EXHIBIT 10.42
CHANGE-IN-CONTROL SEVERANCE AGREEMENT
AGREEMENT, made and entered into as of the 4th day of February, 2004
by and between Loral Space & Communications Ltd., a Bermuda company, and its
successors (the "Parent"), its wholly-owned subsidiary, Space Systems/Loral,
Inc. ("SS/L") (hereinafter, SS/L and to the extent applicable, Parent, is a
"Company"), and C. Xxxxxxx XxXxxx (the "Executive").
W I T N E S S E T H :
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WHEREAS, the Executive is a key employee of the Company; and
WHEREAS, the Parent has filed voluntary petitions for relief under
chapter 11 of title 11 of the United States Bankruptcy Code on or since July 15,
2003, and it would be in the best interests of the Parent and its shareholders
to induce the Executive to remain with the Company and encourage his continued
attention and dedication to the Company in order for the Parent to successfully
reorganize and succeed post-bankruptcy; and
WHEREAS, the Parent and the Company desire to enter into this
agreement ("Agreement") with the Executive providing for a severance payment to
the Executive if the Executive's employment is terminated in connection with a
Change-in-Control (as hereinafter defined), subject to the terms and conditions
specified herein;
WHEREAS, the U.S. Bankruptcy Court overseeing the Parent's
reorganization has issued a consent order dated December 18, 2003, allowing the
Parent to provide additional severance protection to the Executive through such
Agreement;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
receipt of which is mutually acknowledged, the Parent, the Company and the
Executive agree as follows:
1. TERM
(a) This Agreement is effective as of the date hereof (the
"Effective Date") and shall terminate one year following the date on which the
Change-in-Control occurs (the "Term").
(b) If a Change-in-Control does not occur on or before the date two
(2) years from the Effective Date, this Agreement shall terminate and be of no
further force or effect.
2. TERMINATION OF THE EXECUTIVE'S EMPLOYMENT FOLLOWING A CHANGE-IN-CONTROL
(a) If the Executive's employment is terminated by the Company
without Cause (as hereinafter defined), or the Executive terminates his
employment with the Company for Good Reason (as hereinafter defined), and such
Date of Termination (as hereinafter defined) occurs within one year following a
Change-in-Control, the Executive shall be entitled to receive a
Change-in-Control Payment (as hereinafter defined).
(b) Notwithstanding the foregoing, the Executive shall not be
entitled to receive the Change-in-Control Payment if any of the following apply
to the Executive (hereinafter a "Circumstance of Ineligibility"):
(i) Death, Disability or Voluntary Termination. If the
Executive is terminated due to death or Disability or if the Executive elects to
voluntarily terminate his employment, including a termination due to retirement,
with the Company or a successor, the Executive shall not be eligible to receive
the Change-in-Control Payment; provided, however, that in the case of a
termination of employment by the Executive for Good Reason, the Executive shall
be entitled to receive the Change-in-Control Payment. For purposes of the
Agreement, "Disability" shall mean as result of the Executive's incapacity due
to physical or mental condition, the Executive shall have been absent from the
Executive's duties with the Company on a full-time basis for twelve (12)
consecutive months, and the Executive shall not have returned to the full-time
performance of the Executive's duties within thirty (30) days after written
notice of termination, pursuant to Section 2(d), is given to the Executive by
the Company.
(ii) Termination for Cause. If the Executive's employment with
the Company or a successor is terminated for Cause, the Executive shall not be
eligible to receive the Change-in-Control Payment.
(c) "DATE OF TERMINATION" shall mean: (i) if the Executive's
employment is terminated by the Company other than for Disability, the date of
receipt of the Notice of Termination (as hereinafter defined) by the Executive
(or the date the Executive should have reasonably received the Notice of
Termination, whichever is earlier), (ii) if the Executive's employment is
terminated by reason of death, the date of death of Executive, (iii) if the
Executive's employment is terminated by reason of Disability, the 30th day after
receipt of Notice of Termination by the Executive (or the date the Executive
should have reasonably received the Notice of Termination, whichever is
earlier), provided that, within the 30 days after Notice of Termination is
received by the Executive, the Executive shall not have returned to the
full-time performance of the Executive's duties with the Company, (iv) if the
Executive's employment is terminated by the Executive, the date of receipt of
the Notice of Termination by the Company (or the date the Company should have
reasonably received the Notice of Termination, whichever is earlier).
(d) "NOTICE OF TERMINATION" means that any purported termination by
the Company or by the Executive shall be communicated by written notice, to be
sent by
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first class mail, which shall indicate the specific termination provision in
this Agreement upon which such notice is based, to the other party hereto.
(e) "CHANGE-IN-CONTROL PAYMENT" means:
(i) the product of 1.5 times the Executive's annual base
salary at the Date of Termination of the Executive's employment (or, in the case
of a termination of employment for Good Reason based on a reduction of the
Executive's annual base salary, the annual base salary in effect immediately
prior to such reduction); and
(ii) continuation of medical and life insurance coverage or
arrangement in which the Executive shall have been participating immediately
prior to the Date of Termination until the earlier of (a) 1.5 years and (b) the
date upon which the Executive starts receiving comparable benefits from another
employer, provided that the Executive's continued participation (or to the
extent that a particular type of coverage) shall be possible under the general
terms and provisions of any such plans and arrangements, on the same
cost-sharing basis that applied to the Executive immediately prior to the
Executive's Date of Termination. In the event the Executive's participation (or
a particular type of coverage) under any such plan or arrangement shall be
barred, the Company shall arrange to provide the Executive with benefits, at
substantially the same after-tax cost to the Executive, which shall be
substantially similar to those which the Executive shall be entitled to receive
under such plans and arrangements. In the case of a termination of employment
for Good Reason based on a reduction of the Executive's welfare benefit plan
coverage or arrangement, the Executive's welfare benefit plan coverage or
arrangement in effect immediately prior to such reduction.
(f) "CHANGE-IN-CONTROL" means that any of the following has
occurred:
(i) any purchase of shares of the Company's common stock or
securities convertible into shares of common stock made pursuant to a tender or
exchange offer (other than any such tender offer or exchange made by the
Company);
(ii) acquisition by any person (other than any employee
benefit plan sponsored by the Company or its subsidiaries) of beneficial
ownership of 20% or more of the total voting power of the Company's then
outstanding stock and securities, except as a result of a merger or
consolidation in which the voting securities of the Company immediately prior to
such merger or consolidation represent at least 75% of the combined voting power
of the stock of the Company or the surviving company or any parent thereof
outstanding immediately after such merger or consolidation;
(iii) change in the composition of the Board of the Company,
so that existing Board members and their approved successors do not constitute a
majority of such Board;
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(iv) consummation of a merger or consolidation of the Company
unless shareholders of voting securities of the Company immediately prior to the
merger or consolidation continue to hold 75% or more of the voting securities of
the resulting entity; and
(v) shareholder approval of a liquidation or dissolution of
the Company or a sale of substantially all of the Company's assets.
(A) For purposes of this Agreement, a
"Change-in-Control" shall not be deemed to have occurred if there is a
conversion of debt obligations of the Parent and its affiliated debtors incurred
prior to the petition date to equity in the reorganized Company on account of
such interest pursuant to a plan of reorganization, or the resultant change in
the composition of the Board of Directors of the Company, except in the event of
the acquisition of the requisite amount of stock to control the Company directly
or indirectly by a "competitor" of SS/L (as defined in the Letter to the
Creditors Committee dated December 17, 2003)
(B) For purposes of this Agreement, "Person" shall mean
any person (as defined in Section 3(a)(9) of the Securities Exchange Act, as
amended (the "Exchange Act"), as such term is modified in Section 13(d) and
14(d) of the Exchange Act) other than (i) an employee plan established by the
Parent or the Company, or any of its affiliates (as defined in Rule 12b-2
promulgated under the Exchange Act), (ii) an underwriter temporarily holding
securities pursuant to an offering of such securities, or (iii) a corporation
owned, directly or indirectly, by stockholders of the Company in substantially
the same proportions as their ownership interest of the Company. "Beneficial
Owner" shall mean a beneficial owner as defined in Rule 13d-3 under the Exchange
Act.
(g) "CAUSE" means that any of the following has occurred: (A) the
Executive's fraud upon, or misappropriation or embezzlement of assets of, the
Company, or (B) the Executive's willful and continued failure to substantially
perform the Executive's duties hereunder (other than such failure resulting from
the Executive's incapacity due to physical or mental condition or any such
actual or anticipated failure after the issuance of a notice of termination,
pursuant to Section 2(d)); provided, however, that Cause shall occur with
respect to clause (B) of this sentence only if such action constituting Cause
has not been corrected or cured by the Executive within thirty (30) days after
the Executive has received written notice from the Company of the Company's
intent to terminate the Executive's employment for Cause and specifying in
detail the basis for such termination. For purposes of this paragraph, no act,
or failure to act, on the Executive's part shall be considered "willful" unless
done, or omitted to be done, by the Executive not in good faith and without
reasonable belief that the Executive's action or omission was in the best
interest of the Company. Notwithstanding the foregoing, the Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than three quarters of the entire membership of the
Board at a meeting of the Board called and held for the purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the
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Executive's counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, the Executive was guilty of conduct set forth in
this section and specifying the particulars thereof in detail.
(h) "GOOD REASON" to terminate employment exists with respect to the
Executive if there is:
(i) any diminution of, or assignment by Company, of duties
inconsistent with the Executive's position, duties, responsibilities and status
with the Company immediately prior to a Change-in-Control, or a change in the
Executive's titles or positions as in effect immediately prior to a
Change-in-Control, or any removal of Executive from, or any failure to reelect
the Executive to, any of such titles or positions, except in connection with the
Executive's termination of employment for disability, voluntary termination or
Cause or as a result of the Executive's death, or by the Executive other than
for "good reason;"
(ii) a reduction by the Company in the Executive's base salary
as in effect on the date hereof or as it may be increased from time to time, or
the Company's failure to increase the Executive's base salary (within twelve
(12) months of Executive's last increase in base salary prior to a
Change-in-Control or any anniversary of the date of such increase) after a
Change-in-Control in an amount which at least equals, on a percentage basis, the
average percentage increase in base salary for all officers of the Company
(excluding the Executive) effected in the preceding 12 months;
(iii) any failure to continue any material employee benefit,
incentive or securities plan or arrangement, or the taking of action that
adversely affects the Executive's participation in or reduces benefits under
such plans or arrangements unless a substantially comparable plan or arrangement
is provided;
(iv) the relocation of the primary workplace of the Executive
by more than a reasonable commuting distance;
(v) a substantial increase in business travel obligations over
such obligations as they shall have existed at the time of a Change-in-Control;
(vi) any failure to provide the number of paid vacation days
to which the Executive was entitled at the time of the Change-in-Control;
(vii) any material breach of the Agreement;
(viii) any failure to obtain the satisfactory agreement from
any successor to assume and agree to perform the Agreement; and
(ix) any purported termination of employment without prior
written notice specifying the reason for such termination.
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3. TIME OF PAYMENT OF CHANGE-IN-CONTROL PAYMENT
The Change-in-Control Payment (if any) shall be paid to the
Executive in cash in a lump sum within 10 business days following the Date of
Termination of the Executive's employment with the Company or the successor.
4. EXCISE TAXES
The following provisions shall apply with respect to any excise tax imposed
under Section 4999 of the Internal Revenue Code as amended (the "Code"), (the
"Excise Tax"):
(a) Whether or not the Executive becomes entitled to any
Change-in-Control Payment, if any of the payments or benefits received or to be
received by the Executive in connection with a Change-in-Control or the
Executive's termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
person whose actions result in a Change-in-Control of the Company or any person
affiliated with the Company or such person (the "Total Payments")) will be
subject to Excise Tax, the Company shall pay to the Executive an additional
amount (the "Gross-Up Payment") such that the net amount retained by the
Executive after payment of (a) any Excise Tax on the Total Payments and (b) any
Excise Tax and income tax due in respect of the Gross-Up Payment, shall equal
the Total Payments. Such payment shall be made in the manner described in
Section 3 above.
(b) For purposes of determining whether any of the Total Payments
will be subject to Excise Tax and the amount of such Excise Tax, (i) any Total
Payments shall be treated as "parachute payments" (within the meaning of Section
280G(b)(2) of the Code) unless, in the opinion of tax counsel selected by the
Company's independent auditors and reasonably acceptable to the Executive, such
payments or benefits (in whole or in part) do not constitute parachute payments,
including by reason of Section 280G(b)(4)(A) of the Code, and all "excess
parachute payments" (within the meaning of Section 280G(b)(1) of the Code) shall
be treated as subject to the Excise Tax unless, in the opinion of such tax
counsel, such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered (within the meaning of
Section 280G(b)(4)(B) of the Code), or are otherwise not subject to the Excise
Tax, and (ii) the value of any noncash benefits or any deferred payment or
benefit shall be determined by the Company's independent auditors in accordance
with the principles of Section 280G(d)(3) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income and employment taxes at the highest marginal rate of federal
income and employment taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income and employment taxes at the
highest marginal rate of taxation in the state and locality of the Executive's
residence on the Date of Termination (or such other time as hereinafter
described), net of the maximum reduction in federal income or employment taxes
which could be obtained from deduction of such state and local taxes.
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In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time of termination of
the Executive's employment (or such other time as is hereinafter described), the
Executive shall repay to the Company, at the time that the amount of such
reduction in Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time of the termination of the Executive's employment (or such
other time as is hereinafter described) (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-Up
Payment), the Company shall make an additional Gross-Up Payment in respect of
such excess (plus any interest, penalties or additions payable by the Executive
with respect to such excess) at the time that the amount of such excess is
finally determined. The Executive and the Company shall each reasonably
cooperate with the other in connection with any administrative or judicial
proceedings concerning the existence or amount of liability for Excise Tax with
respect to the Total Payments.
5. MISCELLANEOUS
(a) No Employment Agreement. This Agreement does not constitute a
contract of employment or impose on the Company any obligation to retain the
Executive as an employee.
(b) Deductions and Withholding. The Executive agrees that the
Company shall withhold from any and all compensation required to be paid to the
Executive pursuant to this Agreement all federal, state, local and/or other
taxes which the Company determines are required to be withheld in accordance
with applicable statutes and/or regulations from time to time in effect.
(c) Waiver and Release. The Executive acknowledges that (i) the
Change-in-Control Payment is in excess of the amounts that the Executive would
otherwise be entitled to receive under any employment or severance agreement,
plan, program or arrangement of the Company or between the Company and the
Executive, except for the prepetition Employee Protection Agreement dated July
18, 2000, and amended February 7, 2002 (the "Employee Protection Agreement") and
(ii) the Company has no obligation to enter into this Agreement. In
consideration of the Company assuming these additional obligations and entering
into this Agreement, the Executive agrees to (i) execute, upon receipt of the
Change-in-Control Payment, a release of all claims related to the Executive's
employment or termination thereof, in substantially the same form as Annex A
annexed hereto other than any modifications which may be required to effectuate
such release based upon any changes in law, and (ii) waive and release any and
all claims he may have pursuant to such prepetition Employee Protection
Agreement.
(d) Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration
conducted in New York under the Commercial Arbitration Rules then prevailing of
the American
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Arbitration Association and such submission shall request the American
Arbitration Association to: (i) appoint an arbitrator experienced and
knowledgeable concerning the matter then in dispute; (ii) require the testimony
to be transcribed; (iii) require the award to be accompanied by findings of fact
and a statement of reasons for the decision; and (iv) request the matter to be
handled by and in accordance with the expedited procedures provided for in the
Commercial Arbitration Rules. The determination of the arbitrators, which shall
be based upon a de novo interpretation of this Agreement, shall be final and
binding and judgment may be entered on the arbitrators' award in any court
having jurisdiction. All costs of the American Arbitration Association and the
arbitrator shall be borne by the Company, unless the position advanced by the
Executive is determined by the arbitrator to be frivolous in nature.
(e) Legal Fees. The Parent and its affiliated debtors shall pay to
the Executive all reasonable legal fees and expenses incurred by the Executive
in disputing in good faith any issues hereunder relating to the termination of
the Executive's employment, in seeking in good faith to obtain or enforce any
benefit or right provided by this Agreement or in connection with any tax audit
or proceeding to the extent attributable to the application of Section 4999 of
the Code to any payment or benefit provided hereunder. Such payments shall be
made within 30 days after delivery of the Executive's written request for
payment accompanied with such evidence of fees and expenses incurred as the
Company reasonably may require. The Parent and its affiliated debtors shall pay
to the Executive interest at the prime lending rate as announced from time to
time by the Federal Reserve Bank on all or any part of the Change-in-Control
Payment that is not paid when due. The prime rate for each calendar quarter
shall be the prime rate in effect on the first day of the calendar quarter.
(f) No Duty to Mitigate/Set-off. The Company agrees that if the
Executive's employment with the Company or a successor is terminated during the
Term, the Executive shall not be required to seek other employment. Further, the
amount of any payment or benefit hereunder shall not be reduced by any
compensation earned by the Executive or any benefit provided to the Executive as
the result of employment by another employer or otherwise except as set forth in
Section 2(e)(ii) herein. The Company's obligations to make any payment or
provide any benefit hereunder shall not be affected by any circumstances,
including, without limitation, any set-off, counterclaim, recoupment, defense or
other right which the Company or a successor corporation may have against the
Executive except as set forth in Section 2(e)(ii) herein.
(g) Other Severance. The Company acknowledges and agrees that the
Change-in-Control Payment is in addition to any severance payments to which
Executive may be entitled under the Company's Key Employee Retention Plan and
which are described in the consent order of the U.S. Bankruptcy Court overseeing
the Parent's reorganization dated November 26, 2003.
(h) Amendment and Termination. No party may amend, modify or
terminate this Agreement without the express written consent of the other party.
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(i) Binding Agreement. This Agreement shall inure to the benefit of
and be enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devises and
legatees.
(j) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York without reference to
principles of conflict of laws.
(k) Counterparts. This Agreement may be executed and delivered in
separate counterparts, each of which when so executed and delivered shall be
deemed an original and all of which taken together shall constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
LORAL SPACE & COMMUNICATIONS,
LTD.
By: /s/ Xxx Xxxx
---------------------
Xxx Xxxx
Vice President
SPACE SYSTEMS/LORAL, INC.
By: /s/ Xxx Xxxx
---------------------
Xxx Xxxx
Vice President
ACCEPTED AND AGREED TO
as of the date first written above
By: /s/ C. Xxxxxxx XxXxxx
---------------------
C. Xxxxxxx XxXxxx
Address:
00000 Xxxxxxx Xxxxxx
Xxxxxxx, XX 00000
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Annex A
Form of Release
Executive waives and releases any and all potential claims, known or
unknown, he has against the Company, related corporations, subsidiaries, and
their officers, directors, employees or agents, relating to or arising out of,
his employment with the Company and the termination of that employment. This
waiver and release applies to all claims relating to his employment, including,
but not limited to, claims arising under the New York State Executive Law or the
New York City Civil Rights Law, claims arising under the California Fair
Employment & Housing Act and/or any other applicable California statute, any
contract or tort claims, claims arising under Title VII of the Civil Rights Act,
the Americans with Disabilities Act, the Age Discrimination in Employment Act of
1967, the Older Workers Benefit Protection Act of 1990, and the Fair Labor
Standards Act.
