Exhibit 99.6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of February 16, 1998, by and between
USI, Inc., a Delaware corporation, with its principal office at 000 Xxxx Xxxxxx
Xxxxx, Xxxxxx, Xxx Xxxxxx 00000, which immediately after the Mergers
contemplated below will be renamed U.S. Industries, Inc. ("USI") and Xxxxx X.
Xxxxxxx, residing at 00000 Xxxxx Xxxxx, Xxx. 000, Xxxxxx, Xxxxx 00000
("Executive").
W I T N E S S E T H:
WHEREAS, Executive is currently employed as Group Vice President of
Xxxx Industries, Inc. (the "Company");
WHEREAS, Executive and the Company have previously executed an
Agreement Relating to Employment dated August 14, 1995 (the "Prior Change in
Control Agreement"); and
WHEREAS, pursuant to a contemplated Agreement and Plan of Merger among
current U.S. Industries, Inc., USI, the Company, Blue Merger Corp. and Zoro
Merger Corp., dated as of February 16, 1998 (the "Merger Agreement"), as of the
consummation of the Mergers (as defined in the Merger Agreement), the Company
will become a wholly-owned subsidiary of USI;
WHEREAS, effective as of the consummation of the Mergers (the
"Effective Date"), USI will employ Executive as the Senior Vice President of
Operations of the USI
Plumbing and Bath Products Company, a group of all of the subsidiaries and
divisions of USI in the plumbing and bath products business (the "USI Plumbing
Products Company") and cause the Company to employ Executive as the Senior Vice
President of Operations of the Company; and
WHEREAS, the Company and Executive desire to enter into an agreement
(the "Agreement") to make certain changes to the terms of his current employment
by the Company and to embody the terms of Executive's prospective employment on
and after the Effective Date.
NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree as follows:
1. TERM OF EMPLOYMENT. Except for earlier termination as provided
in Section 7 hereof, Executive's employment under this Agreement shall be for a
two-year term commencing on the Effective Date (the "Initial Term"). Subject
to Section 7 hereof, the Initial Term shall be automatically extended for
additional terms of successive two (2) year periods (the "Additional Term")
unless USI, or Executive gives written notice to the other at least ninety (90)
days prior to the expiration of the Initial Term or the then current Additional
Term of the termination of Executive's employment hereunder at the end of such
current term. (The Initial Term and Additional Terms shall hereinafter be
referred to as the "Employment Term".) Notwithstanding the foregoing, if prior
to August 31, 1998 the
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Mergers do not occur, this Agreement shall, other than this sentence, be null
and void and be of no force or effect.
2. POSITIONS. (a) Executive shall serve as Senior Vice President of
Operations of the USI Plumbing Products Company and, while the Company is a
Subsidiary of USI, as the Senior Vice President of Operations of the Company.
(b) Executive shall report to the Board of Directors of the Company
(the "Board") and the Chief Executive Officers of the Company and the USI
Plumbing Products Company and shall have such duties and authority, consistent
with his then position as shall be assigned to him from time to time by the
Board or by either Chief Executive Officer.
(c) During the Employment Term, Executive shall devote substantially
all of his business time and efforts to the performance of his duties hereunder
and use his best efforts in such endeavors; provided, however, that Executive
shall be allowed, to the extent that such activities do not materially interfere
with the performance of his duties and responsibilities hereunder, to manage his
passive personal investments and to serve on corporate, civic, or charitable
boards or committees. Notwithstanding the foregoing, the Executive shall not
serve on any corporate board of directors if such service would be inconsistent
with his fiduciary responsibilities to USI and the Company and in no event shall
Executive serve on any such board unless approved by the Chief Executive Officer
of the Company.
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(d) Upon request of the Board or the Chief Executive Officer of USI,
the Executive shall also serve as an officer or director of affiliates of the
Company with no additional compensation. Any compensation paid to the Executive
by any such affiliate shall reduce the Company's obligations hereunder.
3. BASE SALARY. During the Employment Term, the Executive shall be
paid a base salary at the annual rate of not less than $260,000. Base salary
shall be payable in accordance with the usual payroll practices of the paying
entity. Executive's Base Salary shall be subject to annual review by USI or its
designee and may be increased, but not decreased, from time to time, except
that, prior to a Change in Control, it may be decreased proportionately in
connection with an across the board decrease applying to all senior executives
of the Company. The base salary as determined as aforesaid from time to time
shall constitute "Base Salary" for purposes of this Agreement.
4. INCENTIVE COMPENSATION. (a) ANNUAL BONUS. For each fiscal year
or portion thereof during the Employment Term, Executive shall be eligible to
participate in an annual bonus plan of the Company or USI, as determined by USI,
in accordance with, and subject to the terms of, such plan, provided that during
the Initial Term the annualized target bonus shall be equal to at least forty-
percent (40%) of Base Salary. In addition, USI will also cause the Company to
take such actions as may be necessary in respect of the Xxxx, Inc. Executive
Incentive Plan and the Xxxx Long-Term Incentive Plan as may be necessary to
provide that for the purposes of determining Executive's awards thereunder that
are to be determined with reference to Xxxx'x performance for its fiscal year
ending
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March 31, 1998, the effects of all transaction costs and non-recurring charges
associated with or taken in contemplation of the Mergers shall be disregarded.
In the event the Effective Date is later than April 1, 1998, USI will cause the
Company to pay to the Executive a pro rata portion of the annual target bonus
under the Xxxx Industries, Inc. Executive Incentive Plan for the fiscal year
beginning on April 1, 1998, such pro rata portion to be based on the number of
days from April 1, 1998 to the Effective Date, divided by 365. Any amounts
payable under the prior Xxxx plans in accordance with this paragraph (a) that
have not been paid prior to the Effective Date shall be paid to Executive as
soon as practicable after the Effective Date.
(b) LONG TERM COMPENSATION. For each fiscal year or portion thereof
during the Employment Term, Executive shall be eligible to participate in any
long-term incentive compensation plan made available to senior executives of the
Company in accordance with, and subject to the terms of, such plan, provided
that the Company may alternatively, elect to have Executive participate in a
long term incentive plan of USI or the USI Plumbing Products Company.
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(c) RESTRICTED STOCK. After the Effective Date, USI shall cause the
Compensation Committee of its board of directors to grant Executive, on or prior
to the thirtieth (30) day after the Effective Date, in a manner that satisfies
the requirements for exemption under Rule 16b-3 of the Securities Exchange Act
of 1934 (the "Act"), a number of restricted shares of common stock of USI equal
to $1,000,000 divided by the closing price of common stock of USI on the New
York Stock Exchange on the Effective Date or, if not traded on the New York
Stock Exchange on such date, on the first day thereafter that such common stock
is traded on the New York Stock Exchange (the "Restricted Stock"). Except as
otherwise specifically provided in this Agreement, the grant shall provide that
the Restricted Stock shall become nonforfeitable ("vest") with respect to one
third of such shares on each of the third, fifth and seventh anniversaries of
the date of grant provided that Executive is employed by USI on such vesting
date. The grant shall also provide that, if the Executive's employment with USI
is terminated: (i) by reason of his death or Disability (as defined in Section
7(b) herein), (ii) by the Executive for Good Reason (as defined in Section 7(c)
herein), (iii) by USI without Cause (as defined in Section 7(e) herein) or by
nonextension of the term by USI, at the time of termination Executive shall be
vested in the number of shares of Restricted Stock awarded to Executive
hereunder equal to: (A) the product of (I) the number of shares of Restricted
Stock awarded to Executive, multiplied by (II) a fraction, the numerator of
which is the number of months Executive is employed by the Company after the
Effective Date and the denominator of which is eighty-four (84) months, less the
number of shares of Restricted Stock previously vested with regard to such
grant, provided that, however, if Executive's employment is terminated by
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reason of his death or Disability or by USI without Cause (but for no other
reasons), Executive shall be vested in the greater of the foregoing number of
shares of Restricted Stock and the number of shares of Restricted Stock that
would otherwise be vested on the next vesting date following Executive's
termination of employment based on the above Schedule. Furthermore, the grant
shall provide that if Executive retires (voluntarily or involuntarily other than
for Cause) at or after his sixty-second (62nd) birthday with three (3) or more
years of service with USI following the date of grant, all unvested shares of
Restricted Stock shall fully vest. In addition, (i) the grant shall provide
that the Restricted Stock shall fully vest on a Change in Control of USI, as
defined in Section 10(b) hereof or (ii) if at any time the Executive's then
employer ceases to be a Subsidiary of USI within the meaning of Section 424 of
the Internal Revenue Code and the Executive is not offered employment with USI
or another Subsidiary (the "Event"), the unvested amount of the Restricted Stock
that would be vested on the next vesting date following the Event shall
immediately become fully vested.
(d) STOCK OPTIONS. After the Effective Date, USI shall cause the
Compensation Committee of its board of directors to grant Executive, on or prior
to the thirtieth (30) day after the Effective Date, pursuant to a stock option
plan adopted or assumed by USI, nonqualified stock options to purchase that
number of shares of common stock of USI equal to $250,000 divided by the fair
market value (as defined in the applicable plan) of common stock of USI at the
time of grant (the "Options"). The grant shall provide that the Options shall
become nonforfeitable ("vest") with respect to one fourth of such Options on
each of the first, second, third and fourth anniversaries of the
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Effective Date provided that Executive is employed by USI on such vesting date.
In addition, (i) the grant shall provide that the Options shall fully vest on a
Change in Control of USI as defined in Section 10(b) hereof and (ii) if at any
time the Executive's then employer ceases to be a Subsidiary and the Executive
is not offered employment with the Company or another Subsidiary (the "Event")
or the Executive's employment with USI or a subsidiary terminates by reason of
his death or Disability, the unvested amount of the Options that would otherwise
vest on the next vesting date following the Event or said termination shall
immediately become fully vested and exercisable. The grant of the Options
pursuant to this Section 5(d) shall not preclude the grant to Executive of
additional options to purchase shares of USI common stock under the terms of any
applicable stock option plan.
(e) OTHER COMPENSATION. USI may, upon recommendation of the
Compensation Committee of its board of directors, award to the Executive such
other bonuses and compensation as it deems appropriate and reasonable.
(f) SPECIAL PAYMENT. In lieu of any payments due pursuant to the
Prior Change in Control Agreement (other than as provided as surviving in
Section 15(b) hereof), USI shall cause the Company to pay to Executive the sum
of $1,458,000 in a cash lump sum within ten (10) days after the Effective Date.
Except as provided in Section 15(b) hereof, USI and the Company shall have no
further obligations under the Prior Change in Control Agreement.
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5. EMPLOYEE BENEFITS AND VACATION. (a) During the Employment Term,
Executive shall be entitled to participate in all pension, retirement, savings,
welfare and other pension and welfare employee benefit plans and arrangements
and fringe benefits and perquisites generally maintained by the Company from
time to time for the benefit of senior executives of the Company at a comparable
level, in accordance with their respective terms as in effect from time to time
(other than any special arrangement entered into by contract with an executive).
Without limiting the foregoing, the Company shall provide Executive with the use
of a car or pay him a car allowance in accordance with, and to the extent of,
Company policy as in effect from time to time.
(b) During the Employment Term, Executive shall be entitled to
vacation each year in accordance with the Company's policies in effect from time
to time, but in no event less than four (4) weeks paid vacation per calendar
year. Executive shall also be entitled to such periods of sick leave as is
customarily provided by the Company for its senior executive employees.
6. BUSINESS EXPENSES. Executive shall be reimbursed for the travel,
entertainment and other business expenses incurred by Executive in the
performance of his duties hereunder, in accordance with the applicable policies
as in effect from time to time.
7. TERMINATION. (a) The employment of Executive under this
Agreement shall terminate upon the occurrence of any of the following events:
(i) the death of Executive;
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(ii) the termination of Executive's employment by USI due
to Executive's Disability pursuant to Section 7(b) hereof;
(iii) the termination of Executive's employment by the
Executive for Good Reason pursuant to Section 7(c) hereof;
(iv) the termination of Executive's employment by USI
without Cause;
(v) the termination of employment by Executive without
Good Reason upon ninety (90) days' prior written notice at any time
after the end of the Initial Term;
(vi) the termination of the Employment Term in accordance
with Section 1 hereof;
(vii) the termination of Executive's employment by USI for
Cause pursuant to Section 7(e).
(viii) The retirement of the Executive by USI at or after
his sixty-fifth (65th) birthday to the extent such termination is
specifically permitted as a stated exception from applicable federal
and state age discrimination laws based on position and retirement
benefits.
(b) DISABILITY. If, by reason of the same or related physical or
mental reasons, Executive is unable to carry out his material duties pursuant to
this Agreement for
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more than six (6) months in any twelve (12) consecutive month period, USI may
terminate Executive's employment for Disability upon thirty (30) days prior
written notice, by a Notice of Disability Termination, at any time thereafter
during such twelve (12) month period in which Executive is unable to carry out
his duties as a result of the same or related physical or mental illness. Such
termination shall not be effective if Executive returns to the full time
performance of his material duties within such thirty (30) day notice period.
If Executive is eligible for disability payments prior to said termination under
any disability plan sponsored by the Company or USI, his Base Salary shall be
reduced by the amount of such disability payments.
(c) TERMINATION FOR GOOD REASON. A Termination for Good Reason means
a termination by Executive by written notice given within ninety (90) days after
the occurrence of the Good Reason event. For purposes of this Agreement, "Good
Reason" shall mean the occurrence or failure to cause the occurrence, as the
case may be, without Executive's express written consent, of any of the
following circumstances, unless such circumstances are fully corrected prior to
the date of termination specified in the Notice of Termination for Good Reason
(as defined in Section 7(d) hereof): (i) any material diminution of Executive's
positions, duties or responsibilities hereunder as of the Effective Date (except
in each case in connection with the termination of Executive's employment for
Cause or Disability or as a result of Executive's death, or temporarily as a
result of Executive's illness or other absence and provided that a reduction in
the size of the Company or size or number of the units for which Executive has
responsibilities as a result of dispositions, shall not be a material
diminution); (ii) relocation of Executive's principal
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office to a location more than fifty (50) miles from Addison, Texas; (iii) after
a Change in Control, a failure (A) to continue any bonus plan, program or
arrangement in which Executive is entitled to participate immediately prior to
the Effective Date (the "Bonus Plans"), provided that any such Bonus Plans may
be modified from time to time but shall be deemed terminated if (x) any such
plan does not remain substantially in the form in effect prior to such
modification and (y) if plans providing Executive with substantially similar
benefits are not substituted therefor ("Substitute Plans"), or (B) to
continue Executive as a participant in the Bonus Plans and Substitute Plans on
at least the same basis as to potential amount of the bonus and substantially
the same level of criteria for achievability thereof as Executive participated
in immediately prior to any change in such plans or awards, in accordance with
the Bonus Plans and the Substitute Plans; (iv) any material breach by USI of any
provision of this Agreement; or (v) failure of any successor to assume in a
writing, delivered to Executive upon the assignee becoming such, the obligations
of USI hereunder or (vi) a failure of the Compensation Committee of the board of
USI to grant the Executive awards of Restricted Stock and Options in accordance
with Section 4(c) and Section 4(d) hereof.
(d) NOTICE OF TERMINATION FOR GOOD REASON. A Notice of Termination
for Good Reason shall mean a notice that shall indicate the specific termination
provision in Section 7(c) relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for Termination for Good
Reason. The failure by Executive to set forth in the Notice of Termination for
Good Reason any facts or circumstances which contribute to the showing of Good
Reason shall not waive any right of Executive hereunder
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or preclude Executive from asserting such fact or circumstance in enforcing his
rights hereunder. The Notice of Termination for Good Reason shall provide for a
date of termination not less than fifteen (15) nor more than sixty (60) days
after the date such Notice of Termination for Good Reason is given.
(e) CAUSE. Subject to the notification provisions of Section 7(f)
below, Executive's employment hereunder may be terminated by USI for Cause. For
purposes of this Agreement, the term "Cause" shall be limited to (i) willful
misconduct by Executive with regard to USI or the Company or either of their
businesses; (ii) the refusal of Executive to follow the proper written direction
of the Board, the board of USI or the Chief Executive Officer of the Company or
the Chief Executive Officer of the USI Plumbing Products Company, provided that
the foregoing refusal shall not be "Cause" if Executive in good faith believes
that such direction is illegal, unethical or immoral and promptly so notifies
the entity or person giving the direction, as applicable; (iii) substantial and
continuing willful refusal by the Executive to attempt to perform the duties
required of him hereunder (other than any such failure resulting from incapacity
due to physical or mental illness) after a written demand for substantial
performance is delivered to Executive by the board which specifically identifies
the manner in which it is believed that Executive has substantially and
continually refused to attempt to perform his duties hereunder; (iv) Executive
being convicted of a felony (other than a felony involving a traffic violation);
(v) the breach by Executive of any material fiduciary duty owed by Executive to
USI, the Company or their affiliate; or (vi) Executive's dishonesty,
misappropriation or fraud with
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regard to the Company, USI or their affiliate (other than good faith expense
account disputes).
(f) NOTICE OF TERMINATION FOR CAUSE. A Notice of Termination for
Cause shall mean a notice that shall indicate the specific termination provision
in Section 7(e) relied upon and shall set forth in reasonable detail the facts
and circumstances which provide for a basis for Termination for Cause. The date
of termination for a Termination for Cause shall be the date indicated in the
Notice of Termination. Any purported Termination for Cause which is held by a
court not to have been based on the grounds set forth in this Agreement or not
to have followed the procedures set forth in this Agreement shall be deemed a
Termination by the Company without Cause.
8. CONSEQUENCES OF TERMINATION OF EMPLOYMENT. (a) DEATH. If
Executive's employment is terminated during the Employment Term by reason of
Executive's death, the employment period under this Agreement shall terminate
without further obligations to Executive's legal representatives under this
Agreement or otherwise except for: (i) any compensation earned but not yet
paid, including without limitation, any declared but unpaid bonus for the prior
fiscal year, any amount of Base Salary or deferred compensation, if any, accrued
or earned but unpaid, any accrued vacation pay payable pursuant to the Company's
policies and any unreimbursed business expenses payable pursuant to Section 6,
which amounts shall be promptly paid in a lump sum to Executive's estate; (ii)
any other amounts or benefits owing to Executive under the then applicable
employee benefit or equity plans of the Company, which shall be paid in
accordance with
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such plans; (iii) payment on a monthly basis of three (3) months of Base Salary,
which shall be paid to Executive's spouse, or if he is not married or if his
spouse shall predecease him, then to Executive's estate; (iv) payment of the
spouse's and dependents' COBRA coverage premiums to the extent, and so long as,
they remain eligible for COBRA coverage, but in no event more than three (3)
years and (v) full accelerated vesting under any non-equity based long term
incentive plans with pro rata payment based on actual coverage under such plans
at the time payments normally would be made under such plans.
(b) DISABILITY. If Executive's employment is terminated by reason of
Executive's Disability, Executive shall be entitled to receive the payments and
benefits to which his representatives would be entitled in the event of a
termination of employment by reason of his death, provided that the payment of
Base Salary shall be reduced by the projected amount he would receive under any
long term disability policy or program maintained by the Company during the
three (3) month period during which Base Salary is being paid and the Company
shall have no further obligations to the Executive under this Agreement or
otherwise.
(c) TERMINATION BY EXECUTIVE FOR GOOD REASON OR TERMINATION BY USI
WITHOUT CAUSE OR NONEXTENSION OF THE TERM BY USI. If (i) Executive terminates
his employment hereunder for Good Reason during the Employment Term, (ii) if
Executive's employment with USI is terminated by USI without Cause (except as
provided in Section 7(a)(viii)) or (iii) Executive's employment with USI
terminates as a result of USI giving notice of nonextension of Employment Term
pursuant to Section 1 hereof, USI and
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the Company shall have no further obligations to Executive under this Agreement
or otherwise, except that, subject to Sections 8(e), 9 and 11 hereof, Executive
shall be entitled to receive (A) equal monthly payments, of an amount equal to
the monthly payments of Base Salary, plus one-twelfth of the highest annual
bonus paid or payable to Executive for any of the previous two (2) completed
fiscal years commencing subsequent to the Effective Date (provided, that for
purposes of any terminations prior to the close of the first full fiscal year
commencing after the Effective Date, his highest annual bonus shall be deemed to
be $104,000), but off the employee payroll, for a period of twenty-four (24)
months following the date of his termination, provided that if such termination
of employment occurs after a Change in Control, in lieu of the foregoing,
Executive shall receive in a lump sum within five (5) days after such
termination an amount equal to the aggregate of the aforesaid payments; (B)
within five (5) days after such termination (i) any unreimbursed business
expenses payable pursuant to Section 6; and (ii) any Base Salary, Bonus,
vacation pay or other compensation accrued or earned, but not yet paid at the
date of termination; (C) any other amounts or benefits due Executive under the
then applicable employee benefit, long term incentive plans or equity plans in
which he then participates as shall be determined and paid in accordance with
such plans; (D) two (2) years of additional service and compensation credit (at
his then compensation level) for pension purposes under any defined benefit type
qualified or nonqualified pension plan or arrangement in which he then
participates, which payments shall be made through and in accordance with the
terms of the nonqualified defined benefit pension plan or arrangement if any
then exists, or, if not existing or the amounts would not be payable under it
because of its terms, in an
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actuarially equivalent lump sum with regard to the amount attributable to the
qualified defined benefit plan (using the actuarial factors then applying in the
qualified defined benefit plan covering Executive); (E) an amount equal to two
(2) years of the maximum employer contribution (assuming Executive deferred the
maximum amount and continued to earn his then current salary) under any type of
qualified or nonqualified 401(k) plan (payable at the end of each such year);
and (F) payment of the premiums for Executive and his dependents' health
coverage for two (2) years under the health plans which cover the senior
executives of the Company or materially similar benefits. Payments under (F)
above may at the discretion of USI be made by continuing participation of
Executive in the plan as a terminee, by paying the applicable COBRA premium for
Executive and his dependents, or by covering Executive and his dependents under
substitute arrangements. If there is a Change in Control after Executive's
termination, the amounts, if any, remaining to be paid pursuant to (A) above
shall be paid in a lump sum within five (5) days thereafter.
(d) TERMINATION WITH CAUSE OR VOLUNTARY RESIGNATION WITHOUT GOOD
REASON OR NONEXTENSION OF THE TERM BY THE EXECUTIVE OR RETIREMENT. If
Executive's employment hereunder is terminated (i) by USI for Cause, (ii) by
Executive without Good Reason in accordance with Section 7(a)(v) hereof, (iii)
by Executive by giving notice of nonextension of the Employment Term pursuant to
Section 1 hereof; or (iv) by USI pursuant to Section 7(a)(viii) hereof,
Executive shall be entitled to receive only his Base Salary through the date of
termination, any unreimbursed business expenses payable pursuant to Section 6
and any accrued vacation pay payable pursuant to Company policy. Any
Executive's rights under any benefit plan or any equity plan following such
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termination of employment shall be determined in accordance with the provisions
of the applicable benefit or equity plan.
(e) RELEASE. Executive agrees that, as a condition to receiving the
payments and benefits provided under Section 8(c), he will execute and deliver
to USI a release, promptly following his final day of employment with USI, of
all claims of any kind against the Company, USI and their affiliates (including,
without limitation, any civil rights claim) and their officers, directors and
employees, in such form as reasonably requested by USI.
9. NO MITIGATION; SET-OFF. In the event of any termination of
employment under Section 8, Executive shall be under no obligation to seek other
employment and, subject to Section 11 below, there shall be no offset against
any amounts due Executive under this Agreement on account of any remuneration
attributable to any subsequent employment that Executive may obtain. Any
amounts due under Section 8 are in the nature of severance payments, or
liquidated damages, or both, and are not in the nature of a penalty. Such
amounts are inclusive, and in lieu of any amounts payable under any other salary
continuation or cash severance arrangement of USI or the Company and to the
extent paid or provided under any other such arrangement shall be offset from
the amount due hereunder. USI and the Company shall have no obligations to
Executive upon a termination of employment except as provided in Section 8. If
the Executive dies while receiving payments under Section 8(c), any remaining
payments shall be paid to Executive's estate.
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10. CHANGE IN CONTROL. (a) For purposes of this Agreement, the term
"Change in Control of the Company" shall mean (i) the sale of all or
substantially all of the assets of the USI Plumbing Products Company in the
aggregate, whether pursuant to a single transaction or pursuant to a series of
transactions and whether through an asset sale or stock sale other than (x) to a
Parent or a Subsidiary of USI or (y) in connection with a sale of all or
substantially all of the then operating company stock or assets of USI and
(ii) following the events specified in (i) above, Executive is not offered
employment at a comparable level with USI or a Subsidiary of USI. For purposes
of this Section 10(a), Parent and Subsidiary shall have the meaning set forth in
Section 424 of the Internal Revenue Code (the "Code").
(b) For purposes of this Agreement, the term "Change in Control of
USI" shall mean (i) any "person" as such term is used in Sections 13(d) and
14(d) of the Act (other than USI, any trustee or other fiduciary holding
securities under any employee benefit plan of USI, or any company owned,
directly or indirectly, by the stockholders of USI in substantially the same
proportions as their ownership of Common Stock of USI), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of USI representing twenty-five percent (25%) or more
of the combined voting power of USI's then outstanding securities; (ii) during
any period of two consecutive years, individuals who at the beginning of such
period constitute the board of directors of USI, and any new director (other
than a director designated by a person who has entered into an agreement with
USI to effect a transaction described in clause (i), (iii), or (iv) of this
paragraph) whose election by the board of directors of USI or nomination for
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election by USI's stockholders was approved by a vote of at least two-thirds of
the directors then still in office who either were directors at the beginning of
the two-year period or whose election or nomination for election was previously
so approved, cease for any reason to constitute at least a majority of the board
of directors of USI; (iii) the stockholders of USI approve a merger or
consolidation of USI with any other corporation, other than a merger or
consolidation which would result in the voting securities of USI outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than fifty percent (50%) of the combined voting power of the voting
securities of USI or such surviving entity outstanding immediately after such
merger or consolidation; provided, however, that a merger or consolidation
effected to implement a recapitalization of USI (or similar transaction) in
which no person acquires more than twenty-five percent (25%) of the combined
voting power of USI's then outstanding securities shall not constitute a Change
in Control of USI; or (iv) the stockholders of USI approve a plan of complete
liquidation of USI or an agreement for the sale or disposition by USI of all or
substantially all of USI's assets other than the sale of all or substantially
all of the assets of USI to a person or persons who beneficially own, directly
or indirectly, at least fifty percent (50%) or more of the combined voting power
of the outstanding voting securities of USI at the time of the sale.
(c) A "Change in Control" shall mean either a "Change in Control of
the Company" or a "Change in Control of USI."
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11. CONFIDENTIAL INFORMATION, NON-COMPETITION AND NON-SOLICITATION OF
THE COMPANY. (a) (i) Executive acknowledges that as a result of his
employment by USI and the Company, Executive will obtain secret and confidential
information as to USI and the Company and their affiliates and USI and the
Company and their affiliates will suffer substantial damage, which would be
difficult to ascertain, if Executive should use such confidential information
and that because of the nature of the information that will be known to
Executive it is necessary for USI, the Company and their affiliates to be
protected by the prohibition against Competition as set forth herein, as well as
the Confidentiality restrictions set forth herein.
(ii) Executive acknowledges that the retention of nonclerical
employees employed by USI, the Company and their affiliates in which USI, the
Company and their affiliates have invested training and depends on for the
operation of their businesses is important to the businesses of USI, the Company
and their affiliates, that Executive will obtain unique information as to such
employees as an executive of USI and the Company and will develop a unique
relationship with such persons as a result of being an executive of USI and the
Company and, therefore, it is necessary for USI, the Company and their
affiliates to be protected from Executive's Solicitation of such employees as
set forth below.
(iii) Executive acknowledges that the provisions of this Agreement
are reasonable and necessary for the protection of the businesses of USI, the
Company and their affiliates and that part of the compensation paid under this
Agreement and the
21
agreement to pay severance in certain instances is in consideration for the
agreements in this Section 11.
(b) Competition shall mean: (i) participating, directly or
indirectly, as an individual proprietor, partners, stockholder, officer,
employee, director, joint venturer, investor, lender, consultant or in any
capacity whatsoever (within the United States of America, or in any country
where USI, the Company or their affiliates do business) in a business in
competition with any business conducted by the USI Plumbing Products Company,
provided, however, that such participation shall not include (i) the mere
ownership of not more than one percent (1%) of the total outstanding stock of a
publicly held company; (ii) the performance of services for any enterprise to
the extent no portion of such services are performed, directly or indirectly,
for the portion of the enterprise in the aforesaid competition; or (iii) any
activity engaged in with the prior written approval of the Board.
(c) Solicitation shall mean: recruiting, soliciting or inducing, of
any nonclerical employee or employees of USI, the Company or their affiliates to
terminate their employment with, or otherwise cease their relationship with,
USI, the Company or their affiliates or hiring or assisting another person or
entity to hire any nonclerical employee of USI, the Company or their affiliates
or any person who within six (6) months before had been a nonclerical employee
of USI, the Company or their affiliates, provided, however, that solicitation
shall not include any of the foregoing activities engaged in with
22
the prior written approval of the Chief Executive Officer of the USI Plumbing
Products Company.
(d) If any restriction set forth with regard to Competition or
Solicitation is found by any court of competent jurisdiction, or an arbitrator,
to be unenforceable because it extends for too long a period of time or over too
great a range of activities or in too broad a geographic area, it shall be
interpreted to extend over the maximum period of time, range of activities or
geographic area as to which it may be enforceable. If any provision of this
Section 11 shall be declared to be invalid or unenforceable, in whole or in
part, as a result of the foregoing, as a result of public policy or for any
other reason, such invalidity shall not affect the remaining provisions of this
Section which shall remain in full force and effect.
(e) During and after the Employment Term, Executive shall hold in a
fiduciary capacity for the benefit of USI, the Company and their affiliates all
secret or confidential information, knowledge or data relating to USI, the
Company and their affiliates, and their respective businesses, including any
confidential information as to customers of USI, the Company and their
affiliates, (i) obtained by Executive during his employment by USI, the Company
and their affiliates and (ii) not otherwise public knowledge or known within the
applicable industry. Executive shall not, without prior written consent of USI
or the Company, unless compelled pursuant to the order of a court or other
governmental or legal body having jurisdiction over such matter, communicate or
divulge any such information, knowledge or data to anyone other than USI or the
23
Company and those designated by them. In the event Executive is compelled by
order of a court or other governmental or legal body to communicate or divulge
any such information, knowledge or data to anyone other than the foregoing, he
shall promptly notify USI of any such order and he shall cooperate fully with
USI in protecting such information to the extent possible under applicable law.
(f) Upon termination of his employment with USI and the Company and
their affiliates, or at any time as USI or the Company may request, Executive
will promptly deliver to USI or the Company, as requested, all documents
(whether prepared by USI or the Company, an affiliate, Executive or a third
party) relating to USI, the Company, an affiliate or any of their businesses or
property which he may possess or have under his direction or control other than
documents provided to Executive in his capacity as a participant in any employee
benefit plan, policy or program of USI or the Company or any agreement by and
between Executive and the Company and/or USI with regard to Executive's
employment or severance.
(g) During the Employment Term and for eighteen (18) months
thereafter Executive will not enter into Competition with USI, the Company or
their affiliates. Furthermore, in the event of any termination of Executive's
employment for any reason whatsoever, whether by USI, the Company or by
Executive and whether or not for Cause, Good Reason or non-extension of the
Employment Term, Executive for three (3) years thereafter will not engage in
Solicitation.
24
(h) In the event of a breach or potential breach of this Section 11,
Executive acknowledges that USI, the Company and their affiliates will be caused
irreparable injury and that money damages may not be an adequate remedy and
agree that USI, the Company and their affiliates shall be entitled to injunctive
relief (in addition to its other remedies at law) to have the provisions of this
Section 11 enforced.
(i) Furthermore, in the event of breach of this Section 11 by
Executive, USI and the Company shall suffer substantial damages that may be
difficult to measure. Accordingly, the parties agree that as liquidated
damages, and not a penalty, in the event of breach of the Section 11 by
Executive while he is receiving amounts under Sections 8(c)(A), 8(c)(D), 8(c)(E)
or 8(c)(F) hereof, Executive shall not be entitled to receive any future amounts
pursuant to Sections 8(c)(A), 8(c)(D), 8(c)(E) or 8(c)(F) hereof.
12. INDEMNIFICATION. (a) USI agrees that if Executive is made a
party to or threatened to be made a party to any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding"), by
reason of the fact that he is or was a director or officer of the Company, USI
and/or any other affiliate of the Company or USI, or is or was serving at the
request of any of such companies as a director, officer, member, employee,
fiduciary or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including, without limitation, service with respect
to employee benefit plans, whether or not the basis of such Proceeding is
alleged action in an official capacity as a director, officer, member, employee,
fiduciary or agent while serving as a director, officer, member, employee,
fiduciary or agent, he shall be indemnified and held harmless
25
by the applicable company to the fullest extent authorized by Delaware law (or
if other than USI, the law applicable to such company), as the same exists or
may hereafter be amended, against all Expenses incurred or suffered by Executive
in connection therewith, and such indemnification shall continue as to Executive
even if Executive has ceased to be an officer, director, member, fiduciary or
agent, or is no longer employed by the company, and shall inure to the benefit
of his heirs, executors and administrators.
(b) As used in this Agreement, the term "Expenses" shall include,
without limitation, damages, losses, judgments, liabilities, fines, penalties,
excise taxes, settlements and costs, attorneys' fees, accountants' fees, and
disbursements and costs of attachment or similar bonds, investigations, and any
expenses of establishing a right to indemnification under this Agreement.
(c) Expenses incurred by Executive in connection with any Proceeding
shall be paid by the applicable company in advance upon request of Executive and
the giving by the Executive of any undertakings required by applicable law.
(d) Executive shall give the applicable company notice of any claim
made against him for which indemnity will or could be sought under this
Agreement. In addition, Executive shall give the applicable company such
information and cooperation as it may reasonably require and as shall be within
Executive's power and at such times and places as are reasonably convenient for
Executive.
26
(e) With respect to any Proceeding as to which Executive notifies the
applicable company of the commencement thereof:
(i) The applicable company will be entitled to participate
therein at its own expense; and
(ii) Except as otherwise provided below, to the extent
that it may wish, the applicable company jointly with any other
indemnifying party similarly notified will be entitled to assume
the defense thereof, with counsel reasonably satisfactory to
Executive. Executive also shall have the right to employ his own
counsel in such action, suit or proceeding and the fees and
expenses of such counsel shall be at the expense of the
applicable company.
(f) The applicable company shall not be liable to indemnify Executive
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The applicable company shall not settle
any action or claim in any manner which would impose any penalty or limitation
on Executive without Executive's written consent. Neither the applicable
company nor Executive will unreasonably withhold or delay their consent to any
proposed settlement.
(g) The right to indemnification and the payment of expenses incurred
in defending a Proceeding in advance of its final disposition conferred in this
Section 12 shall not be exclusive of any other right which Executive may have or
hereafter may acquire
27
under any statute, provision of the certificate of incorporation or by-laws of
any company, agreements, vote of stockholders or disinterested directors or
otherwise.
(h) USI shall obtain Officer and Director liability insurance
policies covering Executive in the same aggregate amount and under the same
terms as are maintained for the Company's senior officers and directors, and
shall maintain at all times during the Employment Term coverage under such
policies in the aggregate with regard to all officers and directors, including
Executive, of an amount not less than $20 million. USI shall to maintain for a
six (6) year period commencing on the date Executive ceases to be an employee of
USI, Officer and Director liability insurance coverage for events occurring
during the period Executive was an employee or director of the Company, USI or
any affiliate of either in the same aggregate amount and under the same terms as
are maintained for USI's active officers and directors. The phrase "in the same
aggregate amount and under the same terms" shall include the same level of
self-insurance by USI as shall be maintained for active officers and directors
of the Company.
13. SPECIAL TAX PROVISION. (a) Anything in this Agreement to the
contrary notwithstanding, in the event that any amount or benefit paid, payable,
or to be paid, or distributed, distributable, or to be distributed to or with
respect to Executive by the Company or USI (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the Company or
USI, any person whose actions result in a change of ownership covered by
Internal Revenue Code (the "Code") Section 280G(b)(2) or any person affiliated
with the Company, USI or such person), after the Effective Date, as
28
a result of a change in ownership of the Company or a direct or indirect parent
thereof covered by Code Section 280G(b)(2) (collectively, the "Covered
Payments") is or becomes subject to the excise tax imposed by or under Section
4999 of the Code (or any similar tax that may hereafter be imposed), and/or any
interest or penalties with respect to such excise tax (such excise tax, together
with such interest and penalties, is hereinafter collectively referred to as the
"Excise Tax"), USI shall pay to Executive an additional amount (the "Tax
Reimbursement Payment") such that after payment by Executive of all taxes
(including, without limitation, any interest or penalties and any Excise Tax
imposed on or attributable to the Tax Reimbursement Payment itself), Executive
retains an amount of the Tax Reimbursement Payment equal to the sum of (i) the
amount of the Excise Tax imposed upon the Covered Payments, and (ii) without
duplication, an amount equal to the product of (A) any deductions disallowed for
federal, state or local income tax purposes because of the inclusion of the Tax
Reimbursement Payment in Executive's adjusted gross income, and (B) the highest
applicable marginal rate of federal, state or local income taxation,
respectively, for the calendar year in which the Tax Reimbursement Payment is
made or is to be made. The intent of this Section 13 is that (a) the Executive,
after paying his federal, state and local income tax, will be in the same
position as if he was not subject to the Excise Tax under Section 4999 of the
Code and did not receive the extra payments pursuant to this Section 13 and (b)
that Executive should never be "out-of-pocket" with respect to any tax or other
amount subject to this Section 13, whether payable to any taxing authority or
repayable to USI, and this Section 13 shall be interpreted accordingly.
29
(b) Except as otherwise provided in Section 13(a), for purposes of
determining whether any of the Covered Payments will be subject to the Excise
Tax and the amount of such Excise Tax,
(i) such Covered Payments will be treated as
"parachute payments" (within the meaning of Section 280G(b)(2) of
the Code) and such payments in excess of the Code Section
280G(b)(3) "base amount" shall be treated as subject to the
Excise Tax, unless, and except to the extent that, the Company's
independent certified public accountants appointed prior to the
change in ownership covered by Code Section 280G(b)(2) or legal
counsel (reasonably acceptable to Executive) appointed by such
public accountants (or, if the public accountants decline such
appointment and decline appointing such legal counsel, such
independent certified public accountants as promptly mutually
agreed on in good faith by USI and the Executive) (the
"Accountant"), deliver a written opinion to Executive, reasonably
satisfactory to Executive's legal counsel, that Executive has a
reasonable basis to claim that the Covered Payments (in whole or
in part) (A) do not constitute "parachute payments",
(B) represent reasonable compensation for services actually
rendered (within the meaning of Section 280G(b)(4) of the Code)
in excess of the "base amount" allocable to such reasonable
compensation, or (C) such "parachute payments" are
30
otherwise not subject to such Excise Tax (with appropriate legal
authority, detailed analysis and explanation provided therein by the
Accountants); and
(ii) the value of any Covered Payments which are
non-cash benefits or deferred payments or benefits shall be
determined by the Accountant in accordance with the principles of
Section 280G of the Code.
(c) For purposes of determining the amount of the Tax Reimbursement
Payment, Executive shall be deemed:
(i) to pay federal, state and/or local income taxes at the
highest applicable marginal rate of income taxation for the calendar
year in which the Tax Reimbursement Payment is made or is to be made,
and
(ii) to have otherwise allowable deductions for federal,
state and local income tax purposes at least equal to those disallowed
due to the inclusion of the Tax Reimbursement Payment in Executive's
adjusted gross income.
(d) (i) (A) In the event that prior to the time Executive has
filed any of his tax returns for the calendar year in which the change in
ownership event covered by Code Section 280G(b)(2) occurred, the Accountant
determines, for any reason whatever, the correct amount of the Tax Reimbursement
Payment to be less than the
31
amount determined at the time the Tax Reimbursement Payment was made, Executive
shall repay to USI, at the time that the amount of such reduction in Tax
Reimbursement Payment is determined by the Accountant, the portion of the prior
Tax Reimbursement Payment attributable to such reduction (including the portion
of the Tax Reimbursement Payment attributable to the Excise Tax and federal,
state and local income tax imposed on the portion of the Tax Reimbursement
Payment being repaid by Executive, using the assumptions and methodology
utilized to calculate the Tax Reimbursement Payment (unless manifestly
erroneous)), plus interest on the amount of such repayment at the rate provided
in Section 1274(b)(2)(B) of the Code.
(B) In the event that the determination set forth in
(A) above is made by the Accountant after the filing by Executive of any of his
tax returns for the calendar year in which the change in ownership event covered
by Code Section 280G(b)(2) occurred but prior to one (1) year after the
occurrence of such change in ownership, Executive shall file at the request of
USI an amended tax return in accordance with the Accountant's determination, but
no portion of the Tax Reimbursement Payment shall be required to be refunded to
USI until actual refund or credit of such portion has been made to Executive,
and interest payable to USI shall not exceed the interest received or credited
to Executive by such tax authority for the period it held such portion (less any
tax Executive must pay on such interest and which he is unable to deduct as a
result of payment of the refund).
32
(C) In the event Executive receives a refund pursuant
to (B) above and repays such amount to USI, Executive shall thereafter file for
refunds or credits by reason of the repayments to USI.
(D) Executive and USI shall mutually agree upon the
course of action, if any, to be pursued (which shall be at the expense of USI)
if Executive's claim for refund or credit is denied.
(ii) In the event that the Excise Tax is later determined
by the Accountants or the Internal Revenue Service to exceed the amount taken
into account hereunder at the time the Tax Reimbursement Payment is made
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Tax Reimbursement Payment), USI shall make an
additional Tax Reimbursement Payment in respect of such excess (plus any
interest or penalties payable with respect to such excess) once the amount of
such excess is finally determined.
(iii) In the event of any controversy with the Internal
Revenue Service (or other taxing authority) under this Section 13, subject to
subpart (i)(D) above, the Executive shall permit USI to control issues related
to this Section 13 (at its expense), provided that such issues do not
potentially materially adversely affect Executive but Executive shall control
any other issues. In the event the issues are interrelated, Executive and USI
shall in good faith cooperate so as not to jeopardize resolution of either
issue, but if the parties cannot agree Executive shall make the final
determination with regard to the issues. In the event of any conference with
any taxing authority as to the
33
Excise Tax or associated income taxes, Executive shall permit the representative
of USI to accompany him and Executive and his representative shall cooperate
with USI and its representative.
(iv) With regard to any initial filing for a refund or
any other action required pursuant to this Section 13 (other than by mutual
agreement) or, if not required, agreed to by USI and Executive, Executive shall
cooperate fully with USI, provided that the foregoing shall not apply to actions
that are provided herein to be at the sole discretion of Executive.
(e) The Tax Reimbursement Payment, or any portion thereof, payable by
USI shall be paid not later than the fifth (5th) day following the determination
by the Accountant, and any payment made after such fifth (5th) day shall bear
interest at the rate provided in Code Section 1274(b)(2)(B). USI shall use its
best efforts to cause the Accountant to promptly deliver the initial
determination required hereunder and, if not delivered, within ninety (90) days
after the change in ownership event covered by Section 280G(b)(2) of the Code,
USI shall pay the Executive the Tax Reimbursement Payment set forth in an
opinion from counsel recognized as knowledgeable in the relevant areas selected
by Executive, and reasonably acceptable to USI, within five (5) days after
delivery of such opinion. The amount of such payment shall be subject to later
adjustment in accordance with the determination of the Accountant as provided
herein.
(f) USI shall be responsible for all charges of the Accountant and if
(e) is applicable the reasonable charges for the opinion given by Executive's
counsel.
34
(g) USI and Executive shall mutually agree on and promulgate further
guidelines in accordance with this Section 13 to the extent, if any, necessary
to effect the reversal of excessive or shortfall Tax Reimbursement Payments.
The foregoing shall not in any way be inconsistent with Section 13(d)(i)(D)
hereof.
14. EXECUTIVE'S REPRESENTATION. Executive represents and warrants to
USI and the Company that there is no legal impediment to his performing his
obligations under this Agreement and neither entering into this Agreement nor
performing his contemplated service hereunder will violate any agreement to
which he is a party or any other legal restriction.
15. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without reference to
principles of conflict of laws.
(b) ENTIRE AGREEMENT/AMENDMENTS. This Agreement and the instruments
contemplated herein, contain the entire understanding of the parties with
respect to the employment of Executive by USI and the Company and supersedes any
policy of USI or the Company or USI with regard to severance payments and any
prior agreements between the Company and Executive with regard to employment or
severance, including without limitation, except as provided below the Prior
Change in Control Agreement. There are no restrictions, agreements, promises,
warranties, covenants or undertakings between the
35
parties with respect to the subject matter herein other than those expressly set
forth herein and therein. This Agreement may not be altered, modified, or
amended except by written instrument signed by the parties hereto.
Notwithstanding the foregoing, Executive's rights under Section 4(iv)(C) and (E)
of the Prior Change in Control Agreement shall survive with regard to the
payments made pursuant to Section 4(f) hereof.
(c) NO WAIVER. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver of such party's rights or deprive such party of the right thereafter to
insist upon strict adherence to that term or any other term of this Agreement.
Any such waiver must be in writing and signed by Executive or an authorized
officer of USI, as the case may be.
(d) ASSIGNMENT. This Agreement shall not be assignable by Executive.
This Agreement shall be assignable by USI only to either an entity which is
owned in whole or in part by USI or by any successor to USI or an acquiror of
all or substantially all of the assets of the USI Plumbing Products Company,
provided such entity or acquiror promptly assumes all of the obligations
hereunder of USI in a writing delivered to the Executive and otherwise complies
with the provisions hereof with regard to such assumption. Upon such assignment
and assumption, all obligations of USI herein, shall be the obligations the
assignee entity or acquiror, as the case may be, but USI shall remain
secondarily liable for the obligations hereunder. Executive acknowledges that
he is aware that USI contemplates assigning this Agreement to the Company on or
promptly after the Effective Date. If Executive becomes employed by another
entity owned in whole or in
36
part by USI or remains employed by USI but is administratively assigned to
another entity owned in whole or in part by USI, reference herein to the Company
shall mean, where applicable, such other entity.
(e) SUCCESSORS; BINDING AGREEMENT. This Agreement shall inure to the
benefit of and be binding upon the personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees legatees and permitted
assignees of the parties hereto.
(f) COMMUNICATIONS. For the purpose of this Agreement, notices and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given (i) when faxed or delivered, or (ii) two
business days after being mailed by United States registered or certified mail,
return receipt requested, postage prepaid, addressed to the respective addresses
set forth on the initial page of this Agreement, provided that all notices to
the Company shall be directed to the attention of the Secretary of the Company
with a copy to the Senior Vice President and General Counsel of USI, or to such
other address as any party may have furnished to the other in writing in
accordance herewith. Notice of change of address shall be effective only upon
receipt.
(g) WITHHOLDING TAXES. USI may withhold from any and all amounts
payable under this Agreement such federal, state and local taxes as may be
required to be withheld pursuant to any applicable law or regulation.
37
(h) SURVIVORSHIP. The respective rights and obligations of the
parties hereunder shall survive any termination of Executive's employment to the
extent necessary to the agreed preservation of such rights and obligations.
(i) COUNTERPARTS. This Agreement may be signed in counterparts, each
of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
(j) HEADINGS. The headings of the 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.
38
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
USI, INC.
By: /s/ XXXXX X. XXXXXX
----------------------------
Name: Xxxxx X. Xxxxxx
Title: Chairman and Chief Executive Officer
/s/ XXXXX X. XXXXXXX
----------------------------
Xxxxx X. Xxxxxxx
39
