LODGENET ENTERTAINMENT CORPORATION EXECUTIVE SEVERANCE AGREEMENT
Exhibit 10.28
LODGENET ENTERTAINMENT CORPORATION
EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT, dated as of March 1, 2003, by and between LodgeNet Entertainment Corporation, a Delaware corporation located at 0000 Xxxx Xxxxxxxxxx Xxxxxx, Xxxxx Xxxxx, Xxxxx Xxxxxx 00000 (“Corporation”), and Xxxxxxx X. XxXxxxx (“Executive”).
This Agreement sets forth the severance compensation which the Corporation agrees it will pay to the Executive if the Executive’s employment with the Corporation terminates under one of the circumstances described herein in connection with or following a Change in Control of the Corporation (as defined herein). No compensation shall be payable under this Agreement unless and until: (i) there shall have been a Change in Control of the Corporation and (ii) the Executive’s employment by the Corporation shall have been terminated in accordance with Section 4. To the extent that the provisions of this Agreement, or the benefits provided hereunder, conflict with any provisions of any existing employment agreement between the Executive and the Corporation, this Agreement shall supersede any such provisions in any such employment agreement.
This Agreement shall terminate, except to the extent that any obligation of the Corporation hereunder remains unpaid as of such time, upon the earliest of: (i) December 31, 2004 if a Change in Control of the Corporation has not occurred within such period; (ii) the termination of the Executive’s employment the with Corporation based on death, Permanent Disability (as defined in Section 4(b)), or Cause (as defined in Section 4 (c)) or by the
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Executive other than for Good Reason (as defined in Section 4 (d)); (iii) two (2) years from the date of a Change in Control of the Corporation if the Executive has not terminated his employment for Good Reason as of such time; and (iv) prior to a Change in Control, in the discretion of the Board, upon the Executive’s ceasing to be an executive officer of the Corporation. Notwithstanding clause (i) hereof, on December 31st of each year following the date this Agreement was first entered, the term of this Agreement automatically shall be extended for one additional year, unless prior to such anniversary the Corporation notifies the Executive in writing that it does not wish to extend the term of the Agreement.
For purposes of this Agreement, a Change in Control of the Corporation shall mean the occurrence of any of the following:
(a) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) in effect on the date hereof) or group of persons acting in concert, other than the Corporation or any subsidiary thereof or any employee benefit plan of the Corporation or any subsidiary thereof, becomes the “beneficial owner” (as such term is defined in Rule 13d-3 of the Exchange Act except that a person shall also be deemed the beneficial owner of all securities which such person may have a right to acquire, whether or not such right is presently exercisable), directly or indirectly, of securities of the Corporation representing thirty percent (30%) or more of the combined voting power of the Corporation’s then outstanding securities ordinarily having the right to vote in the election of directors (“voting stock”); but excluding any such acquisition (or series of acquisitions) effected at a purchase price that results in an actual or implied average valuation of the Corporation’s outstanding common stock of less than $6.75 per share (adjusted as appropriate for any increase or decrease in the number of shares resulting from a reclassification, split, subdivision or consolidation of shares or other distribution of assets or securities to stockholders without the receipt of consideration by the Corporation or any other occurrence for which the Board determines an adjustment is appropriate); or
(b) during any period subsequent to the date of this Agreement, a majority of the members of the Board shall not for any reason be the individuals who at the beginning of such period constitute the Board or those persons who are nominated as new directors by a majority of the current directors or their successors who have been so nominated; or
(c) there shall be consummated any merger, consolidation (including a series of mergers or consolidations), or any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation (meaning assets representing thirty percent (30%) or more of the net tangible assets of the Corporation or generating thirty percent (30%) or more of the Corporation’s operating cash flow), or any other similar business combination or transaction, but excluding any business combination or transaction which: (i) would result in the voting stock of the Corporation immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting stock of the surviving entity) more than 70% of the combined voting power of the voting stock of the Corporation (or such surviving entity) outstanding immediately after giving effect to such business combination or transaction; (ii) would be
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effected to implement a recapitalization (or similar transaction) of the Corporation in which no “person” (as defined in subsection 3(a) hereof) or group of persons acting in concert becomes the beneficial owner (as defined in subsection 3(a) hereof) of thirty percent (30%) or more of the combined voting power of the then outstanding voting stock of the Corporation; or (iii) is effected at a purchase price that results in an actual or implied average valuation of the Corporation’s outstanding common stock of less than $6.75 per share (adjusted as appropriate for any increase or decrease in the number of shares resulting from a reclassification, split, subdivision or consolidation of shares or other distribution of assets or securities to stockholders without the receipt of consideration by the Corporation or any other occurrence for which the Board determines an adjustment is appropriate); or
(d) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation; or
(e) the occurrence of any other event that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A of the Exchange Act in effect on the date hereof.
4. Termination Following Change in Control.
(a) If a Change in Control of the Corporation shall have occurred while the Executive is still an employee of the Corporation, or if Executive’s employment with the Corporation shall have been terminated prior to but in connection with a Change in Control (meaning that at the time of such termination the Company had entered into an agreement, the consummation of which would result in a Change in Control, or any person had publicly announced its intent to take or consider actions that would constitute a Change in Control, or the Board adopts a resolution to the effect that a potential Change in Control for purposes of this Agreement has occurred), then the Executive shall be entitled to the compensation provided in Section 5 upon the termination of the Executive’s employment by the Corporation or by the Executive, unless such termination is as a result of: (i) the Executive’s death; (ii) the Executive’s Permanent Disability (as defined in Section 4(b) below); (iii) the Executive’s termination by the Corporation for Cause (as defined in Section 4(c) below); or (iv) the Executive’s decision to terminate employment other than for Good Reason (as defined in Section 4(d) below).
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financial or economic harm to the Corporation or (ii) the Executive’s willful breach or willful and habitual neglect of his material duties, and such breach or neglect remains uncured for a period of ninety (90) days after written notice as described below. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause under either clause (i) or (ii) above unless and until there shall have been delivered to the Executive a Notice of Termination (as defined in Section 4(f)) and a certified copy of a resolution of the Board adopted by the affirmative vote of not less than a majority of the entire membership of the Board (other than the Executive if he is a member of the Board at such time) at a meeting called and held for that purpose and at which the Executive was given an opportunity to be heard, finding that the Executive was guilty of conduct set forth above based on reasonable evidence, specifying the particulars thereof in detail. For purposes of this Section 4(c), no act or failure to act on the Executive’s part shall be considered “willful” unless done or omitted to be done by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Corporation.
(i) the assignment to the Executive of any duties materially inconsistent with the Executive’s positions, duties, responsibilities and status with the Corporation immediately prior to a Change in Control, or a significant adverse alteration in the nature of the Executive’s reporting responsibilities, titles, or offices as in effect immediately prior to a Change in Control, or any removal of the Executive from, or any failure to reelect the Executive to, any such positions, except in connection with a termination of the employment of the Executive for Cause, Permanent Disability, or as a result of the Executive’s death or by the Executive other than for Good Reason;
(ii) a reduction by the Corporation in the Executive’s base salary in effect immediately prior to a Change in Control;
(iii) failure by the Corporation to continue in effect (and without substitution of a comparable plan) any benefit or compensation plan, stock purchase plan, stock option plan, life insurance plan, health and hospitalization plan or disability plan in which the Executive is participating at the time of a Change in Control, or the taking of any action by the Corporation which would adversely affect Executive’s participation in or materially reduce Executive’s benefits under any of such plans;
(iv) any material breach by the Corporation of any provision of this Agreement;
(v) following a Change in Control, the Executive is excluded (without substitution of a substantially equivalent plan) from participation in any benefit, incentive, stock option, health, dental, insurance or pension plan generally made available to persons at Executive’s level of responsibility in the Corporation;
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(vi) without the Executive’s express written consent, the requirement by the Corporation that the Executive’s principal place of employment be relocated more than twenty-five (25) miles from his place of employment prior to the Change in Control, or travel on the Corporation’s business to an extent materially greater than the Executive’s customary business travel obligations;
(vii) The Corporation’s failure to obtain a satisfactory agreement from any successor to assume and agree to perform the Corporation’s obligations under this Agreement, as contemplated in Section 7(a) hereof.
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If the Executive shall be terminated from employment with the Corporation as described in Section 4(a) such that Executive is entitled to the compensation set forth in this Section 5, then the Executive shall be entitled to receive the following severance benefits:
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taking into account any federal, state and local income taxes payable by the Executive as a result of the receipt of such gross-up compensation), shall be equal to the total payments he would have received had no such Excise Tax (or any interest or penalties thereon) been paid or incurred. The Corporation shall pay such additional compensation at the time when the Corporation withholds such Excise Tax from any payments to the Executive. The calculation of the tax gross-up payment shall be approved by the Corporation’s independent certified public accounting firm and the Executive’s designated financial adviser.
The Executive shall not be required to mitigate the amount of any payments provided for by this Agreement by seeking employment or otherwise, nor shall the amount of any cash payments or benefit provided under this Agreement be reduced by any compensation or benefit earned by the Executive after his Date of Termination (except as provided in Section 5(d) above).
(a) The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation, by agreement in form and substance reasonably satisfactory to the Executive, to expressly assume and agree to perform the obligations of the Corporation under this Agreement in the same manner and to the same extent that the Corporation would be required to perform this Agreement if no such succession had taken place. Failure of the Corporation to obtain such agreement prior to the effective date of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Corporation in the same amount and on the same terms as he would be entitled to receive hereunder if he terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, “Corporation” shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid, which successor executes and delivers the agreement provided for in this Section 7(a) or which otherwise becomes bound by the terms and provisions of this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die after his termination while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee, or other designee or, if there be no such designee, to the Executive’s estate.
Any notice required or permitted by this Agreement shall be in writing, sent by registered or certified mail, return receipt requested, or by recognized courier service
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(regularly providing proof of delivery), addressed to the Board and the Corporation at the Corporation’s then principal office, or to the Executive at the address set forth under the Executive’s signature below, as the case may be, or to such other address or addresses as any party hereto may from time to time specify in writing for the purpose in a notice given to the other parties in compliance with this Section 8. Notices shall be deemed given when received.
(a) This Agreement shall not be deemed to create a contract of employment between the Corporation and the Executive and shall create no right in the Executive to continue in the Corporation’s employment for any specific period of time, or to create any other rights in the Executive or obligations on the part of the Corporation, except as set forth herein. This Agreement shall not restrict the right of the Corporation to terminate the Executive, or restrict the right of the Executive to terminate his employment.
(b) This Agreement shall not be construed to exclude the Executive from participation in any other compensation or benefit programs in which he is specifically eligible to participate either prior to or following the execution of this Agreement, or any such programs that generally are available to other executive personnel of the Corporation, nor shall it affect the kind and amount of other compensation to which the Executive is entitled.
10. Administrator and Claims Procedure.
(a) The Administrator for purposes of this Agreement shall be the Corporation. The Corporation shall have the right to designate one or more Corporation employees as the Administrator at any time. The Corporation shall give the Executive written notice of any change in the Administrator, or in the address or telephone number of the same.
(b) The Executive, or other person claiming through the Executive, must file a written claim for benefits with the Administrator as a prerequisite to the payment of benefits under this Agreement. The Administrator shall make all determinations as to the right of any person to receive benefits under subsections (b) and (c) of this Section 10. Any denial by the Administrator of a claim for benefits by the Executive, his heirs or personal representative (“the claimant”) shall be stated in writing by the Administrator and delivered or mailed to the claimant within 10 days after receipt of the claim, unless special circumstances require an extension of time for processing the claim. If such an extension is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial 10-day period. In no event shall such extension exceed a period of 10 days from the end of the initial period. Any notice of denial shall set forth the specific reasons for the denial, specific reference to pertinent provisions of this Agreement upon which the denial is based, a description of any additional material or information necessary for the claimant to perfect his claim, with an explanation of why such material or information is necessary, and any explanation of claim review procedures, written to the best of the Administrator’s ability in a manner that may be understood without legal or actuarial counsel.
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(c) A claimant whose claim for benefits has been wholly or partially denied by the Administrator may request, within 10 days following the date of such denial, in a writing addressed to the Administrator, a review of such denial. The claimant shall be entitled to submit such issues or comments in writing or otherwise as he shall consider relevant to a determination of his claim, and he may include a request for a hearing in person before the Administrator. Prior to submitting his request, the claimant shall be entitled to review such documents as the Administrator shall agree are pertinent to his claim. The claimant may, at all stages of review, be represented by counsel, legal or otherwise, of his choice, provided that the fees and expenses of such counsel shall be borne by the claimant, unless the claimant is successful, in which case, such costs shall be borne by the Corporation. All requests for review shall be promptly resolved. The Administrator’s decision with respect to any such review shall be set forth in writing and shall be mailed to the claimant not later than 10 days following receipt by the Administrator of the claimant’s request unless special circumstances, such as the need to hold a hearing, require an extension of time for processing, in which case the Administrator’s decision shall be so mailed not later than 20 days after receipt of such request.
(d) A claimant who has followed the procedure in subsections (b) and (c) of this section, but who has not obtained full relief on his claim for benefits, may, within 60 days following his receipt of the Administrator’s written decision on review, apply in writing to the Administrator for expedited and binding arbitration of his claim before an arbitrator in Minnehaha County, South Dakota, in accordance with the commercial arbitration rules of the American Arbitration Association, as then in effect, or pursuant to such other form of alternative dispute resolution as the parties may agree (collectively, the “arbitration”). The Corporation shall advance filing fees and other costs required to initiate the arbitration, as well as up to $2,500 for Executive’s initial attorney fees (which fees and costs shall not be recoverable by the Corporation). The arbitrator’s sole authority shall be to interpret and apply the provisions of this Agreement; he shall not change, add to, or subtract from, any of its provisions. The arbitrator shall have the power to compel attendance of witnesses at the hearing. Any court having jurisdiction may enter a judgment based upon such arbitration. The arbitrator shall be appointed by mutual agreement of the Corporation and the claimant pursuant to the applicable commercial arbitration rules. The arbitrator shall be a professional person with a reputation in the community for expertise in employee benefit matters and who is unrelated to the claimant and any employees of the Corporation. All decisions of the arbitrator shall be final and binding on the claimant and the Corporation.
If any dispute arises between the parties with respect to the interpretation or performance of this Agreement, the prevailing party in any arbitration or proceeding shall be entitled to recover from the other party its attorneys’ fees, arbitration or court costs and other expenses incurred in connection with any such proceeding (subject to the second sentence of Section 10(d) above). Amounts, if any, paid to Executive under this Section 11 shall be in addition to all other amounts due to Executive pursuant to this Agreement.
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12. Non-Alienation of Benefits.
Except in so far as this provision may be contrary to applicable law, no sale, transfer, alienation, assignment, pledge, collateralization or attachment of any benefits under this Agreement shall be valid or recognized by the Corporation.
This Agreement is an unfunded compensation arrangement for a member of a select group of the Corporation’s management and any exemptions under the Employee Retirement Income Security Act of 1974, as amended, as applicable to such an arrangement shall be applicable to this Agreement.
The Executive may, by delivery of written notice to the Corporation within ten (10) business days following the Executive’s Date of Termination, elect to defer any payment to be made under this Agreement to a date not more than one (1) year after the Date of Termination.
If Executive receives compensation under this Agreement, or if Executive is terminated for Cause (as defined in Section 4(c)), Executive agrees that he will not, without the prior written consent of the Corporation, directly or indirectly, during the six (6) month period following the Date of Termination, engage in any business or employment or provide any consulting service which is in competition with the Corporation’s business in the lodging industry in the United States (provided, however, that the parties acknowledge and agree that all aspects of the cable television business shall not be deemed to be a business competitive with the Corporation’s business).
Executive acknowledges that he has consulted with or has had the opportunity to consult with independent counsel of his choice concerning this Agreement, that he has read and understands this Agreement and is fully aware of its legal effect .
This Agreement contains the entire agreement of the parties relating to the subject matter hereof and supersedes any prior written or oral agreements or understandings relating to the subject matter hereof. No modification or amendment of this Agreement shall be valid unless in writing and signed by or on behalf of the parties hereto. A waiver of the breach of any term or condition of this Agreement shall not be deemed to constitute a waiver of any subsequent breach of the same or any other term or condition. This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws, ordinances, rules and regulations. If any provisions of this Agreement, or the application thereof to any person or circumstance, shall, for any reason and to any extent, be held invalid or unenforceable, such invalidity and unenforceability shall not affect the remaining
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provisions hereof and the application of such provisions to other persons or circumstances, all of which shall be enforced to the greatest extent permitted by law. Subject to the provisions of Section 5(e), the compensation provided to the Executive pursuant to this Agreement shall be subject to any withholdings and deductions required by any applicable tax laws. Any amounts payable to the Executive hereunder after the death of the Executive shall be paid to the Executive’s estate or legal representative. The headings in this Agreement are inserted for convenience of reference only and shall not be a part of or control or affect the meaning of any provision hereof. For purposes hereof, the masculine gender shall be deemed to include the feminine gender, as appropriate. This Agreement may be executed in one or more counterparts and each counterpart shall be deemed an original but all counterparts together shall constitute one instrument.
This Agreement shall be governed and construed in accordance with the internal laws of the State of South Dakota. The parties agree that any suit or proceeding arising out of this Agreement shall be brought and maintained exclusively in the federal or state courts located in such state, and each of the parties hereby irrevocably submits to the exclusive jurisdiction and venue of such courts.
EXECUTIVE: | LODGENET ENTERTAINMENT CORPORATION: | |
/s/ |
By: /s/ Xxxxx X. Xxxxxxxx |
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Address: |
Title: President & CEO |
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