EXHIBIT 10.16
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of November 24, 1999 by and among Panolam Industries
International, Inc., a Delaware corporation (together with its successors and
assigns, the "Company"), Panolam Industries Holdings, Inc., a Delaware
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corporation (together with its successors and assigns, "Holdings") and Xxxxxx X.
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Xxxxxx, Jr. (the "Executive");
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W I T N E S S E T H:
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WHEREAS, the Executive is currently employed as President and Chief Executive
Officer of the Company and of Holdings;
WHEREAS, Panolam Acquisition Company, L.L.C., a Delaware limited liability
company ("PAC") has entered into an agreement to acquire over 93% of the capital
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stock of Holdings;
WHEREAS, the Company and Holdings desire to continue the employment of the
Executive with the Company and Holdings after such acquisition (the "PAC
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Acquisition") and to enter into an agreement embodying the terms of such
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continued employment;
WHEREAS, the Executive desires to accept such continued employment, subject to
the terms and provisions of this 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 Company, Holdings and the Executive (collectively,
the "Parties") agree as follows:
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1. Definitions. Capitalized terms not otherwise defined herein shall have the
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meanings set forth in Exhibit A.
2. Term of Employment. The Company and Holdings hereby agree to employ the
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Executive under this Agreement, and the Executive hereby accepts such
employment, for the Term of Employment. The Term of Employment shall commence
as of the Effective Date and shall end on December 31, 2004; provided, however,
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that the Term of Employment shall thereafter be automatically and indefinitely
extended for additional one year periods unless (x) Holdings and the Company
give the Executive, or (y) the Executive gives Holdings and the Company, at
least 180 days' prior written notice electing not to so extend the Term of
Employment. Following such notice, the Term of Employment shall terminate on
the last day of the first calendar year that ends (a) on or after December 31,
2004 and (b) at least 180 days after the giving of such notice. Notwithstanding
the foregoing, the Term of Employment may be earlier terminated in strict
accordance with the provisions of Section 9.
3. Positions, Duties and Responsibilities.
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(a) During the Term of Employment, the Executive shall serve as the
President and Chief Executive Officer of the Company, of Holdings and of such of
their Subsidiaries as the Holdings Board may reasonably request; shall have all
authorities, duties and responsibilities customarily exercised by an individual
serving in those positions in enterprises of a similar size and structure; shall
be assigned no duties or responsibilities that are materially inconsistent with,
or that materially impair his ability to discharge, the foregoing duties and
responsibilities; shall be a member of the Company Board, a member of the
Holdings Board, and a member of the Board of such of their Subsidiaries as the
Holdings Board may reasonably request; and shall report solely and directly to
the Holdings Board.
(b) The Executive shall devote substantially all of his business time
and efforts to the affairs of the Company and Holdings; provided, however, that
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the Executive may also engage in the following activities: (i) serving on the
boards of a reasonable number of business entities, trade associations and/or
charitable organizations; (ii) engaging in charitable activities and community
affairs; (iii) accepting and fulfilling a reasonable number of speaking
engagements; and (iv) managing his personal investments and affairs; provided
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that such activities do not in the aggregate materially interfere with the
proper performance of his duties and responsibilities hereunder.
4. Base Salary. Commencing as of the Effective Date, the Company shall pay the
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Executive an annualized Base Salary of $500,000, payable in accordance with the
regular payroll practices applicable to senior executives of the Company and
Holdings but no less frequently than monthly. The Base Salary shall be reviewed
no less frequently than annually during the Term of Employment for increase in
the discretion of the Holdings Board. The Base Salary shall not be decreased at
any time, or for any purpose, during the Term of Employment (including, without
limitation, for the purpose of determining benefits due under Section 9). The
Executive shall not be entitled to receive any additional consideration for
service during the Term of Employment as a member of the Holdings Board, the
Company Board, or the Board of any of their Subsidiaries.
5. Annual Bonus. The Executive's annual bonus for calendar year 1999 shall be
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determined in accordance with the current practices of Holdings and the Company
and shall be paid by the Company. In respect of each calendar year that ends
during the Term of Employment and begins on or after January 1, 2000, the
Executive shall receive an annual bonus from the Company determined as follows.
The annual bonus shall be based on the relationship between (x) Holdings' EBITDA
for the calendar year in question ("Actual EBITDA") and (y) the target EBITDA
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("Target EBITDA") established for Holdings for such calendar year. The Target
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EBITDA for each calendar year shall be established for Holdings during the last
45 days of the year preceding such calendar year by the Holdings Board
reasonably, in good faith, and in consultation with the Executive, and shall be
subject to later adjustment in light of significant acquisitions, significant
dispositions, significant changes in accounting practices, and other significant
occurrences to the extent necessary to avoid material distortion of the benefits
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intended to be provided under this Section 5. The size of the bonus paid for
any calendar year shall equal 75% of the Executive's Base Salary earned in
respect of such calendar year (such amount, the "Target Bonus") if Target EBITDA
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is equal to Actual EBITDA for such year. To the extent that Actual EBITDA is
less than Target EBITDA, the Target Bonus shall be reduced by a factor of two
and one-half (e.g., if Actual EBITDA is 90% of Target EBITDA, the Executive
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shall be paid a bonus equal to 75% of the Target Bonus); provided, however, that
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the Executive shall not be entitled to receive any annual bonus for a year if
Actual EBITDA is not equal to at least 80% of Target EBITDA for such year. To
the extent Actual EBITDA exceeds Target EBITDA, the Target Bonus shall be
increased by a factor of two and one-half (e.g., if Actual EBITDA is 120% of
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Target EBITDA, the Executive shall be paid a bonus equal to 150% of the Target
Bonus). The Executive shall be paid bonus amounts, if any, earned pursuant to
this Section 5 promptly following certification of Holdings' audited year-end
consolidated financial statements, and in no event later than April 30th of the
calendar year following the calendar year to which the bonus relates. Neither
Holdings, nor the Company, nor any of their Subsidiaries shall, during the Term
of Employment, adopt a fiscal year that is not a calendar year without the
consent of the Executive, which consent shall not be unreasonably withheld.
Holdings and the Company agree to use commercially reasonable efforts to assure
timely availability of certified consolidated financial statements in respect of
each fiscal year that begins or ends during the Term of Employment.
6. Initial Equity Arrangements.
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(a) Stockholders' Agreement. Concurrently with the execution of this
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Agreement, the Executive and Holdings shall execute, and Holdings shall cause
PAC to execute, a stockholders' agreement in substantially the form attached
hereto as Exhibit B.
(b) Initial Stock Option Grant. As of the Closing Date, Holdings
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shall grant the Executive an eleven-year option, in substantially the form
attached hereto as Exhibit C, to purchase no less than 10,514 shares of its
common stock at an exercise price of $1,287.94 per share.
(c) Initial Stock Purchase. As of the Closing Date, the Executive
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shall be entitled to purchase from Holdings (if the Executive so elects), and
Holdings (upon such election) shall sell to the Executive, up to 2,717.5 shares
of its common stock at a price of $1,287.94 per share, under a stock purchase
agreement in substantially the form attached hereto as Exhibit D and in return
for a promissory note (the "Executive Promissory Note") for the amount of the
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aggregate purchase price, which Executive Promissory Note shall be in
substantially the form attached hereto as Exhibit E and shall be secured by a
pledge agreement in substantially the form attached hereto as Exhibit F.
(d) Adjustments. The prices and numbers of shares set forth in
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Sections 6(b) and 6(c) are subject to adjustment as of the Closing Date to
reflect changes in the fully diluted number of shares of Holdings common stock
outstanding as of the Closing Date, and any
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adjustments in the per share price to be paid at the closing of the PAC
Acquisition, as set forth in Exhibits C and D.
7. Other Long-Term Incentives.
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The Executive shall be eligible to receive additional long-term compensation
incentives during the Term of Employment at the discretion of the Holdings
Board. Such incentive awards shall be at a level, and on terms and conditions,
that are commensurate with his positions and responsibilities at the Company and
Holdings and appropriate in light of corresponding awards to other senior
executives of the Company and Holdings.
8. Other Benefits.
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(a) Employee Benefits. During the Term of Employment, the Executive
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shall be eligible to participate in all employee benefit plans and programs made
available generally to senior executives of the Company or Holdings, including,
without limitation, pension, profit-sharing, income deferral, savings and other
retirement plans or programs, accidental death and dismemberment protection,
medical, dental and hospitalization plans, life insurance, short- and long-term
disability programs, travel accident insurance, and any other employee welfare
benefit plans or programs that may from time to time be made available,
including any plans or programs that supplement the above-listed types of plans
or programs, whether funded or unfunded; provided, however, that nothing in this
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Agreement shall be construed to require the Company or Holdings to establish or
maintain such plans or programs, except as expressly set forth herein. The
Executive's participation in all such plans and programs shall be at a level,
and on terms and conditions, that are commensurate with his positions and
responsibilities at the Company and at Holdings and no less favorable to him
than to other senior executives of the Company or Holdings. During the Term of
Employment, no benefit or coverage available to the Executive under any such
plan or program shall be materially reduced without his prior written consent,
unless a substantially equivalent reduction is applied generally to the other
senior executives of the Company or Holdings. The Executive shall be entitled
to post-retirement welfare benefits on a basis no less favorable than that
applying to other senior executives of the Company and Holdings.
(b) Fringe Benefits, Perquisites and Vacations. During the Term of
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Employment, the Executive shall participate in all fringe benefits and
perquisites available to senior executives of the Company or Holdings at levels,
and on terms and conditions, that are commensurate with his positions and
responsibilities at the Company and at Holdings and no less favorable than those
applying to other senior executives of the Company or Holdings; shall receive
such additional fringe benefits and perquisites as the Company or Holdings may,
in their discretion, from time-to-time provide; and shall be entitled to no less
than 4 weeks' paid vacation per year.
(c) Reimbursement of Business and Other Expenses. The Executive is
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authorized to incur reasonable expenses in carrying out his duties and
responsibilities under this
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Agreement, and the Company shall promptly reimburse him for all such expenses
(including, without limitation, first class air travel), subject to
documentation in accordance with reasonable policies of the Company or Holdings
previously communicated to the Executive by the Company or Holdings. The Company
shall also promptly reimburse the Executive (i) for all reasonable expenses
(including, without limitation, reasonable attorneys' fees and other charges of
counsel) incurred by him in connection with the negotiation and documentation of
these employment arrangements and (ii) for annual financial, estate and tax
counseling that the Executive may choose to obtain from professional providers
of such services, in an amount not to exceed $25,000 for any fees incurred prior
to December 31, 2000, and in an amount not to exceed $10,000 for each calendar
year thereafter.
9. Termination of Employment.
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(a) Termination Due to Death. The Term of Employment is terminated
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upon the Executive's death. In the event that the Executive's employment under
this Agreement is terminated due to his death, his estate or his beneficiaries
(as the case may be) shall be entitled to the following:
(i) Base Salary for a period of 90 days following the date of
death;
(ii) prompt payment of a Pro-Rata Annual Bonus for the year in
which his death occurs;
(iii) any Stock Option that becomes exercisable solely with the
passage of time, without satisfaction of any performance criterion other than
continued service, shall become exercisable as of the date of death to the
extent provided in the agreement granting such Option, but at least to the
extent that it was then scheduled to become exercisable within six months
following such date if the Executive's employment hereunder had continued; and
(iv) any Stock Option that is, or becomes, exercisable as of the
date of death shall remain exercisable as provided in the agreement granting
such Option, but at least through the second anniversary of such date.
(b) Termination Due to Disability. The Term of Employment may be
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terminated due to Disability as provided in this Section 9(b). In the event
that the Executive's employment under this Agreement is terminated due to
Disability, he shall be entitled to the following:
(i) to receive, to age 65 and no less frequently than monthly,
periodic disability payments at a rate equal to 60% of the Base Salary in effect
at the termination of his employment, less the amount of any periodic disability
benefits provided (other than benefits attributable to his own unreimbursed
contributions) under any disability insurance plan or program of the Company,
Holdings, or any of their Affiliates;
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(ii) prompt payment of a Pro-Rata Annual Bonus for the year in
which his employment terminates;
(iii) any Stock Option that becomes exercisable solely with the
passage of time, without satisfaction of any performance criterion other than
continued service, shall become exercisable as of the Termination Date to the
extent provided in the agreement granting such Option, but at least to the
extent that it was then scheduled to become exercisable within six months
following such date if the Executive's employment hereunder had continued;
(iv) any Stock Option that is, or becomes, exercisable as of the
Termination Date, shall remain exercisable as provided in the agreement granting
such Option, but at least through the second anniversary of such date; and
(v) continued participation, through the third anniversary of
the Termination Date, in all medical, dental, vision, hospitalization and life
insurance coverages and in all other employee welfare benefit plans, programs
and arrangements in which he or his family members were participating on the
Termination Date, on terms and conditions that are no less favorable than those
that applied on such date.
No termination of the Executive's employment for Disability shall be effective
unless (x) Holdings and the Company first give the Executive, or (y) the
Executive first gives Holdings and the Company, 15 days' written notice of such
termination.
(c) Termination for Cause.
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(i) No termination of the Executive's employment under this
Agreement for Cause shall be effective unless the provisions of this Section
9(c)(i) shall have been complied with. The Executive shall be given written
notice by the Holdings Board of the intention to terminate him for Cause, such
notice (A) to state in detail the particular circumstances that constitute the
grounds on which the proposed termination for Cause is based and (B) to be given
no later than 180 days after the Holdings Board first learns of such
circumstances. The Executive shall have 15 days after receiving such notice in
which to cure such grounds, to the extent such cure is possible. If he fails to
fully cure such grounds within such period, the Executive shall then be entitled
to a hearing before the Holdings Board. Such hearing shall be held within 20
days of his receiving such notice, provided that he requests such hearing within
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15 days of receiving such notice. If, within five days following such hearing,
the Holdings Board gives written notice to the Executive confirming that, in the
judgment of at least two-thirds of the members of the Holdings Board, Cause for
terminating his employment on the basis set forth in the original notice exists,
his employment hereunder shall thereupon be terminated for Cause, subject to de
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novo review, at the Executive's election, through arbitration in accordance with
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Section 15.
(ii) In the event that the Executive's employment hereunder is
terminated for Cause in accordance with Section 9(c)(i), (A) any Stock Option
that is exercisable as of the Termination Date shall expire 30 days after the
Termination Date, (B) any Stock Option
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that later becomes exercisable shall expire 30 days after if becomes
exercisable, (C) all other Stock Options shall expire upon termination of the
Executive's employment, and (D) the Executive shall be entitled to the benefits
described in Section 9(f)(i).
(d) Termination Without Cause. In the event that the Executive's
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employment under this Agreement is terminated in a Termination Without Cause, he
shall be entitled to:
(i) prompt payment of a Pro Rata Annual Bonus for the year in
which his employment terminates;
(ii) a prompt lump-sum payment equal to (A) the sum of his (x)
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Base Salary, at the annualized rate in effect on the Termination Date, plus (y)
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the annual bonus award he earned for the year prior to the year of termination
times (B) the lesser of (x) 1095 and (y) the number of days in the period that
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begins on the Termination Date and ends on December 31, 2004 (but in no event
less than 730), divided by (C) 365; provided that, in connection with such
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payment, if the Company and Holdings execute a waiver and release of claims
against the Executive, then the Executive shall execute a waiver and release of
claims against the Company, Holdings or any of their officers, directors,
representatives, agents or Affiliates, in each case as reasonably agreed by the
Parties and excluding claims under this Agreement and other contractual claims
as appropriate;
(iii) any Stock Option that becomes exercisable solely with the
passage of time, without satisfaction of any performance criterion other than
continued service, shall become exercisable as of the Termination Date to the
extent provided in the agreement granting such Option, but at least to the
extent that it was then scheduled to become exercisable within six months
following such date if the Executive's employment hereunder had continued;
(iv) any Stock Option (x) that is, or becomes, exercisable as of
the Termination Date shall remain exercisable as provided in the agreement
granting such Option, but at least through the second anniversary of such date
and (y) that becomes exercisable in connection with a Liquidity Event that
occurs within one year following the Termination Date shall remain exercisable
as provided in the agreement granting such Option, but at least through the
second anniversary of the occurrence of such Liquidity Event; and
(v) continued participation, through the second anniversary of
the Termination Date, in all medical, dental, vision, hospitalization and life
insurance coverages and in all other employee welfare benefit plans, programs
and arrangements in which he or his family members were participating on the
Termination Date, on terms and conditions that are no less favorable than those
that applied on such date, provided that the Executive's entitlements under this
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Section 9(d)(v) shall expire to the extent that equivalent coverages and
benefits (determined on a coverage-by-coverage and benefit-by-benefit basis) are
provided under the plans, programs or arrangements of a subsequent employer.
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(e) Voluntary Termination. In the event that the Executive terminates
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his employment under this Agreement prior to the then-scheduled expiration of
the Term of Employment on his own initiative, other than by death, for
Disability, or in a Constructive Termination Without Cause, he shall have the
same entitlements as provided in Section 9(c) in the case of a termination for
Cause. The Executive shall provide the Company and Holdings 90 days' prior
written notice of his election to voluntarily terminate his employment pursuant
to this Section 9(e), except that the Executive may terminate his employment
hereunder immediately if an event described in clauses (i)-(v) of the definition
of Constructive Termination Without Cause occurs after he gives such notice. A
voluntary termination in accordance with this Section 9(e) shall not be deemed a
breach of this Agreement.
(f) Miscellaneous.
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(i) On any termination of the Executive's employment under this
Agreement, he shall be entitled to:
(A) Base Salary through the Termination Date;
(B) the balance of any annual, long-term, or other incentive
or bonus award earned, accrued or owing to him (but not yet paid);
(C) any amounts due under Section 8;
(D) a lump-sum payment in respect of accrued but unused
vacation days at his Base Salary rate in effect on the Termination Date;
(E) other or additional benefits, if any, in accordance with
applicable plans, programs and arrangements of the Company, Holdings and their
Affiliates (including, without limitation, Sections 6, 7, 10(b) and 11(a), the
Executive Promissory Note, and the agreements of which forms of agreement are
attached as Exhibits B, C, D and F); and
(F) payment promptly when due, by check or (at his election)
by wire transfer of immediately available funds, of all amounts owed to him in
connection with the termination.
(ii) In the event that the Executive, or any member of his family
entitled thereto hereunder, is precluded from continuing full participation in
any employee benefit plan, program or arrangement as provided in Sections
9(b)(v) or 9(d)(v), the Executive shall be provided with the after-tax economic
equivalent of any benefit or coverage foregone. For this purpose, the economic
equivalent of any benefit or coverage foregone shall be deemed to be the total
cost to the Executive of obtaining such benefit or coverage himself on an
individual basis. Payment of such after-tax economic equivalent shall be made
quarterly in advance, without discount.
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(iii) In the event that the Executive's employment under this
Agreement terminates in accordance with Section 2 pursuant to a notice of non-
extension:
(x) in the case of non-extension pursuant to notice from
the Executive, any Stock Option that is or becomes exercisable as of the
Termination Date shall remain exercisable as provided in the agreement granting
such Option, but at least for six months following the Termination Date; and
(y) in the case of non-extension pursuant to notice from
the Company and Holdings, (I) any Stock Option that is or becomes exercisable as
of the Termination Date shall remain exercisable as provided in the agreement
granting such Option, but at least through the second anniversary of the
Termination Date and (II) any Stock Option that becomes exercisable in
connection with a Liquidity Event that occurs within one year following the
Termination Date shall remain exercisable as provided in the agreement granting
such Option, but at least through the second anniversary of the occurrence of
such Liquidity Event.
(iv) In the event of any termination of the Executive's
employment under this Agreement, the Executive shall be under no obligation to
seek other employment or otherwise mitigate the obligations of the Company,
Holdings or any of their Affiliates under this Agreement or otherwise, and there
shall be no offset against amounts due the Executive under this Agreement on
account of (A) any Claim that the Company, Holdings or any of their Affiliates
may have against him or (B) any remuneration or other benefit earned or received
by the Executive after such termination except as specifically provided in
Section 9(d)(v). Any amounts due under this Section 9 are considered to be
reasonable by the Company and Holdings, and are not in the nature of a penalty.
10. Liquidity Event; Parachute Payment Protection.
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(a) All Stock Options shall, except to the extent otherwise provided
in the agreement of which a form of agreement is appended as Exhibit C, become
fully exercisable if a Liquidity Event occurs either (x) during the Term of
Employment, or (y) in the event that the Executive's employment hereunder has
been terminated (I) in a Termination Without Cause or (II) by expiration of the
Term of Employment in accordance with Section 2 pursuant to notice of non-
extension from the Company and Holdings, within one year after the Termination
Date.
(b) The Company and Holdings covenant and agree to use their best
commercially reasonable efforts to structure any payment or benefit made to or
for the benefit of the Executive in connection with his employment by the
Company or Holdings (or the termination thereof) so as to avoid having any such
payment or benefit be subject to tax under Section 4999 of the Code (as an
"excess parachute payment"). In the event that, notwithstanding any efforts of
Holdings and the Company under this Section 10(b), any of the Executive's
payments or benefits in connection with his employment with the Company or
Holdings (or the termination thereof) are subject to tax under Section 4999 of
the Code, the Executive shall be
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entitled to an additional payment in cash from the Company, immediately prior to
the time that any such Section 4999 tax is due (through withholding or
otherwise), of an amount sufficient to ensure that the Executive receives the
same net after-tax benefit (taking into account all federal, state and local
income and other taxes) that the Executive would have received had no tax under
Section 4999 (or any similar or comparable state or local tax) been imposed. The
amount and timing of any such additional cash payment shall promptly be
determined by Holding's independent accounting firm and written notice thereof,
along with a schedule detailing such accounting firm's calculations, shall be
furnished to the Executive within ten (10) days of such determination. If the
Executive objects in a written notice received by the Company and Holdings
within ten (10) days of his receipt of the accounting firm's notice of its
determination, then the Executive, Holdings and the Company shall promptly agree
on an accounting firm to make a final determination of the amount and timing of
such additional cash payment, with the costs of such accounting firm to be paid
by the non-prevailing party; if the Parties fail to promptly agree upon such an
accounting firm, the matter shall be resolved in accordance with Section 15.
11. Indemnification and Insurance.
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(a) The Company and Holdings jointly and severally agree that (i)
if the Executive is made a party, or is threatened to be made a party, to any
Proceeding by reason of the fact that he is or was a director, officer,
employee, agent, manager, consultant or representative of the Company, Holdings
or any of their Affiliates, or is or was serving at the request of the Company,
Holdings or any of their Affiliates, or in connection with his service
hereunder, as a director, officer, member, employee, agent, manager, consultant
or representative of another Person, or (ii) if any Claim is made, or is
threatened to be made, that arises out of or relates to the Executive's service
in any of the foregoing capacities, then the Executive shall promptly be jointly
and severally indemnified and held harmless by the Company and Holdings, to the
fullest extent legally permitted, or authorized, by the certificate of
incorporation, bylaws, other organizational documents, or Board resolutions of
Holdings, the Company or any of their Subsidiaries, against any and all costs,
expenses, liabilities and losses (including, without limitation, judgments,
interest, expenses of investigation, penalties, fines, ERISA excise taxes or
penalties, reasonable attorneys' fees, and amounts paid or to be paid in
settlement) incurred or suffered by the Executive in connection therewith and
such indemnification shall continue as to the Executive even if he has ceased to
be a director, officer, member, employee, agent, manager, consultant or
representative of the Company, Holdings or other Person and shall inure to the
benefit of the Executive's heirs, executors, administrators and legal
representatives. The Company and Holdings jointly and severally agree to advance
to the Executive all costs and expenses incurred by him in connection with any
such Proceeding or Claim to the fullest extent legally permitted, or authorized,
by their certificates of incorporation, bylaws or other organizational documents
or Board resolutions within 15 days after receiving written notice requesting
such an advance, which notice (x) shall include an undertaking by the Executive
to repay the amount advanced if he is ultimately determined not to be entitled
to indemnification against such costs and expenses and (y) shall be accompanied
by reasonable documentation of the costs and expenses for which advancement is
sought. No amendment by either the Company
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or Holdings, at any time on or after the Effective Date, of the provisions of
the Company's or Holdings' certificates of incorporation or bylaws shall be
effective to reduce any of the Executive's rights to indemnification, or
advancement of costs and expenses, under this Section 11(a).
(b) During the Term of Employment and for a period of six years
thereafter, a directors and officers' liability insurance policy (or policies)
shall be kept in place providing comprehensive coverage to the Executive to the
extent that such coverage is then provided by the Company, Holdings or any of
their Affiliates for any other present or former senior executive or director of
the Company or Holdings with respect to such senior executive's or director's
service as such.
12. Restrictive Covenants.
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(a) For a period of one year following any termination of the
Executive's employment under this Agreement (x) in a Termination Without Cause
or (y) by expiration of the Term of Employment in accordance with Section 2
pursuant to a notice of non-extension, the Executive shall not knowingly perform
material services for, or knowingly have any material involvement (whether as a
director, officer, employee, agent, representative, partner, security holder,
consultant or otherwise) with, any Person that competes directly and materially
with the Company, Holdings or any of their Subsidiaries in the Decorative
Laminates Business anywhere in the world; provided, however, that the Executive
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may in any event (i) perform services that do not directly relate to business
activities that compete directly and materially with the Company, Holdings or
any of their Subsidiaries in the Decorative Laminates Business and (ii) own up
to 5% (measured by value) of the outstanding securities of any publicly-traded
entity.
(b) During the Term of Employment and for a period of two years
following any termination of the Executive's employment under this Agreement to
which Section 12(a) does not apply, and including (for avoidance of doubt) any
voluntary termination to which Section 9(e) applies, and except during the Term
of Employment in connection with the performance of his duties hereunder, the
Executive shall not knowingly perform services for, or have any involvement
(whether as a director, officer, employee, agent, representative, partner,
security holder, consultant or otherwise) with, any Person that materially
competes with any business of the Company, Holdings or any of their
Subsidiaries; provided, however, that the Executive may in any event (i) perform
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services that do not directly relate to business activities that compete with a
business of the Company, Holdings or any of their Subsidiaries and (ii) own up
to 5% (measured by value) of the outstanding securities of any publicly-traded
entity.
(c) During the Term of Employment and thereafter, the Executive shall
maintain in confidence and shall not directly, indirectly or otherwise, without
the prior written consent of the Company or Holdings, divulge, use, disseminate,
disclose or make accessible to any other Person any confidential, non-public or
proprietary document, record or information (or any portion of any computer
program, notebook or similar depository in which confidential, non-public or
proprietary information is contained) concerning the business or affairs of the
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Company or Holdings that he has acquired in the course of his employment with
the Company or Holdings except (x) to the Company, Holdings, any of their then-
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current Affiliates, or any authorized (or apparently authorized) agent or
representative of any of the foregoing, (y) in connection with performing his
duties under this Agreement or (z) when required to do so by law or by a court,
governmental agency, legislative body, arbitrator or other Person with apparent
jurisdiction to order him to divulge, disclose or make accessible such document,
record or information; provided that the restrictions set forth in this Section
--------
12(c) shall not apply to any document, record or information that (i) has
previously been disclosed to the public, or is in the public domain, other than
as a result of the Executive's breach of this Section 12(c), or (ii) is known or
generally available within any trade or industry of the Company, Holdings or any
of their Affiliates.
(d) For a period of one year following any termination of his
employment under this Agreement to which Section 12(a) applies, and for a period
of two years following any termination of his employment under this Agreement to
which Section 12(b) applies, the Executive shall not (A) directly or indirectly
solicit, or accept if offered to him (with or without solicitation), on his own
behalf or on behalf of any other Person, the services of any individual who is
an employee of the Company or Holdings (other than an employee who within the
previous two years has been the Executive's personal assistant or secretary), or
solicit any of the Company's or Holdings' employees to terminate employment with
the Company or Holdings or (B) directly or indirectly solicit, or accept if
offered to him (with or without solicitation), on his own behalf or on behalf of
any other Person, business of any supplier or customer of the Company or
Holdings, or any Person who has been solicited within the previous year to
become a customer by the Company or Holdings, in connection with any business
that competes with any business of the Company or Holdings, or directly or
indirectly solicit any customer or supplier of the Company or Holdings to
terminate its relationship with the Company or Holdings. The restrictions set
forth in this Section 12(d) shall supersede, and be in lieu of, any restrictions
set forth in the Stock Purchase Agreement.
(e) In the event of any actual or threatened breach by the Executive
of any of the provisions of Section 12(a), 12(b), 12(c) or 12(d), the Company
and Holdings shall be entitled to seek an injunction, through arbitration in
accordance with Section 15 or from any court with jurisdiction over the matter
and the Executive, restraining the Executive from violating such provision.
Costs and attorneys fees relating to any court proceeding shall be treated as
provided in Section 15.
13. Assignability; Binding Nature.
-----------------------------
(a) This Agreement shall be binding upon and inure to the benefit of
the Executive, the Company, Holdings and their respective successors, heirs (in
the case of the Executive) and assigns.
(b) No rights or obligations of the Company or Holdings under this
Agreement may be assigned or transferred by the Company or Holdings (each a
"Transferring
------------
12
Entity"), except that such rights or obligations may be assigned or transferred
------ ------
pursuant to a merger, consolidation or other combination in which the
Transferring Entity is not the continuing entity, or a sale or liquidation of
all or substantially all of the business and assets of the Transferring Entity,
provided that the assignee or transferee is the successor to all or
--------
substantially all of the business and assets of the Transferring Entity and such
assignee or transferee expressly assumes the liabilities, obligations and duties
of the Transferring Entity as set forth in this Agreement. In the event of any
sale of business and assets or liquidation as described in the preceding
sentence, the Transferring Entity shall use its best commercially reasonable
efforts to cause such assignee or transferee to promptly and expressly assume
the liabilities, obligations and duties of the Transferring Entity hereunder.
(c) No rights or obligations of the Executive under this Agreement
may be assigned or transferred by the Executive other than his rights to
compensation and benefits, which may be transferred only by will or operation of
law, except as provided in Section 17(e) or as may subsequently be agreed by the
Parties.
14. Representations.
---------------
(a) The Company and Holdings each represent and warrant that: (i) it
is fully authorized by action of its Board (and of any other Person or body
whose action is required) to enter into this Agreement and to perform its
obligations under it; (ii) the execution, delivery and performance of this
Agreement by it does not violate any applicable law, regulation, order, judgment
or decree or any agreement, plan or corporate governance document to which it is
a party or by which it is bound; and (iii) upon the execution and delivery of
this Agreement by the Executive, the Company and Holdings, this Agreement shall
be a valid and binding obligation of it, enforceable against it in accordance
with its terms, except to the extent that enforceability may be limited by
applicable bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally.
(b) The Executive represents and warrants that: (i) delivery and
performance of this Agreement by him does not violate any applicable law,
regulation, order, judgment or decree or any agreement to which the Executive is
a party or by which he is bound; and (ii) upon the execution and delivery of
this Agreement by the Executive, the Company and Holdings, the Agreement shall
be the valid and binding obligation of the Executive, enforceable against him in
accordance with its terms, except to the extent that enforceability may be
limited by applicable bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally.
15. Resolution of Disputes.
----------------------
Any Claim arising out of or relating to this Agreement, the Executive Promissory
Note, the agreements of which forms of agreement are appended as Exhibits B, C,
D and F, the Executive's employment with the Company or Holdings, or the
termination thereof (collectively, "Covered Claims") shall (except as otherwise
--------------
provided in Section 12(e) with respect to certain requests for injunctive
relief) be resolved by binding confidential arbitration, to be held in New York
City, in
13
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and this Section 15. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. The
Company and Holdings jointly and severally agree to advance, promptly upon
written request accompanied by reasonable documentation, 50% of any costs and
expenses, including without limitation attorneys' fees, incurred by the
Executive or his beneficiaries or other transferees in connection with resolving
any such Covered Claim, provided that any amounts so advanced shall be promptly
--------
repaid to the extent that the recipient is ultimately determined not to be
entitled to be indemnified with respect to such amounts pursuant to the
following sentence. Upon the final resolution of any Covered Claim, the Company
and Holdings shall be jointly and severally required to indemnify the Executive
(and his beneficiaries and other transferees) for all reasonable costs and
expenses, including without limitation reasonable attorneys' fees, incurred in
resolving such claim, but only to the extent that the indemnified Person has
prevailed on such claim. Pending the resolution of any Covered Claim, the
Executive (and his beneficiaries and other transferees) shall continue to
receive all undisputed payments and benefits due under this Agreement, except to
the extent that the arbitrator(s) otherwise provide.
16. Notices.
-------
Any notice, consent, demand, request or other communication given to a Person in
connection with this Agreement shall be in writing and shall be deemed to have
been given to such Person (a) when delivered personally to such Person or (b)
provided that a written acknowledgment of receipt is obtained, five days after
being sent by prepaid certified or registered mail, or two days after being sent
by a nationally recognized overnight courier, to the address (if any) specified
below for such Person (or to such other address as such Person shall have
specified by ten days advance notice given in accordance with this Section 16)
or (c), in the case of the Company and Holdings, on the first business day after
it is sent by facsimile to the facsimile number set forth below (or to such
other facsimile number as shall have been specified by ten days advance notice
given in accordance with this Section 16), with a confirmatory copy sent by
certified or registered mail or by overnight courier in accordance with this
Section 16.
If to the Company: Panolam Industries International, Inc.
00 Xxxxxxxx Xxxxx
Xxxxxxx, XX 00000
Attn: Secretary
Facsimile: (000) 000-0000
If to Holdings: Panolam Industries Holdings, Inc.
00 Xxxxxxxx Xxxxx
Xxxxxxx, XX 00000
Attn: Secretary
Facsimile #: (000) 000-0000
If to the Executive: To the address of his principal residence as it
14
appears in the Company's records, with a copy
to him (during the Term of Employment) at the
Company's principal executive office.
If to a beneficiary or To the address most recently specified by the
transferee of the Executive, beneficiary or transferee through
Executive: notice given in accordance with this Section 16.
17. Miscellaneous.
--------------
(a) Entire Agreement. This Agreement, and the agreements of which
----------------
forms are attached hereto, contain the entire understanding and agreement among
the Executive, the Company and Holdings concerning the subject matter hereof and
supersede all prior agreements, understandings, discussions, negotiations and
undertakings, whether written or oral, among them with respect thereto,
including without limitation the term sheet attached as Exhibit 7.2(f) to the
Stock Purchase Agreement.
(b) Severability. In the event that any provision or portion of this
------------
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law so as to achieve the purposes of this Agreement.
(c) Amendment or Waiver. No provision in this Agreement may be
-------------------
amended unless such amendment is set forth in a writing that specifically refers
to this Agreement and is signed by the Parties. No waiver by any Person of any
breach of any condition or provision contained in this Agreement shall be deemed
a waiver of any similar or dissimilar condition or provision at the same or any
prior or subsequent time. To be effective, any waiver must be set forth in a
writing that specifically refers to the condition or provision that is being
waived and is signed by the waiving Person.
(d) Headings. The headings of the Sections and sub-sections contained
--------
in this Agreement are for convenience only and shall not be deemed to control or
affect the meaning or construction of any provision of this Agreement.
(e) Beneficiaries/References. The Executive shall be entitled, to the
------------------------
extent permitted under applicable law, to select and change a beneficiary or
beneficiaries to receive any compensation or benefit under this Agreement,
following the Executive's death by giving the Company and Holdings written
notice thereof. In the event of the Executive's death or a judicial
determination of his incompetence, references in this Agreement to the Executive
shall be deemed, where appropriate, to refer to his beneficiary, transferee,
estate or other legal representative.
15
(f) Survivorship. Except as otherwise set forth in this Agreement,
------------
the respective rights and obligations of the Parties hereunder shall survive any
termination of the Executive's employment under this Agreement.
(g) Withholding Taxes. The Company and Holdings may withhold from any
-----------------
amounts or benefits payable under this Agreement, or under any of the agreements
of which forms are attached hereto, any taxes that are required to be withheld
pursuant to any applicable law or regulation.
(h) Timing of Payments. The timing of any payment due under Section
------------------
9(d)(ii) is subject to any restrictions imposed by the Company's or Holdings'
credit agreements; provided that (i) the Company and Holdings shall use their
-------- ----
best commercially reasonable efforts to obtain waivers from their lenders in the
event any such payment is so restricted, (ii) the Company, or Holdings, shall
make any such payment at the earliest time, and to the fullest extent, permitted
under such restrictions and waivers, (iii) no portion of any such payment shall
be delayed more than 18 months, and (iv) any amount whose payment is delayed
shall accrue interest at an annual rate of 10%.
(i) Guarantee of Performance. Holdings unconditionally guarantees,
------------------------
without limitation or qualification, the prompt performance by the Company of
each and every obligation of the Company under this Agreement.
(j) Governing Law. This Agreement shall be governed, construed,
-------------
performed and enforced in accordance with its express terms, and otherwise 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 in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall be deemed to be one and the same instrument.
16
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first set forth above.
Panolam Industries International, Inc.
By:____________________________________
Name:
Title:
Panolam Industries Holdings, Inc.
By:____________________________________
Name:
Title:
The Executive
_______________________________________
Xxxxxx X. Xxxxxx, Xx.
17
EXHIBIT A
DEFINITIONS
"Actual EBITDA" shall have the meaning specified in Section 5.
-------------
"Affiliate" of a Person shall mean a Person that directly or indirectly
---------
controls, is controlled by, or is under common control with, the Person
specified.
"Agreement" shall mean this Employment Agreement, which includes for all
---------
purposes the agreements of which forms of agreement are appended as Exhibits.
"Base Salary" shall mean the salary provided for in Section 4 or any increased
-----------
salary granted to the Executive pursuant to Section 4.
"Board" shall mean, in the case of a corporation, the corporation's board of
-----
directors and, in the case of any other entity, the analogous governing Person
or body.
"Cause" shall mean: (i) the Executive willfully steals or embezzles a not
-----
insignificant amount of the property (tangible or intangible) of Holdings or the
Company in circumstances that would render him, in the judgment of a reasonable
person, manifestly unfit to continue as Chief Executive Officer and President of
the Company or Holdings; (ii) the Executive engages in conduct that constitutes
willful gross neglect or willful gross misconduct and that (x) results in
significant economic harm to the Company or Holdings or (y) results, and
reasonably should be expected to result, in acute public embarrassment to
Holdings; (iii) willful and unjustified failure of the Executive to act in
accordance with any material, reasonable and lawful written instruction given to
him by the Holdings Board (which instruction has been approved by at least two-
thirds of the members of the Holdings Board) concerning material aspects of the
Executive's duties for the Company or Holdings and excluding matters outside the
Executive's direct personal control; (iv) the Executive is convicted of a
felony; (v) any willful and material breach by the Executive of Section 12(b) or
12(c); or (vi) any willful material breach by the Executive of Section 2, 5(a),
6 or 9 of the stockholders' agreement of which a form of agreement is attached
as Exhibit B, Section 6 or 7 of the stock option agreement of which a form of
agreement is attached as Exhibit C, or Section 2 of the pledge agreement of
which a form of agreement is attached as Exhibit F.
"Claim" shall mean any claim, demand, request, investigation, dispute,
-----
controversy, threat, discovery request, or request for testimony or information.
"Closing Date" shall mean the date on which the PAC Acquisition is consummated.
------------
"Code" shall mean the Internal Revenue Code of 1986, as amended. Any reference
----
to a particular section of the Code shall include any provision that modifies,
replaces or supersedes such section.
"Company" shall have the meaning set forth in the Preamble to this Agreement.
-------
"Company Board" shall mean the Board of the Company.
-------------
"Constructive Termination Without Cause" shall mean a termination by the
--------------------------------------
Executive of his employment under this Agreement on 30 days' written notice
given by him to the Company and Holdings following the occurrence of any of the
following events without the Executive's express prior written consent, unless
the Company or Holdings shall have fully cured all grounds for such termination
within 20 days after the Executive gives notice thereof:
i. any reduction in his Base Salary or target annual bonus; or any
material reduction in any employee benefit or perquisite enjoyed by him (other
than as part of an across-the-board reduction applying to senior executives of
the Company and Holdings generally);
ii. any material breach (A) by the Company or Holdings of any of
their material obligations under Xxxxxxx 0, 0, 0, 0, 0, 00(x) xx 00, (X) by
Holdings, PAC or any of their Affiliates of any of their material obligations
under Section 7, 8 or 10 of the stockholders' agreement of which a form is
attached as Exhibit B; or (C) by Holdings of any of its material obligations
under Section 2, 3, 4, 5 or 8 of the stock option agreement of which a form of
agreement is attached as Exhibit C, Section 4(b) or 4(c) of the Executive
Promissory Note, or Section 6 of the pledge agreement of which a form of
agreement is attached as Exhibit F;
iii. any failure to elect or appoint the Executive to any of the
positions described in Section 3(a) or to continue him in each such position;
any material diminution in the Executive's duties or responsibilities or the
assignment to him of duties or responsibilities that materially impair his
ability to perform the duties or responsibilities then assigned to him or
normally assigned to the president and chief executive officer of an enterprise
of the size and structure of the Company or Holdings; or any change in the
reporting structure so that the Executive reports to someone other than the
Holdings Board;
iv. any relocation of the Company's or Holdings' principal office, or
of the Executive's own principal office as assigned to him by the Company and
Holdings, to a location more than 50 miles from Shelton, Connecticut or from
Wilton, Connecticut; or
v. the failure of the Company or Holdings to obtain the assumption
in writing of its obligations under this Agreement by any successor to all or
substantially all of its business or assets within 15 days after any merger,
consolidation, sale, liquidation or similar transaction.
"Covered Claims" shall have the meaning specified in Section 15.
--------------
2
"Decorative Laminates Business" shall mean the business of producing or
-----------------------------
distributing (a) high-pressure decorative laminates (analogous to formica) or
(b) particle board with melamine (or an analogous) plastic facing.
"Disability" shall mean the Executive's inability to perform his duties
----------
hereunder on a full-time basis for a period of 180 consecutive days during any
365 day period or an aggregate of 180 days in any consecutive 270 day period, as
a result of physical or mental incapacity as determined by a medical doctor
selected by mutual agreement between the Company and Holdings on the one hand,
and the Executive on the other. If the Parties cannot agree on a medical
doctor, the Company and Holdings on the one hand, and the Executive on the
other, shall each select a medical doctor and the two doctors shall select a
third who shall be the approved medical doctor for this purpose.
"EBITDA" shall mean, for a given calendar year, Holdings' consolidated earnings
------
before interest expense and income tax expense adjusted by (x) adding thereto
------
(without duplication) the sum of (i) management fees, (ii) depreciation and
---
amortization expenses and other non-cash charges, (iii) extraordinary losses,
(iv) any loss on the sale of assets, (v) any non-cash compensation related to
stock options or other equity compensation or payment arrangements, and (vi) any
loss during such period from any change in accounting, from any discontinued
operations or the disposition thereof, or from any prior period adjustments, in
each case that were deducted in arriving at consolidated earnings before
interest expense and income tax expense for such calendar year, and (y)
subtracting therefrom the sum of (i) any interest income, (ii) any extraordinary
----------- ---
gains, (iii) any gain on the sale of assets, and (iv) any net gain during such
calendar year from any change in accounting, from any discontinued operations or
the disposition thereof, or from any prior period adjustments, in each case that
were added in arriving at consolidated earnings before interest expense and
income tax expense for such calendar year, all as reflected on Holdings' audited
consolidated financial statements for such calendar year when such statements
are first certified by Holdings' independent accountants.
"Effective Date" shall mean the date as of which this Agreement is dated.
--------------
"Executive" shall have the meaning set forth in the Preamble as modified by
---------
Section 17(e).
"Executive Promissory Note" shall have the meaning ascribed to such term in
-------------------------
Section 6(c).
"Holdings" shall have the meaning set forth in the Preamble to this Agreement.
--------
"Holdings Board" shall mean the Board of Holdings.
--------------
"Liquidity Event" shall have the meaning set forth in, and be determined in
---------------
accordance with, Exhibit B.
3
"PAC Acquisition" shall have the meaning set forth in the third "Whereas" clause
---------------
in the Preamble to this Agreement.
"Parties" shall mean the Company, Holdings and the Executive.
-------
"Person" shall mean any individual, corporation, partnership, limited liability
------
company, joint venture, trust, estate, board, committee, agency, body, employee
benefit plan, or other person or entity.
"Proceeding" shall mean any threatened or actual action, suit or proceeding,
----------
whether civil, criminal, administrative, investigative, appellate or other.
"Pro Rata Annual Bonus" shall mean an amount equal to the product obtained by
---------------------
multiplying (x) the average of (i) the amount of the annual bonus, if any, that
----------- -------
the Executive earned for the calendar year immediately preceding the year in
which his employment hereunder terminated, and (ii) 75% of his annualized Base
Salary as of the Termination Date times (y) a fraction, the numerator of which
-----
is the number of days the Executive was employed by the Company or Holdings
during the calendar year in which the Termination Date occurred and the
denominator of which is 365.
"Stock Option" shall mean any compensatory option granted to the Executive to
------------
acquire securities of Holdings, the Company or any of their Affiliates; any
compensatory stock appreciation right, phantom stock option or analogous right
granted to the Executive by Holdings, the Company or any of their Affiliates;
and any option or right received in respect of any of the foregoing options or
rights.
"Stock Purchase Agreement" shall mean the Stock Purchase and Redemption
------------------------
Agreement, dated as of October 14, 1999, by and among the Executive, Holdings,
PAC and certain additional parties.
"Subsidiary" of any Person shall mean any Person of which such Person owns,
----------
directly or indirectly, more than half of the equity ownership interests
(measured either by value or by ability to elect or control the Board).
"Target Bonus" shall have the meaning specified in Section 5.
------------
"Target EBITDA" shall have the meaning specified in Section 5.
-------------
"Term of Employment" shall mean the period specified in Section 2.
------------------
"Termination Date" shall mean the date on which the Executive's employment under
----------------
this Agreement terminates in accordance with this Agreement.
4
"Termination Without Cause" shall mean any termination of the Executive's
-------------------------
employment under this Agreement, other than (v) voluntary termination in
accordance with Section 9(e), (w) due to his death, (x) for Disability in
accordance with Section 9(b), (y) for Cause in accordance with Section 9(c), or
(z) by expiration of the Term of Employment due to non-extension of such Term in
accordance with Section 2; "Termination Without Cause" accordingly includes any
"Constructive Termination Without Cause."
5
EXHIBIT B
FORM OF EXECUTIVE STOCKHOLDERS' AGREEMENT
EXHIBIT C
FORM OF EXECUTIVE STOCK OPTION AGREEMENT
EXHIBIT D
FORM OF EXECUTIVE STOCK PURCHASE AGREEMENT
EXHIBIT E
FORM OF EXECUTIVE PROMISSORY NOTE
EXHIBIT F
FORM OF EXECUTIVE STOCK PLEDGE AGREEMENT
