EXHIBIT 10.21
EMPLOYMENT SECURITY AGREEMENT
This Employment Security Agreement is entered into this 21st day of
December 2001, between Methode Electronics, Inc., a Delaware corporation (the
"Company"), and Xxxx X. Xxxxxx (the "Executive").
WITNESSETH:
WHEREAS, Executive is employed by the Company or one of its wholly-owned
subsidiaries (referred to collectively as the "Company") and the Company desires
to provide certain security to Executive in connection with any potential change
in control of the Company; and
NOW, THEREFORE, it is hereby agreed by and between the parties, for good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, as follows:
1. PAYMENTS AND BENEFITS UPON A CHANGE IN CONTROL. If within three (3)
years after a Change in Control (as defined below) or during the Period Pending
a Change in Control (as defined below): (i) the Company shall terminate
Executive's employment with the Company without Good Cause (as defined below),
or (ii) Executive shall voluntarily terminate such employment with Good Reason
(as defined below), the Company shall, within 30 days of Executive's Employment
Termination (as defined below), make the payments and provide the benefits
described below.
(a) SALARY PAYMENT. The Company shall make a lump sum cash payment to
Executive equal to two times the Executive's Annual Salary (as defined
below).
(b) BONUSES. The Company shall make a lump sum cash payment to
Executive equal to the sum of the following amounts: (i) a bonus equal to
100% of Executive's Annual Salary (as defined below), plus (ii) a pro rata
portion of a bonus equal to 100% of Executive's Annual Salary for the
fiscal year in which Executive's Employment Termination occurs equal to any
quarterly period(s) for which bonus was earned but not yet paid; plus (iii)
all of Executive's unpaid, but accrued matching bonus pursuant to the
Longevity Contingent Bonus Plan.
(c) WELFARE BENEFIT PLANS. With respect to each Welfare Benefit Plan
(as defined below), for the period beginning on Executive's Employment
Termination and ending on the earlier of: (i) twenty four (24) months
following Executive's Employment Termination, or (ii) the date Executive
becomes covered by a welfare benefit plan or program maintained by an
entity other than the Company which provides coverage or benefits
substantially equivalent to such Welfare Benefit Plan, Executive shall
continue to participate in such Welfare Benefit Plan on the same basis and
at the same cost to Executive as was the case immediately prior to the
Change in Control (or, if more favorable to Executive, as was the case at
any time hereafter), or, if any benefit or coverage cannot be provided
under a Welfare Benefit Plan because of applicable law or contractual
provisions, Executive shall be provided with substantially similar benefits
and
coverage for such period. Immediately following the expiration of the
continuation period required by the preceding sentence, Executive shall be
entitled to continued group health benefit plan coverage (so-called "COBRA
coverage") in accordance with Section 498OB of the Internal Revenue Code of
1986, as amended (the "Code"), it being intended that COBRA coverage shall
be consecutive to the benefit and coverage provided for in the preceding
sentence.
(d) EMPLOYMENT. This Agreement shall not be construed as creating an
express or implied contract of employment and, except as otherwise agreed
in writing between the Executive and the Company, the Executive shall not
have any right to be retained in the employ of the Company.
2. DEFINITIONS. For purposes of this Agreement:
(a) "Annual Salary" shall mean Executive's salary at the greater of
(i) Executive's annualized base salary (including Executive's monthly car
allowance) in effect on the date of the Change in Control, or (ii)
Executive's annualized base salary in effect on Executive's Employment
Termination.
(b) "Change in Control" shall be deemed to have occurred if:
(i) Any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act
except that a person shall be deemed to be the "beneficial
owner" of all shares that any such person has the right to
acquire pursuant to any agreement or arrangement or upon
exercise of conversion rights, warrants, options or
otherwise, without regard to the sixty day period referred
to in such Rule), directly or indirectly, of securities
representing 25 percent or more of either the Company's
then outstanding Class A Common Stock or Class B Common
Stock; provided, however, that for this purpose, beneficial
ownership shall not include shares acquired: (i) directly
from the Company) (ii) in any merger or other business
combination of the Company with one or more other
corporations as a result of which the holders of the
outstanding voting stock of the Company immediately prior
to such merger or other business combination own 60 percent
or more of the voting stock of the surviving or resulting
corporation; or (iii) by any employee benefit plan (or
related trust) sponsored or maintained by the Company;
(ii) At any time during any period of two consecutive 12-month
periods (not including any period prior to October 1, 2001)
individuals who at the beginning of such period constituted
the Board (the 'Incumbent Board') cease for any reason to
constitute at
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least a majority of the Board; provided, however, that any
individual becoming a director subsequent to such date
whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office occurs
as a result of either an actual or threatened election
contest (as such terms are used in Rule 14a-11 or
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by
or on behalf of a person other than the Board; or
(iii) There is a merger or other business combination of the
Company with one or more other corporations as a result of
which the holders of the outstanding voting stock of the
Company immediately prior to such merger or other business
combination own less than 60 percent of the voting stock of
the surviving or resulting corporation.
(c) "Employment Termination" shall mean the effective date of: (i)
Executive's voluntary termination of employment with the Company with Good
Reason, or (ii) the termination of Executive's employment by the Company
without Good Cause.
(d) "Good Cause" shall mean: (i) Executive's conviction of a felony;
(ii) Executive's commission of any act or acts of personal dishonesty
intended to result in substantial personal enrichment to Executive to the
detriment of the Company; or (iii) repeated violations of Executive's
responsibilities which are demonstrably willful and deliberate, provided
that such violations have continued more than ten days after the Board of
Directors of the Company has given written notice of such violations and of
its intention to terminate Executive's employment because of such
violations.
(e) "Good Reason" shall exist if, without Executive's express written
consent:
(i) The Company shall materially reduce the nature, scope or
level of Executive's responsibilities from the nature,
scope or level of such responsibilities prior to the Change
in Control (or prior to the Period Pending a Change in
Control), or shall fail to provide Executive with adequate
office facilities and support services to perform such
responsibilities.
(ii) The Company shall require Executive to move Executive's
principal business office more than 25 miles from
Executive's principal business office at the time of this
Agreement, or assign to Executive duties that would
reasonably require such move.
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(iii) The Company shall require Executive, or assign duties to
Executive which would reasonably require Executive, to
increase, by more than twenty-four, the number of normal
working days (determined at the time of this Agreement)
that Executive spends away from Executive's principal
business office during any consecutive twelve-month period.
(iv) The Company shall reduce Executive's Annual Salary below
that is in effect as of the date of this Agreement (or as
of the Change in Control, if greater).
(v) The Company shall fail to continue in effect any cash or
stock-based incentive or bonus plan, retirement plan,
welfare benefit plan, or other benefit plan, program or
arrangement, unless the aggregate value (as computed by an
independent employee benefits consultant selected by the
Company) of all such incentive, bonus, retirement and
benefit plans, programs and arrangements provided to
Executive is not materially less than their aggregate value
as of the date of this Agreement (or as of the Change in
Control, if greater).
(vi) If the Board of Directors fails to act in good faith with
respect to the Company's obligations hereunder, or the
Company breaches its obligations hereunder.
(f) "Period Pending a Change in Control" shall mean the period
between the time an agreement is entered into by the Company with respect
to a merger or other business combination of the Company, which would
constitute a Change in Control, and the effective time of such merger or
other business combination of the Company.
(g) "Welfare Benefit Plan" shall mean each welfare benefit plan
maintained or contributed to by the Company, including, but not limited to
a plan that provides health (including medical and dental), life, accident
or disability benefits or insurance, or similar coverage, in which
Executive was participating at the time of the Change in Control.
3. SALARY TO DATE OF EMPLOYMENT TERMINATION. The Company shall pay to
Executive any unpaid salary or other compensation of any kind earned with
respect to any period prior to Executive's Employment Termination, including,
but not limited to a lump sum cash payment for accumulated but unused vacation
earned through such Employment Termination.
4. OTHER INCENTIVE PLANS. Nothing in this Agreement shall impair or
impact the vesting of any restricted stock, stock options, cash incentives or
other form of compensation or benefits provided under any other plan, program or
arrangement.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
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(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that as a result, directly or indirectly,
of any payment or distribution by the Company to or for the benefit of the
Executive, whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise (a "Payment"), the Executive
would be subject to the excise tax imposed by Section 4999 of the Code or
any interest or penalties are incurred by the Executive with respect to
such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax),
then the Executive shall be entitled to promptly receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes
(and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, but excluding any income taxes on
the Payment, the Executive is in the same after-tax position as if no
Excise Tax had been imposed upon the Executive.
(b) Subject to the provisions of Section 5(c), all determinations
required to be made under this Section 5, including whether or when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determinations, shall be
made by the accounting firm of Ernst & Young LLP (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company
and the Executive within 15 business days of receipt of notice from the
Executive that there has been a Payment or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving
as accountant or auditor for the individual, entity or group effecting the
Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder
(which accounting firm shall then be referred to as the Accounting Firm
hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 5, shall be paid to the Executive within five days of the receipt
of the Accounting Firm's determination. If the Accounting Firm determines
that no Excise Tax is payable by the Executive, it shall furnish the
Executive with a written opinion that failure to report the Excise Tax on
the Executive's applicable federal income tax return would not result in
the imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it
is possible that Gross-Up Payments which will not have been made by the
Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 5(c) and the Executive thereafter
is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
the Executive.
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(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than ten business days after the Executive
knows of such claim and shall apprise the company of the nature of such
claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which it gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting
legal representation with respect to such claim by an
attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order to
effectively contest such claim, and,
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 5(c), the Company
shall control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and xxx for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to
pay such claim and xxx for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes for
the taxable year of the Executive with respect to which such contested
amount is claimed
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to be due is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive shall
be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 5(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 5(c) promptly
pay to the Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 5(c), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination, then
such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount
of Gross-Up Payment required to be paid.
6. MITIGATION AND SET-OFF. Executive shall not be required to mitigate
Executive's damages by seeking other employment or otherwise. The Company's
obligations under this Agreement shall not be reduced in any way by reason of
any compensation or benefits received (or foregone) by Executive from sources
other than the Company after Executive's Employment Termination, or any amounts
that might have been received by Executive in other employment had Executive
sought other employment, except for the termination of benefits under a Welfare
Benefit Plan pursuant to Section 1(c)(ii) hereof. Except as expressly provided
in section 1(c) of this Agreement, Executive's entitlement to benefits and
coverage under this Agreement shall continue after, and shall not be affected
by, Executive's obtaining other employment after his Employment Termination,
provided that any such benefit or coverage shall not be furnished if Executive
expressly waives the specific benefit or coverage by giving written notice of
waiver to the Company.
7. LITIGATION EXPENSES. The Company shall pay to Executive all
out-of-pocket expenses, including attorneys' fees, incurred by Executive in the
event Executive successfully enforces any provision of this Agreement in any
action, arbitration or lawsuit.
8. ASSIGNMENT, SUCCESSORS. This Agreement may not be assigned by the
Company without the written consent of Executive but the obligations of the
Company under this Agreement shall be the binding legal obligations of any
successor to the Company by merger or other business combination, and in the
event of any business combination or transaction that results in the transfer of
substantially all of the assets or business of the Company, the Company will
cause the transferee to assume the obligations of the Company under this
Agreement. This Agreement may not be assigned by Executive during Executive's
life, and upon Executive's death will inure to the benefit of Executive's heirs,
legatees and legal representatives of Executive's estate.
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9. INTERPRETATION. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Illinois, without regard to the conflict of law principles thereof. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement.
10. WITHHOLDING. The Company may withhold from any payment that it is
required to make under this Agreement amounts sufficient to satisfy applicable
withholding requirements under any federal, state or local law.
11. AMENDMENT OR TERMINATION. This Agreement may be amended at any time by
written agreement between the Company and Executive. The Company may terminate
this Agreement by written notice given to Executive at least two years prior to
the effective date of such termination, provided that, if a Change in Control
occurs prior to the effective date of such termination, the termination of this
Agreement shall not be effective and Executive shall be entitled to the full
benefits of this Agreement. Any such amendment or termination shall be made
pursuant to a resolution of the Company's Board of Directors.
12. FINANCING. Cash and benefit payments under this Agreement shall
constitute general obligations of the Company. Executive shall have only an
unsecured right to payment thereof out of the general assets of the Company.
Notwithstanding the foregoing, the Company may, by agreement with one or more
trustees to be selected by the Company, create a trust on such terms, as the
Company shall determine, to make payments to Executive in accordance with the
terms of this Agreement.
13. SEVERABILITY. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect.
14. ARBITRATION. The parties initially shall attempt to resolve by direct
negotiation any dispute, controversy or claim arising out of or relating to this
Agreement or its breach or interpretation (each, a "Dispute"). For purposes of
this negotiation, the Company shall be represented by one or more of its Class A
Directors appointed by the Board of Directors so long as the Company has more
than one class of Common Stock. If the parties are unable to resolve the Dispute
by direct negotiation within 30 days after written notice by one party to the
other of the Dispute, either party may initiate a confidential, binding
arbitration to resolve the Dispute. All such Disputes shall be arbitrated in
Chicago, Illinois pursuant to the arbitration rules of J.A.M.S. Endispute before
a single arbitrator. (If, at the time of any Dispute, J.A.M.S. Endispute has
ceased to exist, all such Disputes shall be arbitrated in Chicago, Illinois
pursuant to the arbitration rules of the American Arbitration Association before
a single arbitrator.) Judgment upon any award rendered by the arbitrator may be
entered in any court having jurisdiction, and both parties consent and submit to
the jurisdiction of such court for purposes of such action. Nothing in this
Agreement shall preclude either party from seeking equitable relief from a court
of competent jurisdiction. The statute of limitations, estoppel, waiver, laches
and similar doctrines, which would otherwise be applicable in any action brought
by a party shall be applicable in any arbitration proceeding, and the
commencement of an arbitration proceeding
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shall be deemed the commencement of an action for those purposes. The Federal
Arbitration Act shall apply to the construction, interpretation and enforcement
of this arbitration provision.
15. OTHER AGREEMENTS. This Agreement supersedes and cancels all prior
written or oral agreements and understandings relating to the terms of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first written above.
METHODE ELECTRONICS, INC.
By: /s/ Xxxxxxx X. Xxxxxx
---------------------------
Its: Chairman of the Board
---------------------------
EMPLOYEE:
/s/ Xxxx X. Xxxxxx
--------------------------------
Xxxx X. Xxxxxx
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