days
before a Change in Control until 548 days after a Change in Control, subject to
Section 2, all of the shares of the Company's capital stock that are at the time
of the Involuntary Termination subject to outstanding Covered Options or issued
upon exercise of Covered Options prior to vesting shall automatically vest in
full on an accelerated basis so that the Covered Options shall immediately
become exercisable for all underlying shares as fully-vested and all shares
issued upon exercise of Covered Options prior to vesting will become free of
repurchase rights. The Covered Options shall remain governed by the plan
pursuant to which they were granted, including for purposes of the period for
which they will remain exercisable, except to the extent the plan is modified by
a written agreement between Optionee and the Company. In order to facilitate the
vesting that would be provided by this Addendum in case of a Change in Control
occurring 60 days or less after an Involuntary Termination preceding that Change
in Control, any cancellation or termination of unvested Covered Options that
would occur as a result of the Involuntary Termination will be deferred until it
is determined that no vesting of those Covered Options will occur pursuant to
this Addendum. However, notwithstanding the foregoing, this Addendum will not
extend the term or cause vesting of any Covered Options that have lapsed upon
expiration of their initial term before occurrence of the Involuntary
Termination and Change in Control required to trigger vesting under this
Addendum.

        2. The benefits provided to Optionee under this Addendum will in each
case be contingent upon and subject to Optionee's execution and delivery to the
Company, and the effectiveness upon any applicable period of revocability, of a
written release in substantially the form attached hereto as Exhibit A.

        3. (a) The benefits provided to Optionee under this Addendum will be
subject to appropriate income tax withholding and other deductions required by
applicable laws or regulations or approved by Optionee, and Optionee will be
responsible for all income taxes payable as a result of receipt of benefits
under this Addendum.

           (b) If Optionee becomes obligated to pay any excise tax on excess
parachute payments under Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") or any similar or successor law or regulation, whether as a
result of benefits provided to Optionee under this Addendum or another agreement
by or plan of the Company or any Affiliate of the Company, or both, the Company
shall pay an additional amount (the "Gross-Up Payment") to Optionee at the time
specified in the following paragraph. The Gross-Up Payment shall be equal to the
amount necessary so that the net amount retained by Optionee, after subtracting
the parachute excise tax imposed by Section 4999 of the Code or any successor
statute then in effect

<PAGE>   15

(the "Excise Tax"), and after also subtracting all federal, state or local
income tax, FICA tax and Excise Tax on the Gross-Up Payment, shall be equal to
the net amount Optionee would have retained if no Excise Tax had been imposed
and no Gross-Up Payment had been paid. The amount of the Gross-Up Payment shall
be determined in good faith by independent accountants or tax counsel selected
by the Company and acceptable to Optionee, who shall apply the following
assumptions: (i) Executive shall be treated as paying federal income taxes at
the highest marginal rate in the calendar year in which the Gross-Up Payment is
made, and (ii) Optionee shall be treated as paying state and local income taxes
at the highest marginal rate(s) in the calendar year in which the Gross-Up
Payment is made in the locality of Optionee's residence as of the effective date
of Optionee's termination or resignation, net of the maximum reduction in
federal income taxes that could be obtained from deducting those state and local
taxes.

           The Gross-Up Payment shall be made within five business days after
the event that triggered the Company's obligation to provide the benefits upon
which taxes as described in this Section 3 are payable (the "Triggering Event"),
provided that if the Gross-Up Payment cannot be determined within that time, the
Company shall pay Optionee within that time an estimate, determined in good
faith by the Company, of the minimum amount of the Gross-Up Payment and shall
pay the remainder (plus interest at the rate provided in Section 1274(b)(2)(B)
of the Code) as soon as the amount can be determined but in no event later than
the 30th day after the Triggering Event. If the estimated payment is more than
the amount later determined to have been due, the excess (plus interest at the
rate provided in Section 1274(b)(2)(B) of the Code) shall be repaid by Optionee
within five business days after written demand.

           If the actual Excise Tax imposed is less than the amount that was
taken into account in determining the amount of the Gross-Up Payment, Optionee
shall repay at the time that the amount of the reduced Excise Tax is finally
determined the portion of the Gross-Up Payment attributable to that reduction
(plus the portion of the Gross-Up Payment attributable to the Excise Tax, FICA
tax and federal, state and local income tax imposed on the portion of the
Gross-Up Payment being repaid by Optionee, to the extent the repayment results
in a reduction in or refund of the Excise Tax, FICA tax or federal, state or
local income tax), plus interest on the amount of the repayment at the rate
provided in Section 1274(b)(2)(B) of the Code. If the actual Excise Tax imposed
is more than the amount that was taken into account in determining the amount of
the Gross-Up Payment, the Company shall make an additional gross-up payment in
respect of such excess (plus interest at the rate provided in Section
1274(b)(2)(B) of the Code) at the time that the amount of the excess is finally
determined.

        4. For purposes of this Addendum, the following definitions apply:

        "CAUSE" means (i) Optionee has engaged in any "Misconduct" as defined at
the time thereof in the Company's 2000 Equity Incentive Plan or the successor
plan thereto; or (ii) Optionee's conviction of, or plea of nolo contendere to,
any felony or misdemeanor in which the actions forming the basis for the charges
for which Optionee was convicted or to which Optionee pled nolo contendere
manifested moral turpitude or fraud by Optionee, or that has a material adverse
effect (including without limitation reputational effect) upon the Company, or
that demonstrates that Optionee is manifestly unfit for a position of leadership
and trust in the Company.


                                       2
<PAGE>   16

        "CHANGE IN CONTROL" has the meaning set forth at the time thereof in the
Company's 2000 Equity Incentive Plan or the successor plan thereto, provided
that for purposes hereof the threshold for a Change in Control resulting from
stock accumulation shall be 50% rather than 30%, and paragraph (i) of the
definition of "Change in Control" in the 2000 Equity Incentive Plan shall
accordingly be read to substitute 50% for 30% in each case therein.

        "COVERED OPTIONS" means all options to purchase capital stock of the
Company or its successor issued to Optionee at any time before or after
execution of this Addendum and all options or other securities issued in
replacement for such options, provided that with respect to any stock options
originally issued to Optionee after the date of this Addendum ("SUBSEQUENT
OPTIONS"), the Company may specify at any time within 30 days before or after
the original date of issuance thereof that such Subsequent Options are not
Covered Options for purposes hereof.

        "DISABILITY" means Permanent Disability as defined at the time thereof
in the Company's 2000 Equity Incentive Plan, or the successor plan thereto.

        "EXECUTIVE OFFICERS" means officers of the Company or its affiliates
with whom the Company has entered into an addendum substantially in the form
hereof.

        Resignation with "GOOD REASON" means (i) breach by the Company of
Optionee's Employment Agreement or any other material legal obligation to
Optionee in any material respect and failure to cure such breach within 15 days
of receipt from Optionee of a written demand for cure delivered to the Company
within 60 days after Optionee became aware of the breach, followed by
resignation by Optionee of Optionee's employment within 30 days after the end of
such 15-day cure period; or (ii) resignation by Optionee of Optionee's
employment within 30 days after (A) being directed to relocate Optionee's
primary work location by more than 25 miles, which relocation would increase
Optionee's commuting distance over the distance to Optionee's primary work
location before the change; (B) Optionee's level of responsibility, duties,
title, or reporting relationships are diminished in any material way; (C)
Optionee's annual salary is reduced below $450,000 or by more than 15% in any
365-day period; (D) Optionee's bonus or other incentive compensation eligibility
or participation is reduced disproportionately to other Executive Officers,
taking into account relative annual salary levels (provided that non-payment to
Optionee of incentive compensation because of Optionee's failure to achieve
reasonable performance milestones consistent with a written incentive
compensation plan that was fairly administered will not constitute Good Reason);
or (E) any successor to the Company or its business fails in any acquisition of
the Company or its business, or any other reorganization or change-in-control
transaction to assume in full all of the obligations of the Company under this
Addendum.

        "INVOLUNTARY TERMINATION" means:

               (i) Optionee's involuntary dismissal or discharge by the Company
or its successor under circumstances other than Cause, death or Disability, or

               (ii) Optionee's resignation with Good Reason.


                                       3
<PAGE>   17

        5. (a) Except as described in the second sentence of this Section 5(a),
this Addendum supersedes any and all (i) previous agreements or addenda related
to acceleration of option vesting upon a Change in Control or "Corporate
Transaction," all of which are hereby terminated and of no further force or
effect and (ii) contrary provisions of any plan pursuant to which Covered
Options are granted. However, this Addendum is a supplement to, and not a
limitation of, the rights of Optionee under the plans pursuant to which the
Covered Options were issued, and nothing in this Addendum limits acceleration of
stock options or other benefits provided to Optionee under stock plans of the
Company or separate written agreements entered into by the Company or its
successors on or after the date hereof.

           (b) If Optionee has rights to acceleration of vesting of the same
stock options under this Addendum and also under a separate severance plan or
agreement, which rights are triggered in connection with the same termination of
employment, then the rights as set forth herein shall govern, such that
Optionee's rights under Section 3(b) hereof will apply to all stock option
acceleration, and any rights of the Company under any such separate severance
plan or agreement to cancel stock options or to rescind stock option exercises,
or to cease or recover severance payments, will not be applicable. However, this
Addendum will supplement but not limit any rights of Optionee to receive cash
severance payments pursuant to any separate severance plan or agreement.

           (c) Without limiting the foregoing, if Optionee becomes entitled
to the benefits provided under this Addendum, Section 4.14 of the Company's 2000
Equity Incentive Plan, and any similar provisions of any other plan or agreement
otherwise applicable to Optionee or Optionee's Covered Options, will cease to
apply to, and will in no way affect or confer upon the Company, its successors,
or any other party, any rights against, Optionee or Covered Options.

        6. Sections 10(b) [Notices], 10(d) [Governing Law; Severability], 10(e)
[Remedies], 10(f) [Arbitration], 10(g) [Waivers; Amendments] and 10(h)
[Counterparts] of the Employment Agreement shall be applicable to this Addendum
as though set forth herein. Without limiting the foregoing, it is specifically
intended that the prevailing party in disputes hereunder be entitled to recover
attorneys' fees and costs as set forth in Section 10(f) of the Employment
Agreement.

        IN WITNESS WHEREOF, the Company and Optionee have entered into this
Addendum as of the date first above set forth.

EXULT, INC.


By:
   ---------------------------------            --------------------------------
    Douglas L. Shurtleff                        James C. Madden, V
    Executive Vice President & CFO


                                       4
</TEXT>
</DOCUMENT>
