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EXHIBIT 10.23
SEVERANCE AGREEMENT
AGREEMENT between Xxxxxxx Entertainment Company, a Delaware corporation
("GEC"), and ______________________________ (the "Key Employee").
W I T N E S E T H
WHEREAS, the Board of Directors of GEC (the "Board") believes that, in the
event of a threat or occurrence of a bid to acquire or to achieve a "Change of
Control" (as defined hereafter) of GEC, it is in the best interest of GEC and
its present and future shareholders that the business of GEC be continued with a
minimum of disruption, and that such objective will be achieved if GEC key
management employees are given assurances of employment security so they will
not be distracted by personal uncertainties and risks created during such
period; and
WHEREAS, GEC believes the giving of such assurances by GEC will enable it
(a) to secure the continued services of both its key operational and management
employees in the performance of both their regular duties and such extra duties
as may be required of them during such period of uncertainty, (b) to be able to
rely on such employees to manage the affairs of GEC during any such period with
less concern for their personal risks, and (c) to have the ability to attract
new key employees as needed; and
WHEREAS, the Board has approved entering into severance agreements with
certain key management employees of GEC in order to achieve the foregoing
objectives; and
WHEREAS, Key Employee is a key management employee of GEC or one of its
subsidiaries;
NOW, THEREFORE, GEC and Key Employee agree as follows:
1. Change of Control. For the purposes of this Agreement, a "Change of
Control" shall be deemed to have taken place if: (i) any person or entity,
including a "group" as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, other than GEC or a wholly-owned subsidiary thereof or any employee
benefit plan of GEC or any of its subsidiaries, becomes the beneficial owner of
GEC securities having 331/3% or more of the combined voting power of the then
outstanding securities of GEC that may be cast for the election of directors of
GEC (other than as a result of an issuance of securities initiated by GEC in the
ordinary course of business); or (ii) as the result of, or in connection with,
any cash tender or exchange offer, merger or other business combination, sale of
assets or contested election, or any combination of the foregoing transactions
less than a majority of the combined voting power of the then-outstanding
securities of GEC or any successor corporation or entity entitled to vote
generally in the election of the directors of GEC or such other corporation or
entity after such transaction are held in the aggregate by the holders of GEC
securities entitled to vote generally in the election of directors of GEC
immediately prior to such transaction; or (iii) during any period of two
consecutive years, individuals who at the beginning of any such
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period constitute the Board of Directors of GEC cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by GEC's shareholders, of each director of GEC first elected during
such period was approved by a vote of at least two-thirds of the directors of
GEC then still in office who were directors of GEC at the beginning of any such
period. Upon a Change of Control of GEC while the Key Employee is still an
employee of GEC, this Agreement and all of its provisions shall become operative
immediately.
2. Employment. GEC and Key Employee hereby agree that, if Key Employee is
in the employ of GEC on the date on which a Change of Control occurs (the
"Change of Control Date"), GEC will continue to employ Key Employee and Key
Employee will remain in the employ of GEC, for the period commencing on the
Change of Control Date and ending on the Second anniversary of such date (the
"Employment Period"), to exercise such authority and perform such duties as are
commensurate with the authority being exercised and duties being performed by
the Key Employee immediately prior to the Change of Control Date, which services
shall be performed at the location where the Key Employee was employed
immediately prior to the Change of Control Date.
3. Compensation and Benefits. During the Employment Period, GEC will (a)
continue to pay the Key Employee a salary at not less than the level applicable
to Key Employee on the Change of Control Date, (b) pay the Key Employee bonuses
in amounts not less in amount than the average paid during the two 12-month
periods preceding the Change of Control Date, (c) continue employee benefits
programs to Key Employee at levels in effect on the Change of Control Date as
more particularly described in Section 7 and (d) pay to Key Employee any
Additional Amount determined pursuant to Section 4.
4. Tax Reimbursement Payment.
(a) Notwithstanding anything to the contrary contained in this Agreement,
in any plan of GEC or its affiliates, or in any other agreement or
understanding, GEC will pay to Key Employee, at the times hereinafter specified,
an amount (the "Additional Amount") equal to the excise tax under Section 4999
of the Internal Revenue Code of 1986, as amended (the "Code"), if any, incurred
or to be incurred by Key Employee by reason of the payments under this
Agreement, payments under the supplemental executive retirement plan,
acceleration of vesting of stock options or restricted stock granted under the
GEC 1991 Stock Option and Incentive Plan or the GEC 1993 Stock Option and
Incentive Plan, or payments under any other plan, agreement or understanding
between Key Employee and GEC or its affiliates, constituting Excess Parachute
Payments (as defined below), plus all excise taxes and federal, state and local
income taxes incurred or to be incurred by the Key Employee with respect to
receipt of the Additional Amount. For purposes of this Agreement, the term
"Excess Parachute Payment" shall mean any payment or any portion thereof which
would be an "excess parachute payment" within the meaning of Section 280G(b) of
the Code, and which would result in the imposition of an excise tax on the Key
Employee under Section 4999 of the code. Attached hereto as Exhibit A is an
example illustrating the computation of the Additional Amount.
(b) All determinations required to be made regarding the Additional Amount,
including whether payment of any Additional Amount is required and the amount of
any Xxxxxxxxxx Xxxxxx,
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xxxxx xx made by the independent accounting firm which is advising GEC (the
"Accounting Firm"), which shall provide detailed support calculations to GEC and
Key Employee on or before the last day of the calendar year during which occurs
the Change of Control Date (the "Change of Control Year"). In computing taxes,
the Accounting Firm shall use the highest marginal federal, state and local
income tax rates applicable to the Key Employee for the year in which the
Additional Amount is to be paid (or if those tax rates are unknown, for the year
in which the calculation is made) and shall assume the full deductibility of
state and local income taxes for purposes of computing federal income tax
liability. The portion of the Additional Amount based on the excise tax as
determined by the Accounting Firm to be due for the Change of Control Year shall
be paid to Key Employee no later than March 1 immediately following the Change
of Control Year. The portion of the Additional Amount based on the excise tax as
determined by the Accounting Firm to be due for each calendar year following the
Change of Control Year during the Employment Period shall be paid to the Key
Employee on or before March 1 immediately following the end of each such
calendar year. If GEC determines that the excise tax for any year will be
different from the amount originally calculated in the report of the Accounting
Firm delivered at the end of the Change of Control Year, then GEC shall provide
to Key Employee detailed support calculations by the Accounting Firm specifying
the basis for the change in the Additional Amount.
5. Termination of Employment.
(a) If during the Employment Period, Key Employee's employment is
terminated by GEC (or a subsidiary of GEC) or a successor thereto for other than
gross misconduct (defined as an intentional act of fraud or embezzlement,
intentional wrongful damage to property of GEC, or intentional wrongful
disclosure of material confidential information of GEC; for the purposes of this
Agreement no act or failure to act on the part of the Key Employee shall be
deemed intentional unless determined by a final judicial decision to be done, or
omitted to be done, by Key Employee not in good faith and without reasonable
belief that his action or omission was in the best interest of GEC), or
(i) if there is a reduction in Key Employee's compensation (other than
normal bonus fluctuations) or benefits, or a change in Key Employee's
status, working conditions or management responsibilities, or
(ii) if Key Employee is required to change his city of employment,
and Key Employee voluntarily terminates his or her employment within 60
days of any such event, or the last in a series of events,
then Key Employee shall be entitled to continue to receive those benefits
described in Section 5(d) and to receive a lump sum payment ("Severance
Compensation") equal to the sum of
(x) ___% of Key Employee's "Base Amount" as determined under
paragraph (b) below, and
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(y) any portion of the Additional Amount not theretofore paid, as
described in paragraph (c) below.
The lump sum payment shall be subject to and reduced by all applicable federal
and state withholding taxes and shall be paid to the Key Employee within 30
business days after his termination of employment.
(b) The Base Amount for purposes of this section 5 shall be Key Employee's
base salary and bonuses paid to him during the 12-month period preceding his
termination of employment pursuant to paragraph (a). If Key Employee has not
been employed for a 12-month period, his Base Amount shall be his annualized
base salary at the rate then in effect and bonuses paid to Key Employee prior to
the date of his termination of employment.
(c) The Additional Amount shall be determined in the same manner described
in section 4, as illustrated in Exhibit A, and any portion of such Additional
Amount not already paid to Key Employee, including any portion estimated to
arise by reason of excise tax due in future years, shall be paid within 30
business days after his termination of employment. At or prior to the time of
payment of the Additional Amount (or the remainder thereof), GEC shall provide
to Key Employee a report of the Accounting Firm, including detailed support
calculations, describing its determination of the Additional Amount (or an
updated report of the Accounting Firm to its report for the Change of Control
Year, if that report has already been provided to Key Employee). If GEC
determines that no Additional Amount is due under this paragraph (c), it shall
provide to Key Employee an opinion of the Accounting Firm that Key Employee will
not incur an excise tax on any or all of the Severance Compensation, vesting of
stock options, or payments under any other plan, agreement or understanding
between Key Employee and GEC. Any such opinion shall be based upon the proposed
regulations under Code Sections 280G and 4999 or substantial authority within
the meaning of Code Section 6661.
(d) After termination of employment for which Key Employee is entitled to
Severance Compensation, and continuing until the end of the Employment Period
(i.e., the second anniversary of the Change of Control Date, or if later, during
the extended term of this Agreement pursuant to Section 16), GEC shall maintain
at its expense for the continued benefit of Key Employee and his dependents all
medical, dental, life insurance and accident insurance plans of GEC in which Key
Employee or his dependents are entitled to participate pursuant to Section 7,
provided that such continued participation is possible under the terms and
provisions of such plans. In the event that the participation by Key Employee or
his dependents in any such plan is barred, or if the benefits in any of the
plans are reduced to a level below what they were on the Change of Control Date,
GEC shall arrange to provide Key Employee and his dependents with benefits
equivalent to those which they were receiving under such plans immediately prior
to the Change of Control Date, such benefits to be provided at GEC's expense by
means of individual insurance policies, or if such policies cannot be obtained,
from GEC's assets. If Key Employee should accept employment with another
employer and if Key Employee or his dependents should become covered under that
employer's medical, dental, life insurance and accident insurance plans, or any
of them, then effective on the date that such coverage commences, the obligation
of GEC to provide any benefits under this Section 5(d)
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to Key Employee or his dependents shall terminate to the extent that equivalent
coverage is provided under the plans of the subsequent employer.
The medical and dental benefits required to be provided pursuant to this
Section 5(d) are not intended to be a substitute for any extended coverage
benefits ("COBRA rights") described in Section 4980B of the Code, and such COBRA
rights shall not commence until after the period of coverage specified in the
first sentence of this Section 5(d) comes to an end.
(e) In the event of a dispute concerning the amount of Severance
Compensation, including a dispute as to the calculation of the Additional
Amount, which is not resolved within 60 days after the date of termination of
employment, Key Employee may submit the resolution of the dispute to
arbitration. Any arbitration pursuant to this Agreement shall be determined in
accordance with the rules of the American Arbitration Association then in
effect, by a single arbitrator if the parties shall agree upon one, or otherwise
by three arbitrators, one appointed by each party, and a third arbitrator
appointed by the two arbitrators selected by the parties, all arbitrators to
come from a panel proposed by the American Arbitration Association. If any party
shall fail to appoint an arbitrator within 30 days after it is notified to do
so, then the arbitration shall be accomplished by a single arbitrator. Unless
otherwise agreed by the parties hereto, all arbitration proceedings shall be
held in Nashville, Tennessee. Each party agrees to comply with any award made in
any such proceeding, which shall be final, and to the entry of judgment in
accordance with applicable law in any jurisdiction upon any such award. The
decision of the arbitrators shall be tendered within 60 days of final submission
of the parties in writing or any hearing before the arbitrators and shall
include their individual votes. If the Key Employee is entitled to any award
pursuant to the determination reached in the arbitration proceeding that is
greater than that proposed by GEC, he shall be entitled to payment by GEC of all
attorneys' fees, costs (including expenses of arbitration), and other
out-of-pocket expenses incurred in connection with the arbitration.
6. Indemnification.
(a) If Key Employee shall have to institute litigation brought in good
faith to enforce any of his rights under the Agreement, GEC shall indemnify Key
Employee for his reasonable attorney's fees and disbursements incurred in any
such litigation.
(b) In the event that an excise tax is ever assessed by the Internal
Revenue Service against Key Employee (or if GEC and Key Employee mutually agree
that an excise tax is payable) by reason of the payments under this Agreement,
payments under the supplemental executive retirement plan, acceleration of
vesting of stock options or restricted stock granted under the GEC 1991 Stock
Option and Incentive Plan or the GEC 1993 Stock Option and Incentive Plan, or
payments under any other plan, agreement or understanding between Key Employee
and GEC or its affiliates, constituting Excess Parachute Payments, and if such
excise tax was not included in the determination by the Accounting Firm of the
Additional Amount that has been actually paid to Key Employee, GEC agrees to
indemnify Key Employee by paying to Key Employee the amount of such excise tax,
together with any interest and penalties, including reasonable legal and
accounting fees and other out-of-pocket expenses incurred by Key Employee,
attributable to the failure to pay such excise tax
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by the date it was originally due, plus all federal, state and local income
taxes incurred with respect to payment of the excise tax, calculated in a manner
analogous to Exhibit A. This indemnification obligation shall survive the
termination of the Employment Period and shall apply to all such excise taxes on
Excess Parachute Payments, whether due before or after termination of
employment, except that no such right of indemnification shall exist after
termination of employment for gross misconduct (as defined in paragraph (a)(i)
of Section 5).
(c) If the excise tax for any year which is actually imposed on Key
Employee is finally determined to be less than the amount taken into account in
the calculation of the Additional Amount that was paid to Key Employee pursuant
to Section 4 or Section 5, then Key Employee shall repay to GEC, at the time
that the amount of such reduction in excise tax is finally determined, the
portion of the Additional Amount attributable to such reduction (including the
portion of the Additional Amount attributable to the excise tax and federal and
state income taxes imposed on the Additional Amount being repaid by Key
Employee, to the extent that such repayment results in a reduction in such
excise tax, federal or state income tax), plus interest on the amount of such
repayment at the rate provided in section 1274(b)(2)(B) of the Code.
7. Normal Employee Benefits. During the Employment Period, Key Employee and
his dependents shall be entitled to participate in any and all employee benefit
plans maintained by GEC (or a subsidiary of GEC), or a successor thereto, which
provide benefits for its executives and for its salaried employees generally,
including, without limitation, its tax-qualified retirement plans, supplemental
executive retirement plan, stock option and other stock award plans, and welfare
benefit plans providing medical and dental benefits, group life insurance,
disability benefits and accidental death and dismemberment insurance. Any future
increases in benefits in any of such plans available to executives or salaried
employees of GEC generally shall also be provided to Key Employee.
Nothing in this Agreement shall preclude GEC from amending or terminating
any employee benefit plan, but it is the intent of the parties that Key Employee
and his dependents shall be entitled during the Employment Period to the same
level of benefits in all employee benefit plans as the level in effect in the
respective plans of GEC on the Change of Control Date. In the case of the stock
option and other stock award plans, the requirement that the same level of
benefits be provided shall be satisfied if Key Employee enjoys at least the same
reward opportunities as provided by GEC prior to the Change of Control Date. If
any of the employee benefit plans are amended to reduce benefits to Key Employee
or his dependents, or if Key Employee or his dependents become ineligible to
participate in any such plans, GEC shall arrange to provide Key Employee and his
dependents with benefits equivalent to those which they were receiving under
such plans immediately prior to the Change of Control Date, such benefits to be
provided at GEC's expense by means of individual insurance policies, or if such
policies cannot be obtained, from GEC's assets.
8. Confidentiality. Key Employee recognizes that he has or will have access
to and may participate in the origination of non-public confidential information
and will owe a fiduciary duty with respect to such information to GEC.
Confidential information includes, but is not limited to, trade secrets,
supplier information, pricing information, internal corporate planning, GEC
secrets,
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methods of marketing, methods of showroom selection and operation, ideas and
plans for development, historical financial data and forecasts, long range plans
and strategies, and any other data or information of or concerning GEC that is
not generally known to the public or in the industry in which GEC is engaged.
Key Employee agrees that from the date of this Agreement and throughout the
Employment Period he will, except as specifically authorized by GEC in writing,
maintain in strict confidence and will not use or disclose, other than
disclosure made in the ordinary course of business or to other employees of GEC,
any confidential information belonging to GEC. If Key Employee shall breach the
terms of Section 8, all of his rights under this Agreement shall terminate.
9. Employment Rights. Nothing expressed or implied in this Agreement shall
create any right or duty on the part of GEC or the Key Employee to have the Key
Employee remain in the employment of GEC prior to any Change in Control,
provided, however, that any termination of employment of the Key Employee or the
removal of the Key Employee from the office or position in GEC following the
commencement of any discussion with a third person that ultimately results in a
Change in Control with that or another person shall be deemed to be a
termination or removal of the Key Employee after a Change in Control for
purposes of this Agreement.
10. Withholding of Taxes. GEC may withhold from any amounts payable under
this Agreement all federal, state, city or other taxes as shall be required
pursuant to any law or government regulations or ruling.
11. Governing Law. This Agreement shall be construed according to the laws
of Tennessee, without giving effect to the principles of conflicts of laws of
such State.
12. Amendment; Modification; Waiver. This Agreement may not be amended
except by the written agreement of the parties hereto. No provisions of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing signed by Key Employee and GEC. No waiver
by either party hereto at any time of any breach by the other party hereto or
compliance with any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
13. Binding Effect.
(a) This Agreement shall be binding on GEC, its successors and assigns.
Should there be a consolidation or merger of GEC with or into another
corporation, or a purchase of all or substantially all of the assets of GEC by
another entity, the surviving or acquiring corporation will succeed to the
rights and obligations of GEC under this Agreement.
(b) This Agreement shall inure to the benefit of and be enforceable by Key
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees and/or legatees.
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(c) This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign, transfer or delegate this
Agreement or any rights or obligations hereunder except as expressly provided in
paragraphs (a) or (b) hereof. Without limiting the generality of the foregoing,
Key Employee's right to receive payments hereunder shall not be assignable,
transferable or delegable, whether by pledge, creation of a security interest or
otherwise, other than by a transfer by his will or by the laws of descent and
distribution and, in the event of any attempted assignment or transfer contrary
to this Section 11(c), GEC shall have no liability to pay any amount so
attempted to be assigned, transferred or delegated.
(d) GEC and Key Employee recognize that each party will have no adequate
remedy at law for breach by the other of any of the agreements contained herein
and, in the event of any such breach, GEC and Key Employee hereby agree and
consent that the other shall be entitled to a decree of specific performance,
mandamus or other appropriate remedy to enforce performance of this Agreement.
(e) Notwithstanding anything to the contrary contained in this Agreement,
in any plan of GEC or its affiliates, or in any other agreement or
understanding, GEC shall pay to Key Employee all amounts required to be paid
hereunder (including the Additional Amount and Severance Compensation), as well
as amounts required by the terms of any other plan, agreement or understanding
(including the accelerated vesting of stock options and restricted stock upon a
Change of Control), regardless of whether any such amounts or accelerated
vesting constitute Excess Parachute Payments.
14. Entire Contract. This Agreement constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
express or implied with respect to the subject matter of this Agreement.
15. Notice. For all purposes of this Agreement, all communications provided
for herein shall be in writing and shall be deemed to have been duly given when
delivered or after three business days after having been mailed registered or
certified mail, return receipt requested, addressed to the addresses set forth
at the end of this Agreement or to such other address as any party furnishes in
writing to the other party.
16. Term. This Agreement shall be effective from the date of its execution
by GEC and for the twenty-four (24) months next succeeding any Change of
Control, and shall continue in effect from year to year after such twenty-four
(24) month period, unless GEC shall notify Key Employee in writing 90 days in
advance of an anniversary of its execution that the Agreement shall terminate or
unless, prior to a Change of Control or the commencement of any discussion with
a third person that ultimately results in a Change of Control, the Key Employee
ceases for any reason to be an employee of GEC in which event this Agreement
shall immediately terminate and be of no further effect. Notwithstanding the
foregoing, the indemnification provisions of this Agreement contained in Section
6 shall survive until the expiration of the statute of limitations for
assessment of any excise tax with regard to an Excess Parachute Payment on
account of the Change of Control.
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IN WITNESS WHEREOF the parties hereto have executed this Severance
Agreement as of the ____ day of ____________________, 199___.
XXXXXXX ENTERTAINMENT COMPANY _____________________________________
Key Employee
By:___________________________________ Address:_____________________________
One Xxxxxxx Drive _____________________________
Xxxxxxxxx, XX 00000
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EXHIBIT A
1. Excess Parachute Payment Subject to Excise Tax $50,000
2. Excise Tax on Item 1 @ 20% $10,000
3. Total Additional Amount under Agreement * $27,190
4. Verification of Total Additional Amount
1) Excise Tax on additional $27,190 @ 20% - $ 5,438
2) State Income Tax on $27,190 @ 6% - $ 1,631
3) Federal Income Tax on $27,190 -
a) Additional income - $27,190
b) State Income Tax deduction - (1,631)
c) Net Additional Federal
Taxable Income - $25,558
d) Federal Income Tax @ 39.6% - $10,121
4) Total Taxes on Additional Amount $17,190
5) Net Amount Available to Key Employee to pay
Excise Tax in #2 $10,000
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* The formula used to compute the Additional Amount is to divide the
Excise Tax amount on the excess parachute payment by a percentage equal
to 100% less the sum of the Excise Tax percentage plus the state income
tax percentage plus the federal tax percentage less a percentage
determined by multiplying the federal tax percentage times the state
tax percentage. Thus in the example above, the following percentages
should be subtracted from 100%:
1) Excise Tax Percentage - 20.00%
2) Assumed State Tax Percentage - 6.00%
3) Federal Income Tax Percentage - 39.60%
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Total 65.60%
Less 39.6% Times 6% = 2.38%
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63.22%
The resulting percentage of 100% - 63.22% = 36.78% should be divided
into $10,000 = $27,190.
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