FORM OF AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT
Exhibit (e)(11)
FORM OF AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT
This Amended and Restated Change in Control Agreement (this “Agreement”) is dated as of
(the “Effective Date”) and is entered into by and between
(“Executive”) and Craftmade International, Inc., a Delaware corporation (the “Company,” which term
includes, following a Change in Control, any successor in interest to the Company). This
Agreement amends, restates, and supersedes in its entirety that certain Change in Control Agreement
by and between Executive and the Company dated as of , 2010. As an inducement to render
services and superior performance to the Company, Executive and the Company agree as follows:
1. Term of Agreement. This Agreement shall become effective and binding immediately
upon the Effective Date, and shall remain in effect until the second (2nd) anniversary
of the Effective Date or until later termination if this Agreement is renewed under this
Section 1. This Agreement shall be automatically renewed each for an
additional two (2) year term, unless either the Company or Executive provides written notice of
election not to renew at least three (3) months before the applicable renewal date.
2. Benefits Payable Upon Change in Control.
(a) On the date immediately preceding the Closing Date, the Board of Directors of the
Company (the “Board”) shall approve the payment and amounts of the benefits set forth in
Sections 2(b), 2(c), and 2(d) below, as applicable, and subject to the requirements
of Section 2(e); provided, that Executive has not been terminated by the Company for
Cause at any time between the Effective Date and the date immediately preceding the Closing
Date.
(b) On the Closing Date, the Company shall pay to Executive a lump sum amount equal to
( ) months of Executive’s annual base salary, at the rate in effect immediately
prior to the Change in Control.
(c) In the event Executive’s employment is terminated, other than for Cause, on the
Closing Date in connection with the Change in Control, the Company shall pay fifty percent
(50%) of the premiums for COBRA continuation coverage for Executive and his eligible
dependents, provided that Executive (i) is a current participant in the Company’s group
health plan at the time of such termination of employment and (ii) properly and timely
elects continuation coverage for Executive and Executive’s eligible dependents, who were
covered under the Company’s group health plan immediately prior to Executive’s termination
of employment. The Company will pay the premiums on Executive’s behalf directly to the
insurer on a monthly basis for a period of eighteen (18) months, or if earlier, until the
date any of the following events occurs: (i) Executive obtains employment with another
entity under which Executive is offered and becomes eligible to receive health insurance
coverage as an employee; (ii) Executive breaches the terms of the Release; (iii) coverage
terminates under the terms of the Company’s group health plan for any reason; or (iv) the
Company’s group health plan in effect as of the Closing Date terminates. Thereafter, if
Executive is eligible and wishes to continue continuation coverage, and the maximum
applicable COBRA coverage period has not
expired, Executive may continue coverage, but Executive shall be solely responsible for
payment of any required COBRA premium. Any benefits provided under this Section
2(c) to Executive or Executive’s dependents shall be modified to the extent benefits
under the group health plan are modified for active employees of the Company, and the
Company reserves the right to amend, terminate or modify the group health plan at any time.
To the extent such benefits are otherwise taxable to Executive, such benefits shall for
purposes of Section 409A of the Code, and the regulations and other guidance issued
thereunder, be provided as separate monthly in-kind payments of those benefits, and to the
extent those benefits are subject to and not otherwise excepted from Section 409A of the
Code, the provision of the in-kind benefits during one calendar year shall not affect the
in-kind benefits to be provided in any other calendar year.
(d) In the event that Executive receives any payments from the Company (including
pursuant to any stock option or equity awards) or its affiliates, under this Agreement or
otherwise, that are subject to tax under Section 4999 of the Code, the Company shall pay to
Executive the Gross-Up Payment described in Schedule A hereto.
(e) Notwithstanding anything herein to the contrary, the payments and benefits provided
under this Section 2 are conditioned on Executive’s execution of a release of claims
in the form provided by the Company (the “Release”), and in accordance with the terms of the
Release.
3. Definitions.
(a) “Cause” means (i) the failure by Executive to substantially perform Executive’s
duties with the Company that has not been cured within thirty (30) days after a written
demand for substantial performance is delivered to Executive by the Company; (ii) the
willful engaging by Executive in conduct, which is deemed by the Company to be materially
injurious to the Company, monetarily or otherwise; (iii) the appropriation (or attempted
appropriation) of a business opportunity of the Company, including attempting to secure or
securing any personal profit in connection with any transaction entered into on behalf of
any member of the Company; (iv) the misappropriation (or attempted misappropriation) of
funds or property belonging to the Company; or (v) Executive’s conviction of, or entry by
Executive of a guilty or no contest plea to, a misdemeanor (involving moral turpitude or
fraud) or a felony, the equivalent thereof, or any other crime with respect to which
imprisonment is a possible punishment.
(b) “Change in Control” means a change in (i) the Company’s ownership; (ii) the
effective control of the Company; or (iii) the ownership of a substantial portion of its
assets, as follows:
(i) Change in Ownership. A change in ownership of the Company occurs
on the date that any Person, other than (1) the current stockholders of the Company
or their respective Affiliates as of the Effective Date, (2) the Company or any of
its subsidiaries; (3) a trustee or other fiduciary holding securities either on
behalf of a current stockholder or pursuant to an employee benefit plan (or related
trust) sponsored or maintained by the Company or any of its Affiliates; or
2
(4) an underwriter temporarily holding stock pursuant to an offering of such
stock, acquires ownership (either directly, or indirectly through application of the
attribution of stock ownership rules described in Treasury Regulation
§1.409A-3(i)(5)(iii)) of the Company’s stock that, together with stock held by such
Person, constitutes more than fifty percent (50%) of the total fair market value or
total voting power of the Company’s stock. However, if any Person is considered to
own already more than fifty percent (50%) of the total fair market value or total
voting power of the Company’s stock (either directly or indirectly through
application of the attribution of stock ownership rules described in Treasury
Regulation §1.409A-3(i)(5)(iii)), the acquisition of additional stock by the same
Person is not considered to be a Change in Control;
(ii) Change in Effective Control. A change in the effective control of
the Company occurs on the date during any twelve (12)-month period when a majority
of members of the Board is replaced by directors whose appointment or election is
not endorsed by at least two-thirds (2/3) of the Board before the date of the
appointment or election; provided, however, that any such director
shall not be considered to be endorsed by the Board if his or her initial assumption
of office occurs as a result of an actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(iii) Change in Ownership of Substantial Portion of Assets. A change
in the ownership of a substantial portion of the Company’s assets occurs on the date
that a Person acquires (or has acquired during the twelve (12)-month period ending
on the date of the most recent acquisition by such Person) total assets of the
Company (including the stock of its consolidated subsidiaries), that have a total
gross fair market value equal to at least eighty percent (80%) of the total gross
fair market value of all of the Company’s assets (including the stock of its
consolidated subsidiaries) immediately before such acquisition or acquisitions.
However, there is no Change in Control when there is such a transfer to an entity
that is controlled by the current stockholders of the Company immediately after the
transfer, through a transfer to (1) a stockholder of the Company (immediately before
the asset transfer) in exchange for or with respect to the Company’s stock; (2) an
entity, at least fifty percent (50%) of the total value or voting power of the stock
of which is owned, directly or indirectly, by the Company; (3) a Person that owns
directly or indirectly, at least fifty percent (50%) of the total value or voting
power of the Company’s outstanding stock; or (4) an entity, at least fifty percent
(50%) of the total value or voting power of the stock of which is owned by a Person
that owns, directly or indirectly, at least fifty percent (50%) of the total value
or voting power of the Company’s outstanding stock.
(iv) For purposes of this Section 3(b), the following terms shall have
the following definitions:
(1) “Person” shall have the meaning given in Section 7701(a)(1) of the
Code. Person shall include more than one Person acting
3
as a group as defined by the Final Treasury Regulations issued under
Section 409A of the Code.
(2) “Affiliate” shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Securities Exchange Act of 1934, as
amended.
(c) “Closing Date” means the “closing date” as such term is defined in the definitive
agreement governing the event described in Section 3(b) that constitutes a Change in
Control, or in the event there is no definitive agreement governing such event, the date
that such event constituting the Change in Control is effective.
(d) “Code” means the Internal Revenue Code of 1986, as amended.
4. Governing Law. This Agreement is made and entered into in the State of Texas, and
the laws of Texas shall govern its validity and interpretation in the performance by the parties of
their respective duties and obligations.
5. Entire Agreement. This Agreement constitutes the entire agreement between the
parties concerning the subject matter hereof, and there are no representations, warranties or
commitments, other than those in writing executed by all of the parties. This is an integrated
agreement. This agreement shall not constitute a contract of employment between the Company, on
the one hand, and Executive, on the other hand. Nothing herein contained shall be deemed to (a)
give Executive the right to be retained in the employ of the Company; (b) interfere with the right
of the Company to discharge or retire Executive at any time; (c) give to the Company the right to
require Executive to remain in its employ; or (d) interfere with Executive’s right to terminate its
employment at any time.
6. Specific Performance. The parties acknowledge that remedies at law will be
inadequate remedies for breach of this Agreement and consequently agree that this Agreement shall
be enforceable by specific performance. The remedy of specific performance shall be cumulative of
all of the right and remedies at law or in equity of the parties under this Agreement.
7. Assistance in Litigation. Executive shall make himself available, upon the request
of the Company, to testify or otherwise assist in litigation, arbitration, or other disputes
involving the Company, or any of its directors, officers, employees, subsidiaries, or parent
corporations, at no additional cost during the term of this Agreement and at any time following the
termination of this Agreement.
8. Notices. Any notice or communication required or permitted to be given to the
parties shall be delivered personally or sent by United States registered or certified mail,
postage prepaid and return receipt requested, and addressed or delivered as follows, or to such
other address as the party addressed may be substituted by notice pursuant to this Section.
4
| (a) | If to the Company: | ||
| Craftmade International, Inc. | |||
| [Address] | |||
| ATTENTION: | |||
| (b) | If to Executive: | ||
| [Name] | |||
| [Address] |
9. Nondisclosure of Confidential Information. Executive agrees that during the term
of this Agreement and thereafter, Executive will not disclose any information or data concerning
the business or customers of the Company that is disclosed to Executive or acquired by Executive in
confidence at any time during the period of his employment.
10. Binding Agreement. This Agreement shall inure to the benefit of and be
enforceable by Executive’s personal or legal representatives, executors, administrators,
successors, heirs, distributees, devises and legatees. If Executive should die 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 his
devisee, legatee, or other designee, or, if there be no such designee, to his estate.
11. No Mitigation of Amounts Payable Hereunder. Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking other employment or
otherwise, nor shall the amount of any payment provided for in this Agreement be reduced by any
compensation earned by Executive as the result of employment by another employer after the date of
termination, or otherwise.
12. At-Will Employment. Nothing in this Agreement shall modify the employment at-will
relationship which exists between the Company and Executive.
13. Captions. The captions of this Agreement are inserted for convenience and are not
part of the Agreement.
14. Severability. In case any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any other
respect, such invalidity, illegality or unenforceability shall not affect any other provision of
this Agreement. This Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been a part of the Agreement and there shall be deemed substituted therefor
such other provision as will most nearly accomplish the intent of the parties to the extent
permitted by the applicable law. In case this Agreement, or any one or more of its provisions,
shall be held to be invalid, illegal or unenforceable within any governmental jurisdiction or
subdivision, then such provision shall be of no force or effect, but the remainder of this
Agreement shall be enforceable.
5
15. Counterparts. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which shall together constitute
one in the same Agreement.
16. Amendment. Except as otherwise provided herein, this Agreement may not be amended
or modified at any time except by a written instrument approved by the Board, and executed by the
Company and Executive. Any attempted amendment or modification without such approval and execution
shall be null and void ab initio and of no effect. Notwithstanding the foregoing provisions of
this Section 16, the Board may change or modify this Agreement without Executive’s consent
or signature if the Board determines, in its sole discretion, that such change or modification is
required for purposes of compliance with or exemption from the requirements of Section 409A of the
Code.
| Executive: | ||||
| Date: | ||||
| CRAFTMADE INTERNATIONAL, INC. |
||||
| By: | ||||
| Its: | ||||
| Date: | ||||
6
SCHEDULE A
Certain Supplemental Payments by the Company
Capitalized terms not otherwise defined herein shall have the meanings set forth in the Change
in Control Agreement (the “Agreement”), of which this Schedule A is a part.
1. If it shall be determined that any amount, right or benefit paid, distributed or treated as
paid or distributed by the Company or any of its affiliates to or for Executive’s benefit (other
than any amounts payable pursuant to this Schedule A) (a “Payment”) would be subject to the excise
tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by Executive
with respect to such excise tax (such excise tax, together with any such interest and penalties,
collectively, the “Excise Tax”), then Executive shall be entitled to receive an additional payment
(a “Gross-Up Payment”) in an amount equal to the amount necessary such that after payment by
Executive of all federal, state and local 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, Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
2. All determinations required to be made under this Schedule A, including whether and when a
Gross-Up Payment is required, the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by an independent public accounting firm
(the “Accounting Firm”). The Accounting Firm shall provide detailed supporting calculations to
both the Company and Executive within fifteen (15) business days following the receipt of notice
from Executive or the Company that there has been a Payment, or such earlier time as is requested
by the Company. All fees and expenses of the Accounting Firm shall be paid by the Company. Any
Gross-Up Payment, as determined pursuant to this Schedule A, shall be paid by the Company to
Executive (or to the Internal Revenue Service or other applicable taxing authority on Executive’s
behalf) within five (5) days following the receipt of the Accounting Firm’s determination. All
determinations made by the Accounting Firm shall be binding upon the Company and Executive;
provided that following any payment of a Gross-Up Payment to Executive (or to the Internal
Revenue Service or other applicable taxing authority on Executive’s behalf), the Company may
require Executive to xxx for a refund of all or any portion of the Excise Taxes paid on Executive’s
behalf, in which event the provisions of paragraph (3) below shall apply. As a result of
uncertainty regarding the application of Section 4999 of the Code hereunder, it is possible that
the Internal Revenue Service may assert that Excise Taxes are due that were not included in the
Accounting Firm’s calculation of the Gross-Up Payments (an “Underpayment”). In the event that the
Company exhausts its remedies pursuant to this Schedule A and 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 additional Gross-Up Payments that are due as a result
thereof shall be promptly paid by the Company to Executive (or to the Internal Revenue Service or
other applicable taxing authority on Executive’s behalf).
3. 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 (10)
business days after Executive receives written notification 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.
Executive shall not pay such claim prior to the expiration of the thirty (30) days 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 Executive in
writing prior to the expiration of such period that it desires to contest such claim, Executive
shall: (i) give the Company all 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 and
ceasing all efforts to contest such claim; (iii) cooperate with the Company in good faith in order
to effectively contest such claim; and (iv) permit the Company to participate in any proceeding
relating to such claim; provided, however, that the Company shall bear and pay
directly all reasonable costs and expenses (including additional interest and penalties) incurred
in connection with such contest and shall indemnify and hold Executive harmless, on an after-tax
basis, from 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 expense. Without limiting the
foregoing provisions of this Schedule A, the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego 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 Executive to pay the tax claimed and xxx
for a refund or contest the claim in any permissible manner, and 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 and direct; provided,
however, that if the Company directs Executive to pay such claim and xxx for a refund, the
Company shall, to the extent permitted by law, advance the amount of such payment to Executive, on
an interest-free basis, and shall indemnify and hold 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 Executive’s taxable year with respect to which such contested amount is claimed 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
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.
4. If, after Executive’s receipt of an amount advanced by the Company pursuant to this
Schedule A, Executive becomes entitled to receive any refund with respect to such claim, Executive
shall promptly pay to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after Executive’s receipt of an amount
advanced by the Company pursuant to this Schedule A, a determination is made that Executive shall
not be entitled to any refund with respect to such claim and the Company does not notify Executive
in writing of its intent to contest such denial of refund prior to the expiration of thirty (30)
days after the Company’s receipt of notice of 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.
5. Notwithstanding anything to the contrary contained herein, in no event shall any payment be
made pursuant to this Schedule A after the end of Executive’s taxable year next following
Executive’s taxable year in which Executive remits any related taxes to the IRS.
2
