EXHIBIT 99.1
EMPLOYMENT AGREEMENT
Between
SALTON, INC.
And
XXXXX X. XXXXX
TABLE OF CONTENTS
EMPLOYMENT AGREEMENT..............................................................................................1
Article I. DEFINITIONS............................................................................................1
1.1 Accrued Annual Base Salary...............................................................................1
1.2 Accrued Annual Incentive Bonus...........................................................................1
1.3 Affiliate................................................................................................1
1.4 Anniversary Date.........................................................................................1
1.5 Annual Base Salary.......................................................................................1
1.6 Annual Incentive Bonus...................................................................................1
1.7 Beneficiary..............................................................................................1
1.8 Board....................................................................................................1
1.9 Cause....................................................................................................2
1.10 Change in Control.....................................................................................2
1.11 Code..................................................................................................3
1.12 Common Stock..........................................................................................3
1.13 Commencement Date.....................................................................................3
1.14 Company...............................................................................................3
1.15 Compensation Committee................................................................................3
1.16 Contract Term.........................................................................................3
1.17 Date of Termination...................................................................................3
1.18 Disability............................................................................................3
1.19 Excise Tax............................................................................................3
1.20 Executive.............................................................................................3
1.21 Exempt Person.........................................................................................4
1.22 Fair Market Value.....................................................................................4
1.23 Fiscal Year...........................................................................................4
1.24 Good Reason...........................................................................................4
1.25 Incumbent Directors...................................................................................5
1.26 Notice of Consideration...............................................................................5
1.27 1934 Act..............................................................................................5
1.28 Performance Period....................................................................................5
1.29 Permitted Transferee..................................................................................5
1.30 Person................................................................................................5
1.31 Prorata Annual Incentive Bonus........................................................................5
1.32 SEC Person............................................................................................5
1.33 Stock Option..........................................................................................5
1.34 Subsidiary............................................................................................5
1.35 Target Bonus..........................................................................................6
1.36 Taxes.................................................................................................6
1.37 Tax Gross-Up Payment..................................................................................6
1.38 Termination of Employment.............................................................................6
1.39 Termination of Employment Without Cause...............................................................6
Article II. DUTIES................................................................................................6
2.1 Duties...................................................................................................6
2.2 Other Activities.........................................................................................6
Article III. TERM OF AGREEMENT....................................................................................6
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective as of January 1, 2003 is made by and between
Salton, Inc., a Delaware corporation (hereinafter the "Company"), and Xxxxx X.
Xxxxx (the "Executive"), a resident of the State of
Illinois; and
WHEREAS, the Company and Executive entered into an
Employment Agreement
(the "Prior Agreement") dated as of December 19, 1997 as amended which expires
on December 31, 2002; and
WHEREAS, the Company desires to continue to employ the Executive after
December 31, 2002, and Executive is willing to render such services, in
accordance with the terms herein set forth; and
NOW, THEREFORE, in consideration of the mutual undertakings of the
parties hereto, the Company and the Executive agree as follows:
Article I.
DEFINITIONS
1.1 "Accrued Annual Base Salary" means that portion of the Executive's
Annual Base Salary which is accrued but unpaid as of the Date of Termination.
1.2 "Accrued Annual Incentive Bonus" means the amount of any Annual
Incentive Bonus earned with respect to the calendar year ending prior to the
Date of Termination but which is unpaid as of the Date of Termination.
1.3 "Affiliate" means any corporation or other entity which directly or
through intervening entities owns more than thirty five percent (35%) of the
combined power or value of all shares of stock of a corporation or more than
thirty five percent (35%) of the capital and profits interest of an
unincorporated entity, and any corporation or other entity so owned by an
Affiliate.
1.4 "Anniversary Date" means any annual anniversary of the Commencement
Date.
1.5 "Annual Base Salary" means that term as defined in Section 4.1.
1.6 "Annual Incentive Bonus" has the meaning specified in Section 4.2
of this Agreement.
1.7 "Beneficiary" means that term as defined in Section 9.4.
1.8 "Board" means that term as defined in Section 2.1.
1.9 "Cause" means (a) the Executive's committing any felony or other
crime involving dishonesty or (b) willful or intentional material breach of this
Agreement including but not limited to intentionally or willfully wrongful
conduct in performing or refusing to perform
the duties under this Agreement; provided that Cause as defined in Clause (b)
shall not constitute Cause unless Executive is provided with written notice
("Notice to Cure") of such cause and fails to cure it within a reasonable period
(not less than 15 nor more than 30 days) after receipt of the Notice to Cure,
except that Executive will not be entitled to a Notice to Cure and opportunity
to cure if the Executive knew that the wrongful conduct would result in material
harm to the Company; and provided further that the Company shall not be required
to provide the Notice to Cure in cases of repeated acts or omissions (provided
that notice with respect to such act shall have been given at least once); and
provided further that Cause as defined in clause (b) shall not mean:
(i) bad judgment;
(ii) negligence;
(iii) any act or omission believed by the Executive in good
faith to have been in or not opposed to the interest of
the Company (without intent of the Executive to gain
therefrom, directly or indirectly, a profit to which the
Executive was not legally entitled); or
(iv) any act or omission with respect to which notice of
termination of employment of the Executive is given more
than twelve (12) months after the earliest date on which
any member of the Board who is not a party to the act or
omission, knew of such act or omission.
1.10 "Change in Control" shall be deemed to have occurred upon any of
the following events:
(a) any person (as such term is used in Rule 13d-5 of the 0000
Xxx) or group (as such term is defined in Section 13(d) of the 0000
Xxx) (collectively, "SEC Person"), other than any Exempt Person becomes
the beneficial owner of twenty-five percent (25%) or more of the Common
Stock of the Company or of securities of the Company that are entitled
to vote generally in the election of directors of the Company ("Voting
Securities") representing twenty-five percent (25%) or more of the
combined voting power of all Voting Securities of the Company;
(b) within a period of 24 months or less, the individuals who,
as of any date on or after January 1, 2003, constitute the Board (the
"Incumbent Directors") cease for any reason to constitute at least
seventy five percent (75%) of the Board unless at the end of such
period, seventy five percent (75%) of individuals then constituting the
Board are persons who are Incumbent Directors or were nominated upon
the recommendation of seventy five percent (75%) of the Incumbent
Directors;
(c) consummation of a merger, reorganization or consolidation
("Merger") with respect to which the individuals and entities who were
the respective beneficial owners of Common Stock and Voting Securities
of the Company immediately before such Merger do not, after such
Merger, beneficially own, directly or indirectly, more than fifty
percent (50%) of, respectively, the common stock and the combined
voting power of
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the Voting Securities of the corporation resulting from such Merger in
substantially the same proportion as their ownership immediately before
such Merger; or
(d) consummation of the sale or other disposition of all or
substantially all of the assets of the Company; or
(e) approval by the stockholders of the Company of a complete
liquidation of the Company.
Notwithstanding the foregoing, there shall not be a Change in Control if, in
advance of such event, Executive agrees in writing that such event shall not
constitute a Change in Control.
1.11 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
1.12 "Common Stock" means common stock of the Company.
1.13 "Commencement Date" means that term as defined in Section 3.1.
1.14 "Company" has the meaning specified in the recitals to this
Agreement.
1.15 "Compensation Committee" means the Company's compensation
committee as formed, elected and reelected by the Board.
1.16 "Contract Term" has the meaning specified in Section 3.1 of this
Agreement.
1.17 "Date of Termination" means the date as of which the Executive's
employment with the Company is terminated by the Company or by the Executive for
any reason including, but not limited to, death or Disability.
1.18 "Disability" means a mental or physical condition which, in the
opinion of the Board, renders Executive unable or incompetent to carry out the
job responsibilities which such Executive held or the duties to which Executive
was assigned at the time the disability was incurred, which has existed for at
least three (3) months and which in the opinion of a physician mutually agreed
upon by the Company and Executive (provided that neither party shall
unreasonably withhold his agreement) is expected to be permanent or to last for
an indefinite duration or a duration in excess of six (6) months.
1.19 "Excise Tax" has the meaning specified in Section 6.7.
1.20 "Executive" has the meaning specified in the recitals to this
Agreement.
1.21 "Exempt Person" means (i) the Company, (ii) any Subsidiary of the
Company, and (iii) any employee benefit plan of the Company or any Subsidiary of
the Company, or any entity holding Common Stock of the Company for or pursuant
to the terms of any such plan or related trust, and (iv) Centre Capital
Investors II, L.P., Centre Capital Tax Exempt Investors II, L.P., Centre Capital
Offshore Investors II, L.P., Centre Parallel Management Partners, L.P., Centre
Partners Coinvestment, L.P., State Board of Administration of Florida or any of
their respective Affiliates or Associates (collectively, the "Centre Partners
Entities") to the extent the
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Centre Partners Entities shall beneficially own in the aggregate up to, but not
exceeding, 35% of the outstanding shares of Common Stock then outstanding.
1.22 "Fair Market Value" means (a) the average of the high and low
prices of the Common Stock reported on the New York Stock Exchange, (b) if the
Common Stock shall not then be listed on the New York Stock Exchange but there
is a public market for the Common Stock, the average of the high and low prices
of the Common Stock on the national securities exchange on which the Common
Stock is traded, or if no quotations are available, the average high bid and low
asked quotations in the over-the-counter market, or (c) if there is no public
market for the Common Stock, the fair market value of the Common Stock
determined by the Compensation Committee through whatever means or method as in
the good faith exercise of its discretion it shall at the time deem appropriate.
1.23 "Fiscal Year" means the 52-53 week period ending on the Saturday
closest to June 30.
1.24 "Good Reason" means the occurrence of any one of the following
events unless Executive specifically agrees in writing that such event shall not
be Good Reason:
(a) any material breach of the Agreement by the Company
including, but not limited to:
(i) the failure of the Company to comply with the provisions
of Articles IV, V or VI of the Agreement;
(ii) failure to appoint, elect or reelect the Executive as a
member and/or Chairman of the Board;
(iii) causing or requiring Executive to report to anyone other
than the Board; or
(iv) assignment of duties materially inconsistent with his
position and duties described in this Agreement;
(b) the failure of the Company to assign this Agreement to a
successor to the Company or failure of a successor to the Company to
explicitly assume and agree to be bound by the Agreement; or
(c) the Company's requiring the Executive to be based at any
office or location more than 50 miles from the Company's offices as of
the date of execution of this Agreement in Lake Forest,
Illinois.
Notwithstanding the foregoing, no act or omission by the Company shall
constitute Good Reason unless (i) Executive notifies the Company as soon as
practicable of the act or omission constituting such Good Reason and Company
fails to cure such act or omission within the thirty (30) day period following
such notice, and (ii) Executive's Termination of Employment for Good Reason
occurs promptly after the expiration of the thirty (30) day cure period.
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1.25 "Incumbent Directors" means that term as defined in the definition
of Change in Control.
1.26 "Notice of Consideration" means that term as defined in Section
7.1."
1.27 "1934 Act" means the Securities Exchange Act of 1934, as amended.
1.28 "Performance Period" means the six-month period commencing on
January 1, 2003 and ending on June 28, 2003, and thereafter each period of time
beginning on the first day of each Fiscal Year and ending the last day of each
Fiscal Year included in the term of this Agreement.
1.29 "Permitted Transferee" means the spouse of the Executive, a lineal
descendent of the Executive or a spouse of a lineal descendent of the Executive
or a trust, limited partnership or other entity principally benefiting all or a
portion of such individuals.
1.30 "Person" means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
1.31 "Prorata Annual Incentive Bonus" means (a) the product of the
amount of the actual Annual Incentive Bonus to which the Executive would have
been entitled if he had been employed by the Company on the last day of the
Performance Period containing the Date of Termination and based upon the
Company's actual level of achievement of the performance goals established for
such Performance Period, multiplied by (b) a fraction of the numerator of which
is the numbers of days which have elapsed in such Performance Period through the
Date of Termination and the denominator of which is the number of days in the
Performance Period.
1.32 "SEC Person" means that term as defined in the definition of
Change in Control.
1.33 "Stock Option" means an option to purchase shares of Common Stock.
1.34 "Subsidiary" means, with respect to any Person, (a) any
corporation or other entity of which an aggregate of more than fifty percent
(50%) of the outstanding capital stock having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of whether,
at the time, Stock of any other class or classes of such corporation shall have
or might have voting power by reason of the happening of any contingency) is at
the time, directly or indirectly, owned legally or beneficially by such Person
and/or one or more Subsidiaries of such Person, and (b) any partnership in which
such Person and/or one or more Subsidiaries of such Person shall have an
interest (whether in the form of voting or participation in profits or capital
contribution) of more than fifty percent (50%).
1.35 "Target Bonus" means, as of a certain date, an amount equal to the
product of Annual Base Salary (or portion thereof payable with respect to the
applicable Performance Period for any Performance Period less than a full year)
determined as of such date multiplied by the percentage of such Annual Base
Salary to which Executive would have been entitled immediately prior to such
date under the annual incentive plan for the applicable Performance
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Period if the performance goals established pursuant to such annual incentive
plan were achieved at the 100% (target) level as of the end of the applicable
Performance Period; provided, however, that any reduction in Executive's Base
Salary or Annual Incentive Bonus that would qualify as Good Reason shall be
disregarded for purposes of this definition. For clarity, for the period ended
December 31, 2002, the Target Bonus was 100% of Annual Base Salary.
1.36 "Taxes" means the incremental federal, state and local income,
employment, excise and other taxes payable to the Executive with respect to any
applicable item of income.
1.37 "Tax Gross-Up Payment" means an amount payable to the Executive in
immediately available funds such that after payment of Taxes on such payment
there remains a sufficient amount to pay the Taxes being reimbursed.
1.38 "Termination of Employment" occurs the first day on which an
individual is for any or no reason no longer employed by the Company.
1.39 "Termination of Employment Without Cause" means a termination of
the Executive's employment by the Company for any reason other than Cause,
Disability, or termination at the end of the Contract Term after the Company's
giving an Expiration Notice.
Article II.
DUTIES
2.1 Duties. The Executive shall be a member and Chairman of the Board
of Directors (the "Board") of the Company and Secretary of the Company.
Executive shall, as Chairman, preside at all meetings of the Board and shall
assume a primary role in developing sales for the Company and maintaining good
business relations with the customers and suppliers of the Company; it being
contemplated that the stockholders and Directors of the Company will elect,
re-elect, and appoint, as applicable, the Executive as a member and Chairman of
the Board and as Secretary throughout the Contract Term. During the Contract
Term, and excluding any periods of vacation, sick leave or disability to which
the Executive is entitled, the Executive agrees to devote the Executive's full
attention and time to the business and affairs of the Company and to use the
Executive's best efforts to perform faithfully and efficiently the duties and
responsibilities of the Executive's positions as described herein.
2.2 Other Activities. During the Contract Term, it shall not be a
violation of this Agreement for the Executive to (a) serve on corporate, civic
or charitable boards or committees, (b) deliver lectures, fulfill speaking
engagements or teach at educational institutions or (c) manage personal
investments, so long as such activities do not significantly interfere with the
performance of the Executive's duties in accordance with this Agreement.
Article III.
TERM OF AGREEMENT
3.1 Term. The term (the "Contract Term") shall mean the initial term of
this Agreement plus any extensions thereto. Subject to the extension and
termination provisions
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hereinafter provided, the Contract Term of this Agreement shall begin on January
1, 2003 (the "Commencement Date") and end on the last day of the Fiscal Year
closest to June 30, 2006 (the "Initial Term"), or such later date to which the
Contract Term is extended under the following sentence. Commencing on July 1,
2005, the Contract Term shall automatically be extended each day by one day to
create a new one-year term until, at any time after July 1, 2005, the Company
delivers written notice (an "Expiration Notice") to Executive or Executive
delivers an Expiration Notice to the Company, in either case that the Agreement
shall expire on a date specified in the Expiration Notice (the "Expiration
Date") that is not less than twelve (12) months after the date the Expiration
Notice is delivered to the Company or Executive, as applicable, subject to
subsections (a) and (b) below. Except as provided in Article VII, the employment
of Executive by the Company shall not be terminated prior to the end of the
Contract Term.
(a) Expiration Notice After a Change in Control. If an
Expiration Notice is given by the Company after a Change in Control,
the Agreement shall expire on the Expiration Date specified in the
Expiration Notice, which shall in no event be earlier than two (2)
years after the Change in Control.
(b) Expiration Notice During an Imminent Control Change
Period. If an Expiration Notice is given during an Imminent Control
Change Period, the Agreement shall expire on the Expiration Date
specified in the Expiration Notice, or, if later, at the time specified
below:
(i) two (2) years after a Change in Control if the Imminent
Control Change Period is terminated by a Change in
Control; or
(ii) the expiration of the Imminent Control Change Period if
the Imminent Control Change Period is not terminated by
a Change in Control.
(c) Definition of Imminent Control Change Period. "Imminent
Control Change Period" means any of the following:
(i) The period commencing on the date the Company enters
into an agreement the consummation of which would
constitute a Change in Control and ending the earlier of
a Change in Control or the date such agreement is
terminated, cancelled or expires without a Change in
Control occurring;
(ii) The period commencing on the date any SEC Person
commences a "tender offer" (as such term is used in
Section 14(d) of the 0000 Xxx) or exchange offer, which,
if consummated, would result in a Change in Control and
ending on the earlier of the date a Change in Control
occurs or the date such tender offer or exchange offer
is withdrawn or terminates without a Change in Control
occurring;
(iii) The period commencing on the date any SEC Person files
with the SEC a preliminary or definitive proxy
solicitation or election contest to elect or remove one
or more members of the Board, which, if consummated or
effected, would result in a Change in Control, and
ending on the earliest of
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(1) the date a Change in Control occurs or (2) the date
the validity of such proxy solicitation or election
contest expires under relevant state corporate law, or
(3) the date such proxy solicitation or election context
culminates in a stockholder vote; or
(iv) The period commencing on the date any SEC Person other
than any Exempt Person becomes the beneficial owner of
ten percent (10%) or more of the Common Stock of the
Company or Voting Securities representing ten percent
(10%) or more of the combined voting power of all Voting
Securities of the Company and such SEC Person files a
statement with the SEC pursuant to Section 13(d) of the
1934 Act (or other filing with the SEC) that includes a
certification by such SEC Person to the effect that such
beneficial ownership does have the purpose of changing
or influencing the control of the Company, and ending
the earlier of the date a Change in Control occurs or
the twelve (12) month anniversary of such filing.
Notwithstanding the foregoing, an Imminent Control Change
Period will lapse on the date a majority of the members of the
Incumbent Directors make a good faith determination that any event or
condition described in clauses (i), (ii) or (iii) of this definition no
longer constitutes an Imminent Control Change Period, provided that
such determination may not be made prior to the twelve (12) month
anniversary of the first date of the Imminent Control Change Period.
Article IV.
COMPENSATION
4.1 Salary. Commencing with the Commencement Date, the Company shall
pay to the Executive in accordance with the normal payroll practices of the
Company an annual salary at a rate of $600,000 per year (the "Annual Base
Salary"). Commencing on January 1, 2004 and on each January 1 during the
Contract Term thereafter, the Annual Base Salary shall be increased by a
percentage equal to the lesser of (a) ten percent (10%) or (b) the percentage
increase (but not less than zero) in the Company's consolidated earnings before
income taxes, depreciation, amortization and extraordinary items as determined
in accordance with generally accepted accounting principles consistently applied
during the calendar year ending on the December 31 immediately prior to the
applicable January 1. After any increase to Annual Base Salary pursuant to the
immediately prior sentence, the term "Annual Base Salary" shall thereafter refer
to the increased amount. Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase without the
express written consent of the Executive.
4.2 Bonus.
(a) In respect of the outstanding 2002 calendar year annual
incentive bonus accrued under the terms of the Prior Agreement ("2002
Bonus"), Executive hereby waives and releases all rights, claims and
demands for the 2002 Bonus under the Prior
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Agreement. In exchange for Executive's waiver and release of the 2002
Bonus, the Company shall pay or cause to be paid to Executive on April
1, 2003 a bonus in respect to the 2002 calendar year ("Substitute 2002
Bonus") in such amount as determined by the Company in its discretion;
provided, however, such Substitute 2002 Bonus shall be determined in a
manner consistent with past bonus determinations made under the Prior
Agreement.
(b) During the Contract Term, Executive shall participate in
the Company's Annual Incentive Plan, as in effect from time to time
("Annual Incentive Plan"), and shall be eligible to receive an annual
bonus ("Annual Incentive Bonus") for each Fiscal Year ending during the
Contract Term in accordance with the terms and conditions thereof and
in such amount and payment terms as determined by the Company in its
discretion. While it is understood that the Compensation Committee of
the Board has sole power and authority to establish target performance
goals and the target Annual Incentive Bonus pursuant to the Annual
Incentive Plan, it is contemplated that the Annual Incentive Bonus
payable (before adjustments, if any, by the Compensation Committee)
upon attainment of maximum performance goals will be not less than 150%
of Executive's Annual Base Salary.
Article V.
STOCK OPTION GRANT
5.1 Grant of Stock Options. The Company has granted to Executive, Stock
Options to purchase 200,000 shares of Common Stock (the "Initial Option") with
an exercise price of $9.00 per share.
5.2 Terms and Conditions of Options. The terms and conditions of the
Initial Option shall be set forth in a grant agreement, provided that:
(a) Subject to the requirements regarding continued employment
and acceleration of vesting set forth in the grant agreement and this
Agreement, the Initial Option shall become exercisable in equal annual
installments of 33-1/3% on each of the three first anniversary dates of
the grant date of the Initial Option.
(b) The Initial Option shall be granted under the terms of the
Salton, Inc. 2002 Stock Option Plan and/or another similar plan and
shall be subject to the terms of the plan or plans under which it is
granted.
Article VI.
OTHER BENEFITS
6.1 Incentive, Savings and Retirement Plans. In addition to Annual Base
Salary and Annual Incentive Bonuses, the Executive shall be entitled to
participate during the Contract Term in all incentives (including long-term
incentives), savings and retirement plans, practices, policies and programs
applicable to other peer executives of the Company (subject to the eligibility
requirements of such plans), and other perquisites which are available to other
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executives of the Company or which hereafter are made available to other
executive employees of the Company by the Board.
6.2 Welfare Benefits. During the Contract Term, the Executive and/or
the Executive's family, as the case may be, shall be eligible for participation
in and shall receive all benefits under welfare benefit plans, practices,
policies and programs provided by the Company (including, and without
limitation, medical, prescription, dental, disability, salary continuance,
employee life, group life, dependent life, accidental death and travel accident
insurance plans and programs) applicable to other executive employees of the
Company.
6.3 Fringe Benefits. During the Contract Term, the Executive shall be
entitled to fringe benefits applicable to other peer executives of the Company.
6.4 Vacation. During the Contract Term, the Executive shall be entitled
to paid vacation time in accordance with the plans, practices, policies, and
programs applicable to other peer executives of the Company, but in no event
shall such vacation time be less than four (4) weeks per calendar year. Any
vacation not taken within three (3) months after the end of the calendar year
shall be canceled and shall not accumulate to subsequent years unless the
Compensation Committee for good business reasons determines otherwise.
6.5 Expenses. During the Contract Term, the Executive shall be entitled
to receive prompt reimbursement for all reasonable employment-related expenses
incurred by the Executive upon the Company's receipt of accounting in accordance
with practices, policies and procedures applicable to other executive employees
of the Company.
6.6 Office and Support Staff. During the Contract Term, the Executive
shall be entitled to an office or offices of a size and with furnishings and
other appointments, and to personal secretarial and other assistance, provided
with respect to other executive employees of the Company.
6.7 Tax Gross-Up Payment. In the event it shall be determined that any
payment to the Executive pursuant to this Agreement or any other payment or
benefit from the Company, any affiliate of the Company, any shareholder of the
Company or any other person ("Potential Parachute Payment") is or would be
subject to the excise tax imposed by Section 4999 of the Code or any similar tax
payable under any federal, state, local or other law (collectively, the "Excise
Tax"), then the Executive shall be entitled to receive a Tax Gross-Up Payment
with respect to the Excise Tax. Notwithstanding any other provision of this
Section 6.7, if the aggregate amount of the Potential Parachute Payments that,
but for this sentence of Section 6.7, would be payable to Executive, does not
exceed 110% of Floor Amount (as defined below), then no Tax Gross-Up Payment
shall be made to Executive and the aggregate amount of Potential Parachute
Payments payable to Executive shall be reduced (but not below the Floor Amount)
to the largest amount which would both (a) not cause any Excise Tax to be
payable by Executive and (b) not cause any Potential Parachute Payments to
become nondeductible by the Company by reason of Section 280G of the Code (or
any successor provision). For purposes of the preceding sentence, "Floor Amount"
means the greatest pre-tax amount of Potential Parachute Payments that could be
paid to Executive without causing Executive to become liable for any Excise
Taxes in connection therewith.
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Article VII.
TERMINATION BENEFITS
7.1 Termination of Employment for Cause or Other Than for Good Reason.
If, before the end of the Contract Term, the Company terminates the Executive's
employment for Cause or the Executive terminates employment other than for Good
Reason, death or Disability, the Company's sole obligations to Executive under
Articles IV, V and VI and the Annual Incentive Plan shall be as set forth in
this Section 7.1. The Company shall pay immediately after the Date of
Termination to the Executive an amount equal to the sum of (a) the Executive's
Accrued Annual Base Salary and (b) his Accrued Annual Incentive Bonus. Executive
shall forfeit all unvested Stock Options. The Company may not terminate the
Executive's employment for Cause unless:
(a) no fewer than sixty (60) days prior to the Date of
Termination, the Company provides the Executive with written notice of
its intent to consider termination of the Executive's employment for
Cause, including a detailed description of the specific reasons which
form the basis for such consideration (the "Notice of Consideration");
(b) if, after providing Notice of Consideration, the Board by
three-quarters (3/4) majority (excepting Executive if Executive is a
member of the Board, and any other member of the Board alleged to be
involved in the events leading the Board to consider terminating the
Executive for Cause) so determines, the Board may suspend Executive
with pay until a final determination pursuant to this Section 7.1 has
been made;
(c) for a period ending thirty (30) days after the date Notice
of Consideration is provided, the Executive shall have an opportunity
to appear before the Board, with or without legal representation, at
the Executive's election, to present arguments on his own behalf;
(d) following the presentation to the Board as provided in (c)
above, the Executive shall be terminated for Cause only if (i) the
members of the Board by three-quarters (3/4) majority (excepting
Executive if Executive is a member of the Board, and any other member
of the Board alleged to be involved in the events leading the Board to
terminate the Executive for Cause) determines that the actions of the
Executive constituted Cause and that the Executive's employment should
accordingly be terminated for Cause; and (ii) the Board provides the
Executive with a written determination setting forth in full
specificity the basis of such termination of employment which shall be
consistent with the reasons set forth in the Notice of Consideration;
and
(e) the Company shall provide the Executive with not less than
thirty (30) days advance written notice of termination, including a
statement of the Date of Termination and the specific detailed basis
for such termination which shall be consistent with the reasons set
forth in the Notice of Consideration.
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If Executive is terminated by the Company without full compliance with
the substantive and procedural requirements of this Section 7.1 prior to the
termination, the termination shall be deemed a Termination Without Cause for all
purposes of the Agreement.
7.2 Termination of Employment for Death or Disability. If, before the
end of the Contract Term, the Executive's employment terminates due to death or
Disability, the Company's sole obligations to Executive under Articles IV, V and
VI and the Annual Incentive Plan shall be as set forth in this Section 7.2. The
Company shall pay to the Executive, the beneficiaries designated in writing by
the Executive, or the Executive's estate, as the case may be, the following
amounts: (a) immediately after the Date of Termination an amount which is equal
to the sum of (i) the Executive's Accrued Annual Base Salary as of the Date of
Termination, and (ii) the Executive's Accrued Annual Incentive Bonus which is
unpaid as of the Date of Termination; and (b) at the same time as Annual
Incentive Bonuses are or would normally be paid under the Annual Incentive Plan
for the Performance Period containing the Date of Termination, the Executive's
Prorata Annual Incentive Bonus.
7.3 Termination of Employment By The Company Without Cause Or By the
Executive for Good Reason. If, other than during the two-year period following a
Change in Control, there is a Termination of Employment Without Cause or a
Termination of Employment by the Executive for Good Reason, the Company's sole
obligations to Executive under Articles IV, V and VI and the Annual Incentive
Plan shall be as set forth in this Section 7.3. The Executive shall receive the
following:
(a) Accrued Obligations. Immediately after the Date of
Termination in a lump-sum in immediately available funds, an amount
equal to the sum of (i) the Executive's Accrued Annual Base Salary, and
(ii) any Accrued Annual Incentive Bonus;
(b) Annual Incentive for Year of Termination. At the same time
as Annual Incentive Bonuses are or would normally be paid under the
Annual Incentive Plan for the Performance Period containing the Date of
Termination, in immediately available funds, the Executive's Prorata
Annual Incentive Bonus;
(c) Severance. Immediately after the Date of Termination in a
lump-sum in immediately available funds, an amount equal to the greater
of (i) sum of the Annual Base Salary and the Target Bonus or (ii) the
product of (A) the number of years (stated as whole and fractional
years) remaining in the Contract Term as of the Date of Termination,
multiplied by (B) the sum of the Annual Base Salary and the Target
Bonus;
(d) Unvested Benefits. Immediately after the Date of
Termination in a lump-sum in immediately available funds, the total
amount (if any) of the Executive's unvested benefits under any Company
sponsored plan or program which is forfeited on account of the
Executive's employment being terminated;
(e) Restricted Stock. All forfeiture conditions that as of the
Date of Termination are applicable to any deferred stock unit,
restricted stock or restricted share units awarded to Executive by the
Company ("Restricted Stock") shall lapse immediately and all such
awards will become fully vested, and within thirty (30) business days
after
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the Date of Termination, the Company shall deliver to Executive all of
such shares thereafter held by or on behalf of the Company.
(f) Continuation of Welfare Benefits. During the greater of
(i) the one-year period following the Date of Termination or (ii) the
number of years (stated as whole and fractional years) remaining in the
Contract Term as of the Date of Termination (and continuing in either
case through such later date as any welfare plan specified in Section
6.2 may provide) ("Extension Period"), the Company shall continue to
provide (or shall cause the continued provision) to Executive and
Executive's family welfare benefits (or, if not available, the economic
equivalent of the benefits) under the welfare plans specified in
Section 6.2 to the same extent as if Executive had remained employed
during the Extension Period. Such provision of welfare benefits shall
be subject to the following:
(i) In determining benefits applicable under such welfare
plans provided in Section 6.2, the Executive's annual
compensation attributable to base salary and incentives
for any plan year or calendar year, as applicable, shall
be deemed to be not less than the Executive's Annual
Base Salary and Annual Incentive Bonus.
(ii) The cost of such welfare benefits to Executive and
family under this Section 7.3(f) shall not exceed the
cost of such benefits to peer executives who are
actively employed after the Date of Termination.
(iii) Executive's rights under this Section 7.3(f) shall be in
lieu of any post-termination continuation coverage or
conversion rights Executive may have pursuant to
applicable law, including, without limitation,
continuation coverage required by Section 4980B of the
Code.
7.4 Termination Benefits upon a Change in Control. If, during the
two-year period following a Change in Control, there is a Termination of
Employment Without Cause or a Termination of Employment by the Executive for
Good Reason, the Company's sole obligations to Executive under Articles IV, V
and VI and the Annual Incentive Plan shall be as set forth in this Section 7.4.
Executive shall receive the following:
(a) Accrued Obligations. Immediately after the Date of
Termination in a lump-sum in immediately available funds, an amount
equal to the sum of (i) the Executive's Accrued Annual Base Salary, and
(ii) any Accrued Annual Incentive Bonus;
(b) Full Annual Incentive for Year of Termination. Immediately
after the Date of Termination in a lump-sum in immediately available
funds the greater of (i) Executive's Target Bonus, or (ii) the actual
Annual Incentive Bonus paid or payable to Executive in respect of the
Fiscal Year ended on or before the Date of Termination;
(c) Severance. Immediately after the Date of Termination in a
lump-sum in immediately available funds, an amount equal to two (2)
times the sum of (i) Annual Base Salary and (ii) the greater of (x)
Executive's Target Bonus and (y) the actual Annual
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Incentive Bonus paid or payable to Executive in respect of the Fiscal
Year ended on or before the Date of Termination;
(d) Unvested Benefits. Immediately after the Date of
Termination in a lump-sum in immediately available funds, the total
amount (if any) of the Executive's unvested benefits under any Company
sponsored plan or program which is forfeited on account of the
Executive's employment being terminated;
(e) SERP. The Company shall pay to Executive his lump-sum
value under the Company's Supplemental Executive Retirement Plan
("SERP") pursuant to the lump-sum payment terms of the SERP.
(f) Stock Options. Each of Executive's Stock Options, stock
appreciation rights or similar incentive awards shall (i) become fully
vested, and (ii) remain exercisable as provided in the option grant
agreement.
(g) Restricted Stock. All forfeiture conditions that as of the
Date of Termination are applicable to any deferred stock unit,
restricted stock or restricted share units awarded to Executive by the
Company ("Restricted Stock") shall lapse immediately and all such
awards will become fully vested, and within ten (10) business days
after the Date of Termination, the Company shall deliver to Executive
all of such shares thereafter held by or on behalf of the Company.
(h) Continuation of Welfare Benefits. During the three-year
period following the Date of Termination (and continuing through such
later date as any welfare plan specified in Section 6.2 may provide),
the Company shall continue to provide (or shall cause the continued
provision) to Executive and Executive's family welfare benefits (or, if
not available, the economic equivalent of the benefits) under the
welfare plans specified in Section 6.2 to the same extent as if
Executive had remained employed during such three-year period. Such
provision of welfare benefits shall be subject to the following:
(i) In determining benefits applicable under such welfare
plans provided in Section 6.2, the Executive's annual
compensation attributable to base salary and incentives
for any plan year or calendar year, as applicable, shall
be deemed to be not less than the Executive's Annual
Base Salary and Annual Incentive Bonus.
(ii) The cost of such welfare benefits to Executive and
family under this Section 7.4(h) shall not exceed the
cost of such benefits to peer executives who are
actively employed after the Date of Termination.
(iii) Executive's rights under this Section 7.4(h) shall be in
addition to and not in lieu of any post-termination
continuation coverage or conversion rights Executive may
have pursuant to applicable law, including, without
limitation, continuation coverage required by Section
4980B of the Code.
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7.5 Other Termination Benefits. In addition to any amounts or benefits
payable upon termination of employment hereunder and except as otherwise
provided herein, the Executive shall be entitled to any payments or benefits
explicitly provided hereunder or under the terms of any plan, policy or program
of the Company or as otherwise required by applicable law.
7.6 Waiver and Release. Notwithstanding anything herein to the
contrary, the Company shall have no obligation to Executive under Articles VI or
VII unless and until Executive executes a release and waiver of Company and its
Affiliates, in such form as is mutually acceptable.
Article VIII.
RESTRICTIVE COVENANTS
8.1 Non-Solicitation of Employees; Confidentiality; Non-Competition.
The Executive covenants and agrees that at no time during the Executive's
employment by the Company nor during the eighteen (18) month period immediately
following any Termination of Employment will the Executive (i) directly or
indirectly employ or seek to employ any person or entity employed at that time
by the Company or otherwise encourage or entice any such person or entity to
leave such employment; (ii) become employed by, enter into a consulting
arrangement with or otherwise agree to perform personal services for a
Competitor (as defined below); (iii) acquire an ownership interest in a
Competitor (excluding an investment which represents 3% or less of the aggregate
market value of the outstanding capital stock of a publicly traded Competitor);
or (iv) solicit any customers or vendors of the Company on behalf of or for the
benefit of a Competitor. Executive further covenants and agrees that at no time
during the Executive's employment by the Company nor at any time following
Termination of Employment with the Company will the Executive communicate,
furnish, divulge or disclose in any manner to any person or entity confidential
business information or trade secrets of the Company, without the prior express
written consent of the Company. For purposes of this Section 8.1, "Competitor"
means any entity which engages in the design or distribution to department
stores, mass-merchandisers or catalogue vendors of household products which
directly compete with those sold by the Company.
8.2 Share Holding Restrictions.
(a) Current Shares and Rights. Subject to Section 8.2(c),
Executive hereby covenants and agrees that he will not dispose of,
pledge, sell or transfer, at any time during the two (2) year period
following the date of this Agreement, without the prior approval of a
majority of the non-employee directors of the Company (within the
meaning of Rule 16b-3 under the 0000 Xxx) ("Non-employee Directors"),
any shares of Common Stock of which Executive is beneficial owner
(including, but not limited to, all shares of Common Stock underlying
any options to purchase shares of Common Stock) as of the date hereof
(but excluding the Initial Option), regardless of how Executive
obtained such beneficial ownership of shares of Common Stock (or shares
of Common Stock underlying options).
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(b) Future Shares and Rights. Subject to Section 8.2(c),
Executive hereby covenants and agrees that he will not dispose of,
pledge, sell or transfer, at any time during the Initial Term, without
the prior approval of a majority of the Non-employee Directors any
shares of Common Stock of which Executive becomes beneficial owner
during the Initial Term as a result of direct issuance of shares by the
Company or upon exercise of the Initial Option or any options to
purchase shares of Common Stock granted after the Initial Option.
(c) Exceptions. Notwithstanding the foregoing holding
restrictions in Section 8.2(a) and (b), Executive may make the
following transfers and sales without prior approval of the
Non-employee Directors:
(i) Upon exercise of an option to purchase shares of Common
Stock, Executive may sell sufficient shares of Common
Stock obtained via exercise of such option to cover the
federal and state tax liability with respect to such
option exercise; and
(ii) The sale of up to 75,000 shares of Common Stock in
accordance with the Company's xxxxxxx xxxxxxx policies
between the first and second anniversaries of the date
of this Agreement; and
(iii) Executive may transfer shares of Common Stock (and, to
the extent allowable by applicable plan documents and
grant agreements, options to purchase shares of Common
Stock) to any "Family Member" (as defined below), but
only if such shares (and, to the extent applicable,
options) remain subject to the same holding restrictions
set forth in Section 8.2(a) and (b).
For purposes of this Section 8.2, "Family Member" includes any child,
stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse,
sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, including adoptive
relationships, any person sharing Executive's household (other than a tenant or
employee), a trust in which these persons have more than fifty percent of the
beneficial interest, a foundation in which these persons have more than fifty
percent of the beneficial interest, a foundation in which these persons (or
Executive) control the management of assets, and any other entity in which these
persons (or Executive) own more than fifty percent of the voting interests.
8.3 Injunction. The Executive acknowledges that the Company relies on
the provisions of this Article VIII and that monetary damages will not be an
adequate remedy to a breach of this Article, and that it would be impossible for
the Company to measure damages in the event of such a breach. Therefore, the
Executive agrees that, in addition to other rights that the Company may have,
the Company is entitled to an injunction preventing the Executive from doing any
act that would be in breach of this Article VIII.
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Article IX.
MISCELLANEOUS
9.1 Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including without
limitation, set-off, counterclaim, recoupment, defense or other claim, right or
action which the Company may have against the Executive or others provided,
however, that if the Company causes the Executive to have a Termination of
Employment for Cause pursuant to this Agreement on account of theft or
embezzlement, the Company may offset against the amounts due under this
Agreement the amounts taken from the Company by the Executive through theft or
embezzlement. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement, nor shall the
amount of any payment hereunder be reduced, except as otherwise specifically
provided herein, by any compensation earned by the Executive as result of
employment by another employer.
9.2 Enforcement.
(a) If the Executive incurs legal or other fees and expenses
in an effort to establish entitlement to fees and benefits under this
Agreement, the Company shall reimburse the Executive for such fees and
expenses only if Executive prevails (after exhaustion of all available
judicial remedies) in such effort and a Tax Gross-Up Payment on Taxes
incurred with respect to amounts paid pursuant to this Section 9.2.
(b) The Company shall provide reimbursement of fees and
expenses, as described in paragraph (a) above, to Executive only after
Executive prevails (after exhaustion of all available judicial
remedies) and upon the Executive's written submission of a request for
reimbursement together with proof that the fees and expenses were
incurred.
(c) If the Company fails to pay any amount provided under this
Agreement when due, the Company shall pay interest on such amount at a
rate equal to (i) the rate of interest on the Company's revolving
credit charged by the Company's principal lender plus two percent (2%),
or (ii) in the absence of such revolving credit, 200 basis points over
the prime commercial lending rate announced by the LaSalle National
Bank on the date such amount is due or, if no such rate shall be
announced on such date, the immediately prior date on which the LaSalle
National Bank announced such a rate.
9.3 Assignment, Successors. The Company may freely assign its
respective rights and obligations under this Agreement to a successor of the
Company's business, without the prior written consent of the Executive. This
Agreement shall be binding upon and inure to the benefit of the Executive and
the Executive's estate and the Company and any assignee of or successor to the
Company.
9.4 Beneficiary. If the Executive dies prior to receiving all of the
salary and bonus payable hereunder pursuant to Article IV or exercising his
Stock Options, or otherwise provided
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under the terms and conditions of the Company's other benefit plans, programs or
policies, such salary and bonus shall be paid in a lump-sum payment to and the
Stock Options may be exercised by the beneficiary ("Beneficiary") designated by
the Executive in writing to the Company during the Executive's lifetime, which
the Executive may change from time to time by new designation filed in like
manner without the consent of any Beneficiary; or if no such Beneficiary is
designated, to the Executive's estate.
9.5 Nonalienation of Benefits. Benefits payable under this Agreement
shall not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, charge, garnishment, execution or levy of any
kind, either voluntary or involuntary, prior to actually being received by the
Executive, and any such attempt to dispose of any right to benefits payable
hereunder shall be void.
9.6 Severability. If all or any part of this Agreement is declared by
any court or governmental authority to be unlawful or invalid, such unlawfulness
or invalidity shall not serve to invalidate any portion of this Agreement not
declared to be unlawful or invalid. Any paragraph or part of a paragraph so
declared to be unlawful or invalid shall, if possible, be construed in a manner
which will give effect to the terms of such paragraph or part of a paragraph to
the fullest extent possible while remaining lawful and valid.
9.7 Amendment and Waiver. This Agreement shall not be altered, amended
or modified except by written instrument executed by the Company and Executive.
A waiver of any term, covenant, agreement or condition contained in this
Agreement shall not be deemed a waiver of any other term, covenant, agreement or
condition, and any waiver of any default in any such term, covenant, agreement
or condition shall not be deemed a waiver of any later default thereof or of any
other term, covenant, agreement or condition.
9.8 Notices. All notices and other communications hereunder shall be in
writing and delivered by hand or by first class registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Company: Salton, Inc.
0000 Xxxx Xxxxx Xxxxx
Xxxx Xxxxxx, XX 00000
If to the Executive: Xxxxx X. Xxxxx
Either party may from time to time designate a new address by notice given in
accordance with this Section. Notice and communications shall be effective when
actually received by the addressee.
9.9 Counterpart Originals. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
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9.10 Entire Agreement. This Agreement forms the entire agreement
between the parties hereto with respect to any severance payment and with
respect to the subject matter contained in the Agreement.
9.11 Effect on Other Agreements. This Agreement shall supersede all
prior agreements, promises and representations regarding severance or other
payments contingent upon termination of employment, whether in writing or
otherwise.
9.12 Applicable Law. The provisions of this Agreement shall be
interpreted and construed in accordance with the laws of the State of
Illinois,
without regard to its choice of law principles.
9.13 Survival of Executive's Rights. All of the Executive's rights
hereunder, including but not limited to his rights to compensation and benefits,
and his obligations under Section 8.1 hereof, shall survive the termination of
the Executive's employment and/or the termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on
October 23, 2002.
SALTON, INC.
/s/ Xxxx Xxxxxxxxxx
-------------------------------
By:
Its:
/s/ Xxxxx X. Xxxxx
-------------------------------
XXXXX X. XXXXX
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