1
Exhibit 10.10
AGREEMENT
This Agreement, as amended and restated the _____ day of _____________,
1998 (the Agreement"), by and between Service Merchandise Company, Inc., a
Tennessee corporation (the "Company"), and _______________________ (the
"Executive").
RECITALS
WHEREAS, the Executive is currently employed by the Company;
WHEREAS, the Company and the Executive wish to set forth their
respective rights and obligations in the event the Executive's employment is
terminated and to provide for salary continuation on the terms and under the
circumstances set forth herein; and
WHEREAS, the Company and the Executive wish to amend and to restate
this Agreement as of the date set forth above;
NOW, THEREFORE, in consideration of the premises hereof and of the
mutual promises and agreements contained herein, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. Compensation on Termination of Employment (Except Within Two Years
Following a Change of Control).
This Section 1 shall apply to termination of the Executive's employment
prior to a Change of Control (as hereinafter defined in Section 2) and to
termination of the Executive's Employment more than two (2) years following a
Change of Control. This Section 1 shall not apply to termination of Executive's
employment during the Change of Control Period (as hereinafter defined in
Section 2):
(a) Disability. If the Executive's employment with the Company is
terminated by the Executive or the Company due to the Executive's
inability to perform Executive's duties as a result of physical or
mental incapacity ("Disability"), the Executive shall be paid such
amounts, if any, as the Executive is entitled to receive under the
Company's disability insurance policies then in effect for Company
officers, but shall be entitled to no further compensation or benefits
(unless previously accrued under the Company's benefit plans).
(b) Other Termination Not Giving Rise to Salary Continuation. If the
Executive's employment shall be terminated for Cause (as hereinafter
defined) or if the Executive dies or if the Executive terminates
Executive's employment for any reason, the Company shall pay the
Executive any installments of Executive's base salary as then in effect
that would
1
2
otherwise be due through the date on which Executive's employment is
terminated. The Company shall then have no further obligations to the
Executive under this Agreement except that in the event of termination
by death, the Executive's estate or beneficiaries, as the case may be,
shall be paid such amounts as may be payable to the Executive under the
Company's insurance policies and/or other benefit plans. For the
purposes of this Agreement, the Company shall have "Cause" to terminate
the Executive's employment upon (i) the willful engaging by the
Executive in misconduct materially injurious to the Company, (ii) acts
of dishonesty or fraud by the Executive, or (iii) the willful violation
by the Executive of the provisions of Section 4 or Section 5 hereof.
(c) Termination Giving Rise to Salary Continuation. If the Company
shall terminate the Executive's employment with the Company for any
reason other than due to the Executive's death or Disability or for
Cause, then, subject to the compliance by the Executive with the
provisions of Sections 4 and 5 hereof, the Company shall pay, as salary
continuation, to the Executive an amount equal to two (2) times the
Executive's maximum annual salary paid during the prior five (5) year
period (inclusive of bonuses paid to Executive during the 12-month
period preceding the date of termination, but excluding unearned
bonuses negotiated by Executive at the time of the Executive's
employment with the Company), payable, at Company's option, (A) in a
lump sum or (B) in twenty-four (24) equal monthly installments, but no
other compensation or benefits (unless accrued under the Company's
benefit plans prior to the date of termination of employment or as
provided in Section 1(d) hereof) shall be paid to the Executive.
(d) Healthcare Coverage. If the Executive's employment with the
Company is terminated by the Company for any reason other than due to
the Executive's death or Disability or for Cause, the Company will
reimburse the Executive for the premium paid by the Executive for
continued coverage for the Executive (and any dependents of the
Executive covered by the Company's healthcare plans at the time the
Executive's employment was terminated) under the Company's healthcare
plan pursuant to "COBRA" (or any other mandatory healthcare
continuation law then in effect), such coverage then being
substantially similar to that provided by the Company to its senior
executives and their eligible dependents. The Executive will be
entitled to reimbursement for such coverage for the period commencing
with the date of termination of employment and ending on the earlier of
(i) the second anniversary of termination of employment, or (ii) the
date the Executive becomes eligible to receive any healthcare coverage
from another employer of the Executive or Executive's spouse, or any
governmental entity, that does not contain any exclusion or limitation
with respect to any pre-existing condition of the Executive or
Executive's covered dependents. If the Executive (or Executive's
dependents covered at the time of termination of employment) elects not
to continue coverage under COBRA (or any other mandatory healthcare
continuation law then in effect) or is not eligible to continue
coverage under such healthcare continuation law, and is otherwise
eligible under this Section l(d), the Company will reimburse the
Executive for the cost of purchasing substantially similar coverage or
a supplement required to achieve substantially similar coverage under
another arrangement
2
3
approved by the Company for the same period; however, such
reimbursement shall be limited to the then current premium charged to
others by the Company for substantially similar coverage under COBRA
(or other mandatory healthcare continuation law then in effect). Any
amount payable to the Executive shall be subject to withholding of
applicable taxes as provided in Section 9 hereof. In the event of
Executive's death following termination giving rise to the benefit
described in this Section l(d), but before the expiration of such
benefits, Executive's dependents shall be entitled to such benefits.
(e) Sole Remedy. The Executive hereby agrees that amounts payable
under this Section 1 shall be Executive's sole and exclusive remedy
against the Company on account of termination of employment prior to a
Change of Control and on account of termination of employment more than
two (2) years following a Change of Control.
2. Compensation on Termination of Employment Within Two Years Following
A Change of Control.
This Section 2 shall apply to termination of Executive's employment
during the "Change of Control Period" (as defined in this Section 2). This
Section 2 shall not apply to termination of Executive's employment prior to a
Change of Control or more than two (2) years following a Change of Control:
(a) Definition of Certain Terms.
(i) "Good Reason" shall mean the occurrence or continuation,
without consent of Executive, after a Change of Control, of any of
the following events within the Change of Control Period:
(A) the assignment to Executive of any duties inconsistent
with the customary powers and duties that Executive held
immediately prior to the Change of Control, or an adverse change
in the status, position or conditions of Executive's employment
or the nature of Executive's responsibilities in effect
immediately prior to such Change of Control, or any removal of
Executive from, or any failure to re-elect Executive to, any of
such positions;
(B) a reduction by the Company in Executive's annual base
salary as in effect immediately prior to such Change of Control;
(C) the relocation of Executive's principal office to a
location outside a 35 mile radius from Executive's principal
office immediately prior to such Change of Control, except for
required travel on the Company's business to an extent
substantially consistent
3
4
with Executive's business travel obligations immediately prior
to such Change of Control;
(D) the failure by the Company to continue in effect any
benefit or compensation plan in which Executive participates
immediately prior to the Change of Control which is material to
Executive's total compensation, including but not limited to any
stock or stock option, employee stock ownership, bonus,
insurance, disability and vacation plans which the Company
currently has or any substitute or additional plans adopted
prior to the Change of Control, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan or plans)
has been made with respect to such plan, or the failure by the
Company to continue Executive's participation therein (or in
such substitute or alternative plan) on a basis not materially
less favorable, both in terms of the amount of benefits provided
and the level of Executive's participation relative to other
participants, as in existence immediately prior to such Change
of Control; or
(E) the failure of the Company to obtain an agreement from
any successor to assume and agree to perform this Agreement as
contemplated herein.
(ii) 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 and Exchange Act of 1934, other
than Company or a wholly-owned subsidiary thereof or any employee
benefit plan of Company or any of its it subsidiaries, becomes the
beneficial owner of the Company securities having 20% or more of the
combined voting power of the then outstanding securities of the
Company that may be cast for the election of directors of the
Company (other than as a result of an in issuance of securities
initiated by the Company 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 the Company or any successor
corporation or entity entitled to vote generally in the election of
the directors of the Company or such other corporation or entity
after such transaction are held in the aggregate by the holders of
the Company's securities entitled to vote generally in the election
of directors of the Company immediately prior to such transaction;
or (iii) during any period of two consecutive years, individuals who
at the beginning of any such period constitute the Board of
Directors of the Company cease for any reason to constitute at least
a majority thereof, unless the election, or the nomination for
election by the Company's shareholders, of each director of the
Company first elected during such
4
5
period was approved by a vote of at least two-thirds of the
directors of the Company then still in office who were directors of
the Company at the beginning of any such period.
(iii) "Change of Control Period" shall mean the two (2) year
period following a Change of Control.
(iv) "Change of Control Severance Benefits" shall mean all of
the following payments:
(A) any installments of Executive's base salary through the
date of termination of employment at the rate in effect at the
time the Notice of Termination is given,
(B) the Special Termination Payment; and
(C) the Medical Benefits.
(v) "Change of Control Date" shall mean the date on which a
Change of Control occurs.
(vi) "Medical Benefits" shall mean the reimbursement for
continued medical coverage for Executive and Executive's dependents
described in Section 1(d) hereof.
(vii) "Notice of Termination" shall refer to written notice
described in Section 2(d) indicating the specific termination
provision of this Agreement relied upon, setting forth in reasonable
detail the facts and circumstances claimed to provide the basis for
termination of Executive's employment under the provision so
indicated and stating the date of termination.
(viii) "Special Termination Payment" shall mean an amount
payable in a single lump sum equal to the product of (x) the sum of
the Executive's maximum annual salary paid during the five (5) year
period preceding the date of termination (inclusive of bonuses paid
to Executive during the 12-month period preceding the date of
termination, but excluding unearned bonuses negotiated by Executive
at the time of Executive's employment with the Company), multiplied
by (y) the number three (3).
(b) Termination Not Giving Rive To Special Termination Payments or
Medical Benefits. If Executive's employment is terminated during the Change of
Control Period for Cause (as defined in Section 1(b), or on account of
Disability (as defined in Section 1(a)), or if Executive dies during the Change
of Control Period, or if Executive terminates Executive's employment during the
Change
5
6
of Control Period without Good Reason, the Company shall pay to Executive any
installments of Executive's base salary as then in effect that would otherwise
be due through the date on which Executive's employment is terminated. The
Company shall then have no further obligations to the Executive under this
Agreement (unless accrued under the Company's benefit plans) except that in the
event of termination by death, the Executive's estate or beneficiaries, as the
case may be, shall be paid such amounts as may be payable to the Executive under
the Company's insurance policies and/or other benefit plans, and except that in
the event of termination by Disability, the Executive shall be paid such amounts
as Executive is entitled to receive under the Company's disability insurance
policies and plans then in effect covering the Executive.
(c) Termination Giving Rise to Change of Control Severance Benefits. If
the Executive's employment is terminated by the Company during the Change of
Control Period for any reason other than Cause, death of the Executive or
Disability, or if the Executive terminates his employment during the Change of
Control Period for Good Reason, then Executive shall be entitled to receive the
Change of Control Severance Benefits, all of which (except the Medical Benefits)
shall be paid to Executive within ten (10) days following the date of
termination.
(d) Notice of Termination. Any termination of Executive's employment by
the Company or by Executive pursuant to this Section 2 shall be communicated by
written notice of termination (the "Notice of Termination") to the other party
hereto, which shall indicate the specific termination provision in the Agreement
relied upon, shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment and shall
state the date of termination.
(e) Sole Remedy. The Executive hereby agrees that the Change of Control
Severance Benefits shall be Executive's sole and exclusive remedy against the
Company or any successor on account of termination of employment during the
Change of Control Period.
3. Certain Reduction in Payments by the Company.
(a) Definition of Certain Terms.
(i) A "Payment" shall mean any payment or distribution in the
nature of compensation to or for the benefit of Executive, whether paid or
payable pursuant to this Agreement or otherwise.
(ii) An "Agreement Payment" shall mean a Payment paid or payable on
account of termination of employment during the Change in Control Period
pursuant to Section 2 of this Agreement (disregarding the reduction
provided by Section 3(b)).
(iii) "Net After Tax Receipt" shall mean the Present Value (as
defined below) of all Payments that are contingent on a Change of Control
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), net of all taxes imposed on
6
7
Executive with respect thereto under Sections 1 and 4999 of the Code,
determined by applying the highest marginal rate under Section 1 of the
Code which applied to Executive's taxable income for the immediately
preceding taxable year.
(iv) "Present Value" shall mean such value determined in
accordance with Section 280G(d)(4) of the Code.
(v) "Reduced Amount" shall mean the smallest aggregate amount
of Agreement Payments which (a) is less than the sum of all Agreement
Payments and (b) results in aggregate Net After Tax Receipts which are
equal to or greater than the Net After Tax Receipts which would result
if the aggregate Agreement Payments were any other amount less than the
sum of all Agreement Payments.
(b) Limitation on Agreement Payments. It is intended that all
Agreement Payments hereunder, together with all other Payments to
Executive contingent upon or in connection with a Change of Control,
are reasonable compensation for Executive's service to Company and its
subsidiaries. Notwithstanding the foregoing, should Company determine,
based upon the opinion of the independent accounting advisors of
Company immediately prior to the Change of Control ("Accounting Firm"),
that the Agreement Payments and other Payments, together with any other
amounts received by Employee that must be included in such
determination, would result in the payment of an "excess parachute
payment" as defined in Section 280G of the Code, then Company will
reduce the Agreement Payments to a Reduced Amount which cannot be less
than the maximum amount that would permit a determination that Employee
has not received an excess parachute payment under the foregoing Code
provision. Such reduction will be made if, but only if, the amount
payable to Employee hereunder without regard for the foregoing
reduction would result in Net After Tax Receipts which are less than
the Net After Tax Receipts that would result after taking into account
any such reduction.
(c) Opinion of Accounting Firm. Company may reduce the Agreement
Payments pursuant to this Section 3 only if within thirty (30) days of
Executive's termination it provides Executive with an opinion of the
Accounting Firm that Executive will be considered to have received
"excess parachute payments" as defined in Section 280G of the Code if
Executive were to receive the full amounts owing pursuant to the terms
of this Agreement and that the Reduced Amount proposed to be paid by
the Company will result in Net After Tax Receipts that are equal to or
greater than the Net After Tax Receipts which would result from
reduction in the Agreement Payments by any other amount.
4. Unauthorized Disclosure.
(a) During the period in which the Executive is employed by the
Company, the Executive shall not, without the prior written consent of
the Board of Directors, or a person authorized thereby, disclose to
any person, other than a person to whom disclosure is
7
8
necessary or appropriate in connection with the performance by the
Executive of Executive's duties as an officer of the Company, or its
subsidiaries or its affiliates, any confidential information obtained
by Executive while in the employ of the Company with respect to any of
the Company's products, improvements, formulae, designs or styles,
processes, customers, methods of marketing or distribution, systems,
procedures, plans, proposals, policies or methods of manufacture, the
disclosure of which Executive knows, or should have reason to know,
will be damaging to the Company or its subsidiaries or its affiliates,
nor shall Executive make any false statements regarding the Company or
its subsidiaries or its affiliates or take any other action which
Executive knows, or should have reason to know, will be damaging to the
Company or its subsidiaries or its affiliates; provided, however, that
confidential information shall not include any information known
generally to the public (other than as a result of unauthorized
disclosures by the Executive) or any information of a type not
otherwise considered confidential by persons engaged in the same
business or a business similar to that conducted by the Company.
Following the termination of the Executive's employment with the
Company for any reason, the Executive shall not disclose any
confidential information of the type described above or take any action
of type described above except as may be required in the opinion of the
Executive's counsel in connection with any judicial or administrative
proceeding or inquiry. The provisions of this Section 4 shall be
binding upon the Executive's heirs, successors and legal
representatives.
(b) Company agrees to refrain from making derogatory or defamatory
statements about or concerning Executive.
5. Non-Competition. During the period in which the Executive is
employed by the Company and for a period of one (1) year following any
termination giving rise to salary continuation payments pursuant to Section 1(c)
or to Change of Control Severance Benefits pursuant to Section 2(c), the
Executive will not (a) directly or indirectly own, manage, operate, control or
participate in the ownership, management, operation or control of, or be
connected as an officer, employee, partner, director or otherwise with, or have
any financial interest in, or aid or assist anyone else in the conduct of, any
business which is in substantial competition with any business conducted by the
Company or by any group, division or subsidiary of the Company in any area where
such business is being conducted at the time of such termination (provided that
ownership of five percent (5%) or less of the voting stock of any publicly held
corporation shall not constitute a violation hereof) or (b) directly or
indirectly employ, solicit for employment, or advise or recommend to any other
persons that they employ or solicit for employment, any employee of the Company
or any of its subsidiaries or affiliates.
6. Specific Performance. The Executive acknowledges and agrees that, in
the event of a breach of Section 4 or Section 5 hereof by the Executive, the
Company would be irreparably harmed and that monetary damages would be an
inadequate remedy in favor of the Company. Accordingly, the Executive and the
Company agree that in the event of such a breach, the Company shall be entitled
to injunctive relief against the Executive.
8
9
7. Binding Agreement. This Agreement and all obligations of the Company
hereunder shall be binding upon the successors and assigns of the Company. 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.
8. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
[Name]
[Address]
If to the Company:
Service Merchandise Company, Inc.
7100 Service Xxxxxxxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxx 00000
Attn: General Counsel
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
9. Withholding of Taxes. The Company 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 regulation or ruling.
10. 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.
11. 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 Executive and the Company. 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.
However, notwithstanding anything in this Agreement to the contrary, if in the
opinion of the Company's accountants, any provision of this Agreement would
preclude the use of "pooling of interest" accounting treatment for a Change of
Control transaction
9
10
that (i) would otherwise qualify for such accounting treatment and (ii) is
contingent upon qualifying for such accounting treatment, then to the extent any
provision of this Agreement disqualifies the transaction as a "pooling of
interest" transaction (including, if applicable, the entire Agreement), such
provision(s) shall be null and void as of the date hereof.
12. Binding Effect. 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 for herein. Without limiting the generality of the foregoing,
Executive'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 paragraph, the Company shall have no liability to pay any amount so
attempted to be assigned, transferred or delegated.
13. Entire Contract. This Agreement constitutes the entire agreement
and supersedes all other prior agreements, employment contracts and
understandings, both written and oral, express or implied with respect to the
subject matter of this Agreement, including, without limitation, any employment
agreement or any severance or indemnification, by and between the Company and
the Executive, all of such agreements being rendered null and void by this
Agreement.
14. Term. This Agreement shall be terminable only upon the occurrence
of any one of the following events: (a) the termination of Executive with
payment in full of all the payments/benefits described in Sections 1 or 2 hereof
as appropriate; or (b) the Company (or its successor in interest) and Executive
so agree in writing; provided, however, that the provisions of Sections 4 and 5
hereof shall survive without limitation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SERVICE MERCHANDISE COMPANY, INC.
By:
-------------------------------------
Accepted and Agreed:
----------------------------------------
10
