Exhibit 10.5
XXXXXX'X ENTERTAINMENT, INC
May 7, 1999
Xx. Xxxxxxx X. Xxxx
c/x Xxxxxx'x Entertainment, Inc.
0000 Xxxxxx Xxxx
Xxxxxxx, Xxxxxxxxx 00000
Re: SEVERANCE AGREEMENT
Dear Xx. Xxxx:
Xxxxxx'x Entertainment, Inc. (the "Company") considers it essential to
the best interest of its stockholders to xxxxxx the continuous employment of key
management personnel. In this connection, the Board of Directors of the Company
(the "Board") recognizes that, as is the case with many publicly held
corporations, the possibility of a change in control may exist and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a change in control of the Company, although no such change is
now contemplated.
In order to induce you to remain in the employ of the Company or its
subsidiaries and in consideration of your agreements set forth in Subsection
2(b) hereof, the Company agrees that you shall receive the severance benefits
set forth in this letter agreement ("this Agreement") in the event your
employment with the Company or its subsidiaries terminates subsequent to a
"Change in Control of the Company" (as defined in Section 2 hereof) under the
circumstances described below.
1. TERM OF AGREEMENT. This Agreement shall commence on May 7, 1999 and
shall continue in effect through December 31, 1999; provided, however, that
commencing on January 1, 2000 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless, not
later than January 1 of the preceding year, the Company with the approval of the
Board of Directors shall have given you written notice that it does not wish to
extend this Agreement; provided, further, if a Change in Control of the Company
shall have occurred during the original or extended term of this Agreement, this
Agreement shall automatically continue in effect for a period of twenty-four
months beyond the month in which such Change in Control occurred.
2. CHANGE IN CONTROL.
(a) No benefit shall be payable to you hereunder unless there shall
have been a Change in Control of the Company, as set forth below. For purposes
of this Agreement, a "Change in Control of the Company" shall be deemed to have
occurred, subject to subparagraph (iv) hereof, if any of the events in
subparagraphs (i), (ii) or (iii) occur:
(i) Any "person" (as such term is used in Section 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), other than an employee benefit plan of the Company, or a
trustee or other fiduciary holding securities under an employee benefit
plan of the Company, is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of 25%
or more of the Company's then outstanding voting securities carrying
the right to vote in elections of persons to the Board, regardless of
comparative voting power of such voting securities, and regardless of
whether or not the Board shall have approved the acquisition of such
securities by the acquiring person; or
(ii) During any period of two consecutive years,
individuals who, at the beginning of such period, constitute the Board
together with any new director(s) (other than a director designated by
a person who shall have entered into an agreement with the Company to
effect a transaction described in clauses (i) or (iii) of this
Subsection) whose election by the Board or nomination for election by
the Company's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were
directors at the beginning of the two year period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute a majority thereof; or
-2-
(iii) The holders of securities of the Company entitled to
vote thereon approve the following:
(A) A merger or consolidation of the Company with any
other corporation regardless of which entity is the surviving
company, other than a merger or consolidation which would
result in the voting securities of the Company carrying the
right to vote in elections of persons to the Board outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) at least 80% of (a) the
Company's then outstanding voting securities carrying the
right to vote in elections of persons to the Board, or (b) the
voting securities of such surviving entity outstanding
immediately after such merger or consolidation, or
(B) A plan of complete liquidation of the Company or
an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.
(iv) Notwithstanding the definition of a "Change in
Control" of the Company as set forth in this Section 2(a), the Human
Resources Committee of the Board (the "Committee") shall have full and
final authority, which shall be exercised in its discretion, to
determine conclusively whether a Change in Control of the Company has
occurred, and the date of the occurrence of such Change in Control and
any incidental matters relating thereto, with respect to a transaction
or series of transactions which have resulted or will result in a
substantial portion of the assets or business of the Company (as
determined, prior to the transaction or series of transactions, by the
Committee in its sole discretion which determination as to whether a
substantial portion is involved shall be final and conclusive) being
held by a corporation at least 80% of whose voting securities are held,
immediately following such transaction or series of transactions, by
holders of the voting securities of the Company (as determined by the
Committee in its sole discretion prior to such transaction or series of
transactions which determination as to whether the 80% amount will be
satisfied shall be final and
-3-
conclusive). The Committee may exercise any such discretionary
authority without regard to whether one or more of the transactions in
such series of transactions would otherwise constitute a Change in
Control of the Company under the definition set forth in this Section
2(a).
(b) For purposes of this Agreement, a "Potential Change in Control of
the Company" shall be deemed to have occurred if the following occur:
(i) The Company enters into a written agreement or letter of
intent, the consummation of which would result in the occurrence of a
Change in Control of the Company;
(ii) Any person (including the Company) publicly announces an
intention to take or to consider taking actions which if consummated
would constitute a Change in Control of the Company;
(iii) Any person (other than an employee benefit plan of the
Company, or a trustee or other fiduciary holding securities under an
employee benefit plan of the Company) who is or becomes the beneficial
owner, directly or indirectly, of securities of the Company
representing 9.5% or more of the Company's then outstanding voting
securities carrying the right to vote in elections of persons to the
Board increases such beneficial ownership of such securities by an
additional five percentage points or more thereby beneficially owning
14.5% or more of such securities; or
(iv) The Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control of the
Company has occurred.
You agree that, subject to the terms and conditions of this Agreement,
in the event of a Potential Change in Control of the Company, you will remain in
the employ of the Company (or the subsidiary thereof by which you are employed
at the date such Potential Change in Control occurs) until the earliest of (x) a
date which is six months from the occurrence of such Potential Change in Control
of the Company, (y) the termination by you of your employment by reasons of
Disability or Retirement (at your normal retirement age), as defined in
Subsection 3(a), or (z) the occurrence of a Change in Control of the Company.
(c) GOOD REASON. For purposes of this Agreement, "Good Reason" shall
mean, without your express written consent, the occurrence after a Change in
Control of the Company, of any of
-4-
the following circumstances unless, in the case of paragraphs (i), (v), (vi),
(vii) or (viii), such circumstances are fully corrected prior to the Date of
Termination specified in the Notice of Termination, as such terms are defined in
Subsections 3(e) and 3(d), respectively, given in respect thereof:
(i) The assignment to you of any duties inconsistent with your
status as an executive officer of the Company (or your status in the
position held by you immediately prior to the Change in Control) or a
substantial adverse alteration in the nature or status of your
responsibilities from those in effect immediately prior to the Change
in Control of the Company;
(ii) A reduction by the Company in your annual base salary as
in effect on the date hereof or as the same may be increased from time
to time except for an across-the-board salary reduction of a specific
percentage applied to all individuals at grade levels 26 and above and
all individuals in similar grade levels of any person in control of the
Company;
(iii) The relocation of the Company's principal executive
offices where you are working immediately prior to the Change in
Control of the Company to a location more than 50 miles from the
location of such offices immediately prior to the Change in Control of
the Company or the Company's requiring you to be based anywhere other
than the location of the Company's principal executive offices where
you were working immediately prior to the Change in Control of the
Company except for required travel on the Company's business to an
extent substantially consistent with your business travel obligations
during the year prior to the Change in Control;
(iv) The failure by the Company, without your consent, to pay
to you any portion of your current compensation except pursuant to an
across-the-board compensation deferral of a specific percentage applied
to all individuals in grade levels 26 or above and all individuals in
similar grades of any person in control of the Company, or to pay to
you any portion of an installment of deferred compensation under any
deferred compensation program of the Company, within thirty days of the
date such compensation is due;
-5-
(v) The failure by the Company to continue in effect any
compensation plan in which you are participating immediately prior to
the Change in Control of the Company which is material to your total
compensation, including but not limited to, the Company's Bonus Plan,
Executive Deferred Compensation Plan, Deferred Compensation Plan,
Restricted Stock Plan, Stock Option Plan, or any substitute plans
adopted prior to the Change in Control, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made
with respect to such plan, or the failure by the Company to continue
your participation therein (or in such substitute or alternative plan)
on a basis not materially less favorable, both in terms of the amount
of benefits provided and the level of your participation relative to
other participants, as existed immediately prior to the Change in
Control of the Company;
(vi) The failure by the Company to continue to provide you
with benefits substantially similar to those enjoyed by you under any
of the Company's pension, savings and retirement plan, life insurance,
medical, health and accident, or disability plans in which you were
participating at the time of the Change in Control of the Company, the
taking of any action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive you of any material
fringe benefit enjoyed by you at the time of the Change in Control of
the Company, or the failure by the Company to provide you with the
number of paid vacation or PTO days to which you are entitled on the
basis of years of service with the Company in accordance with the
Company's normal vacation policy and/or PTO policy in effect at the
time of the Change in Control of the Company;
(vii) The failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 5 hereof; or
(viii) Any purported termination of your employment by the
Company which is not effected pursuant to a Notice of Termination
satisfying the requirements of Subsection 3(d) hereof and the
requirements of Subsection 3(b) below; for purposes of this Agreement,
no such purported termination shall be effective.
-6-
Your right to terminate your employment pursuant to this Agreement for
Good Reason shall not be affected by your incapacity due to physical or mental
illness. Your continued employment shall not constitute consent to, or a waiver
of rights with respect to, any circumstance constituting Good Reason hereunder.
3. TERMINATION FOLLOWING CHANGE IN CONTROL (OR PRIOR TO A CHANGE IN
CONTROL IN SPECIFIC Circumstances). If any of the events described in Subsection
2(a) hereof constituting a Change in Control of the Company shall have occurred,
then following such Change in Control, you shall be entitled to the benefits
provided in Subsection 4(c) hereof: (1) if your employment was terminated within
six months prior to the Change of Control under the circumstances described in
Section 4.(2) below, or (2) if your employment is terminated during the term of
this Agreement after such Change in Control if such termination is (y) by the
Company, other than for Cause or (z) by you for Good Reason as provided in
Subsection 3(c)(i) hereof or by your Voluntary Termination as provided in
Subsection 3(c)(ii) hereof.
(a) DISABILITY; RETIREMENT. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Company for six consecutive months, and
within thirty days after written notice of termination is given you shall not
have returned to the full-time performance of your duties, your employment may
be terminated for "Disability". Termination by the Company or you of your
employment based on "Retirement" shall mean termination at age 65 (or later)
with ten years of service or retirement in accordance with any retirement
contract between the Company and you.
(b) CAUSE. Termination by the Company of your employment for "Cause"
shall mean termination upon your engaging in willful and continued misconduct,
or your willful and continued failure to substantially perform your duties with
the Company (other than due to physical or mental illness), if such failure or
misconduct is materially damaging or materially detrimental to the business and
operations of the Company, provided that you shall have received written notice
of such failure or misconduct and shall have continued to engage in such failure
or misconduct after 30 days following receipt of such notice from the Board,
which notice specifically identifies the manner in which the Board believes that
you have engaged in such failure or misconduct. For purposes of this Subsection,
no act, or failure to act, on your part shall be deemed "willful" unless done,
or omitted to be
-7-
done, by you not in good faith and without your reasonable belief that your
action or omission was in the best interest of the Company. Notwithstanding the
foregoing, you shall not be deemed to have been terminated for Cause unless and
until there shall have been delivered to you a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the entire membership
of the Board at a meeting of the Board called and held for such purpose (after
reasonable notice to you and an opportunity for you, together with your counsel,
to be heard before the Board), finding that in the good faith opinion of the
Board you were guilty of failure to substantially perform your duties or of
misconduct in accordance with the first sentence of this Subsection, and of
continuing such failure to substantially perform your duties or misconduct as
aforesaid after notice from the Board, and specifying the particulars thereof in
detail.
(c) VOLUNTARY RESIGNATION. After a Change in Control of the Company and
for purposes of receiving the benefits provided in Subsection 4(c) hereof, you
shall be entitled to terminate your employment by voluntary resignation given at
any time during the two years following the occurrence of a Change in Control of
the Company hereunder, provided such resignation is (i) by you for Good Reason
or (ii) by you voluntarily without the necessity of asserting or establishing
Good Reason and regardless of your age or any disability and regardless of any
grounds that may exist for the termination of your employment if such voluntary
termination occurs by written notice given by you to the Company during the
thirty days immediately following the one year anniversary of the Change in
Control (your "Voluntary Termination"), provided, however, for purposes of this
Subsection 3(c)(ii) only, the language "25% or more" in Subsection 2(a)(i)
hereof is changed to "a majority". Such resignation shall not be deemed a breach
of any employment contract between you and the Company.
(d) NOTICE OF TERMINATION. Any purported termination of your employment
by the Company or by you shall be communicated by written Notice of Termination
to the other party hereto in accordance with Section 6 hereof. For purposes of
this Agreement, a "Notice of Termination" shall mean a notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the provision so
indicated.
(e) DATE OF TERMINATION, ETC. "Date of Termination" shall mean:
-8-
(i) If your employment is terminated for Disability, thirty
days after Notice of Termination is given (provided that you shall not
have returned to the full-time performance of your duties during such
thirty day period), and
(ii) If your employment is terminated pursuant to Subsection
(b) or (c) above or for any other reason (other than Disability), the
date specified in the Notice of Termination (which, in the case of a
termination pursuant to Subsection (b) above shall not be less than
thirty days, and in the case of a termination pursuant to Subsection
(c) above shall not be less than fifteen nor more than sixty days
(thirty days in case of your Voluntary Termination), respectively, from
the date such Notice of Termination is given);
Provided that if within fifteen days after any Notice of Termination is given,
or, if later, prior to the Date of Termination (as determined without regard to
this provision), the party receiving such Notice of Termination notifies the
other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (which
is not appealable or with respect to which the time for appeal therefrom has
expired and no appeal has been perfected); provided further that the Date of
Termination shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the resolution of
such dispute with reasonable diligence. Notwithstanding the pendency of any such
dispute, the Company will continue to pay you your full compensation in effect
when the notice giving rise to the dispute was given (including, but not limited
to, base salary) and continue you as a participant in all compensation, bonus,
benefit and insurance plans in which you were participating when the notice
giving rise to the dispute was given, until the dispute is finally resolved in
accordance with this Subsection. Amounts paid under this Subsection are in
addition to all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement.
4. COMPENSATION UPON TERMINATION FOLLOWING A CHANGE OF CONTROL (OR IF
TERMINATION OCCURS PRIOR TO A CHANGE IN CONTROL IN SPECIFIC CIRCUMSTANCES).
Following a Change in Control of the Company as defined in Subsection 2(a),
then: (1) upon termination of your employment after such Change in Control, or
-9-
(2) notwithstanding anything in this Agreement to the contrary, if termination
of your employment occurred within six months prior to the Change in Control if
such termination was by the Company without Cause by reason of the request of
the person or persons (or their representatives) who subsequently acquire
control of the Company in the Change of Control transaction, you shall be
entitled to the following benefits:
(a) Deleted.
(b) If your employment shall be terminated by the Company for Cause,
the Company shall pay you your full base salary through the Date of Termination
at the rate in effect at the time Notice of Termination is given, plus the
Company shall pay all other amounts and honor all rights to which you are
entitled under any compensation plan of the Company at the time such payments
are due, and the Company shall have no other obligations to you under this
Agreement.
(c) If your employment shall be terminated (y) after a Change of
Control, by the Company other than for Cause or (z) after a Change of Control,
by you for Good Reason or by your Voluntary Termination as provided in
Subsection 3(c)(ii), or (yy) within six months prior to a Change of Control, by
the Company under the circumstances described in Section 4.(2) above, then you
shall be entitled to the benefits provided below:
(i) The Company shall pay you your full base salary through
the Date of Termination at the rate in effect at the time Notice of Termination
is given, plus all other amounts to which you are entitled under any
compensation or benefit plan of the Company, at the time such payments are due;
(ii) In lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay as
severance pay to you a lump sum severance payment (the "Severance
Payment") equal to 3.0 times the average of the Annual Compensation (as
defined below) payable to you by the Company or any corporation
affiliated with the Company within the meaning of Section 1504 of the
Internal Revenue Code of 1986, as amended (the "Code"). Annual
Compensation is defined to consist of two components: (a) Your annual
salary in effect immediately prior to the Change in Control or in
effect as of the Date of Termination, whichever annual salary is
higher. Your annual salary for this purpose will be determined without
any reduction for deferrals of such salary under any deferred
compensation plan (qualified or unqualified) and without any reduction
for any salary reductions used for making
-10-
contributions to any group insurance plan of the Company or its
affiliates and also without reduction for any other deductions from
salary for any reason; PLUS (b) The average of your annual bonuses
under the Company's Annual Management Bonus Plan, or any substitute or
successor plan including the Key Executive Officer Annual Incentive
Plan, for the three highest calendar years, in terms of annual bonus
paid to you in such years, during the five calendar years preceding the
calendar year in which the Change in Control occurred. Your annual
bonuses for this purpose will be determined without any reduction for
deferrals under any deferred compensation plan (qualified or
unqualified) and without any reduction for salary reductions used for
making contributions to any group insurance plan of the Company or its
affiliates and also without reduction for any other deductions from
bonus for any reason. If you were not employed by the Company or its
affiliates for a sufficient period of time to receive annual bonuses
during each of the five calendar years before the Change in Control
occurred, then the average bonus will be measured using the three
highest calendar years, in terms of annual bonus paid to you, in all
the consecutive calendar years immediately preceding the date the
Change in Control occurred. If you were not eligible for three years of
bonuses paid during the calendar years immediately preceding the date
the Change in Control occurred, then the average bonus will be the
average of the annual bonuses that were paid to you during such time
under such Plan. If you were not eligible for any bonus during such
time because of not being employed by the Company for a sufficient
period of time to qualify for a previous bonus payment, then Annual
Compensation will only consist of the salary component as provided
above and will not include a bonus component.
(iii) The Company shall also pay to you a pro rata amount of
your target bonus (the bonus amount for your grade level assuming 100
bonus points are earned) as shown on the matrix for the Annual
Management Bonus Plan (or any substitute or successor plan)
attributable to the bonus plan year which contains your Date of
Termination, regardless of whether or not any bonus is determined to be
actually earned for such year, provided that the target bonus for
calculating this pro rata payment will not be less than the target
bonus under such Plan for the Plan year that contains the day
immediately prior to the Change in Control (which target bonus will be
the one that applies to your grade level at that time) regardless of
whether or not any bonus was payable for such year. The pro-rata amount
will be
-11-
based on the percentage of days of your employment in the calendar year
of the Date of Termination. For example, if the Date of Termination is
October 1 in a year with 365 days, with October 1 counted as the last
day of employment for a total of 274 days of employment that year, then
the pro-rata amount will be 75.06849% of target bonus (274 days / 365
days). In addition, the Company shall pay to you the amounts of any
compensation or awards payable to you or due to you under any incentive
compensation plan of the Company including, without limitation, the
Company's Restricted Stock Plan, Stock Option Plan (the "Option Plan")
and Annual Management Bonus Plan (or any substitute or successor plan
including the Key Executive Officer Annual Incentive Plan) and under
any agreements with you in connection therewith, and shall make any
other payments and take any other actions and honor such rights you may
have accrued under such plans and agreements including any rights you
may have to payments after the Date of Termination, which will include
the payment to you of any bonus earned during the bonus year fully
completed prior to the Date of Termination if such Date of Termination
occurs prior to the payment date for such bonus, it being understood,
however, that the pro-rata payment provided for in the first sentence
of this paragraph 4(c)(iii) is in lieu of any bonus earned for the
bonus plan year during which occurred the Date of Termination.
(iv) In lieu of shares of common stock of the Company or any
securities of a successor company which shall have replaced such common
stock ("Company Shares") issuable upon exercise of outstanding and
unexercised options (whether or not they are fully exerciseable or
"vested"), if any, granted to you under the Option Plan including
options granted under the plan of any successor company that replaced
or assumed the options under said Option Plan ("Options") (which
Options shall be cancelled upon the making of the payment referred to
below), you shall receive an amount in cash equal to the product of (y)
the excess of the higher of the closing price of Company Shares as
reported on the New York Stock Exchange on or nearest the Date of
Termination (or, if not listed on such exchange, on a nationally
recognized exchange or quotation system on which trading volume in
Company Shares is highest) or the highest per share price (including
cash, securities and any other consideration) for Company Shares
actually paid in connection with any change in control of the Company,
over the per share exercise price of each Option held by you (whether
or not then fully exercisable or "vested"), times (z) the number of
Company Shares covered by each such option.
-12-
(v) The Company shall also pay to you all legal fees and
expenses incurred by you as a result of such termination (including all
such fees and expenses, if any, incurred in contesting or disputing any
such termination or in seeking to obtain or enforce any right or
benefit provided by this Agreement or in connection with any tax audit
or proceeding to the extent attributable to the application of Section
4999 of the Code to any payment or benefit provided hereunder).
(vi) In the event that you become entitled to the payments
(the "Severance Payments") provided under paragraphs (ii), (iii), and
(iv), above (and Subsections (d) and (e), below), and if any of the
Severance Payments will be subject to the tax (the "Excise Tax")
imposed by Section 4999 of the Code, the Company shall pay to you at
the time specified in paragraph (vii), below, an additional amount (the
"Gross-Up Payment") such that the net amount retained by you (such net
amount to be the amount remaining after deducting any Excise Tax on the
Severance Payments and any federal, state and local income tax and
Excise Tax payable on the payment provided for by this paragraph),
shall be equal to the amount of the Severance Payments after deducting
normal and ordinary taxes but not deducting (a) the Excise Tax and (b)
any federal, state and local income tax and Excise tax payable on the
payment provided for by this paragraph. For example, if the Severance
Payments are $1,000,000 and if you are subject to the Excise Tax, then
the Gross-Up Payment will be such that you will retain an amount of
$1,000,000 less only any normal and ordinary taxes on such amount. (The
Excise Tax and federal, state and local taxes and any Excise Tax on the
payment provided by this paragraph will not be deemed normal and
ordinary taxes). For purposes of determining whether any of the
Severance Payments will be subject to the Excise Tax and the amount of
such Excise Tax, the following will apply:
(A) Any other payments or benefits received or to be
received by you in connection with a Change in Control of the
Company or your termination of employment (whether pursuant to
the terms of this Agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in
a Change in Control of the Company or any person affiliated
with the Company or such person) shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2)
of the Code, and all "excess
-13-
parachute payments" within the meaning of Section 280G(b)(1) shall be
treated as subject to the Excise Tax, unless in the opinion of tax
counsel selected by the Company's independent auditors and acceptable
to you such other payments or benefits (in whole or in part) do not
constitute parachute payments, or such excess parachute payments (in
whole or in part) represent reasonable compensation for services
actually rendered within the meaning of Section 280G(b)(4) of the Code
in excess of the base amount within the meaning of Section 280G(b)(3)
of the Code, or are otherwise not subject to the Excise Tax;
(B) The amount of the Severance Payments which shall
be treated as subject to the Excise Tax shall be equal to the
lesser of (y) the total amount of the Severance Payments or
(z) the amount of excess parachute payments within the meaning
of Section 280G(b)(1) (after applying clause (A), above); and
(C) The value of any non-cash benefits or any
deferred payment or benefit shall be determined by the
Company's independent auditors in accordance with proposed,
temporary or final regulations under Sections 280G(d)(3) and
(4) of the Code or, in the absence of such regulations, in
accordance with the principles of Section 280G(d)(3) and (4)
of the Code. For purposes of determining the amount of the
Gross-Up Payment, you shall be deemed to pay Federal income
taxes at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be
made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of your residence
on the Date of Termination, net of the maximum reduction in
Federal income taxes which could be obtained from deduction of
such state and local taxes. In the event that the amount of
Excise Tax attributable to Severance Payments is subsequently
determined to be less than the amount taken into account
hereunder at the time of termination of your employment, you
shall repay to the Company, at the time that the amount of
such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction
(plus the portion of the Gross-Up Payment attributable to the
Excise Tax and Federal (and state and local) income tax
imposed on the Gross-Up Payment being repaid by you if such
repayment results in a reduction in Excise Tax and/or a
Federal
-14-
(and state and local) income tax deduction) plus interest on
the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax
attributable to Severance Payments is determined to exceed the
amount taken into account hereunder at the time of the
termination of your employment (including by reason of any
payment the existence or amount of which cannot be determined
at the time of the Gross-Up Payment), the Company shall make
an additional gross-up payment to you in respect of such
excess (plus any interest payable with respect to such excess)
at the time that the amount of such excess is finally
determined.
(vii) The payments provided for in paragraphs (ii), (iii),
(iv) and (vi) above, shall be made not later than the fifth day
following the Date of Termination (or following the date of the Change
in Control if your employment is terminated under the circumstances
described in Section 4.(2) above), provided, however, that if the
amounts of such payments cannot be finally determined on or before such
day, the Company shall pay to you on such day an estimate, as
determined in good faith by the Company, of the minimum amount of such
payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code) as
soon as the amount thereof can be determined but in no event later than
the thirtieth day after the Date of Termination (or following the date
of the Change in Control if your employment is terminated under the
circumstances described in Section 4.(2) above). In the event that the
amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by the
Company to you payable on the fifth day after demand by the Company
(together with interest at the rate provided in Section 1274(b)(2)(B)
of the Code).
(d) If your employment shall be terminated (y) by the Company other
than for Cause, or (z) by you voluntarily for Good Reason or by your Voluntary
Termination, or by the Company within six months prior to a Change in Control
under the circumstances described in Section 4.(2) hereof, then for a
twenty-four month period after such termination, the Company shall arrange to
provide you with life, disability, accident and health insurance benefits
substantially similar to those which you are receiving immediately prior to the
Notice of Termination. Benefits otherwise receivable by you pursuant to this
Subsection 4(d) shall be reduced to the extent comparable benefits are actually
received by you during the twenty-four month period following your termination,
and any such benefits actually received by you shall be reported to the Company.
-15-
(e) In the event a Change in Control of the Company occurs while you
are employed with the Company or its affiliates but after you and the Company
have executed an agreement that expressly provides for your subsequent
retirement including an agreement that expressly provides for your early
retirement, then the present value, computed using a discount rate of 8% per
annum, of (i) the total amount of all unpaid deferred payments as payable to you
in accordance with the payment schedule that you elected when the deferral was
agreed to and using the plan interest rate applicable to your situation,
including, without limitation, any unpaid deferred payments to be paid to you
under the Company's Executive Deferred Compensation Plan and the Company's other
deferred compensation plans, and (ii) the total amount of all other payments
payable or to become payable to you or your estate or beneficiary under such
retirement agreement (other than payments payable pursuant to a plan qualified
under Section 401(a) of the Internal Revenue Code) shall be accelerated and paid
to you (or your estate or beneficiary if applicable) in a lump sum cash payment
within five business days after the occurrence of the Change in Control of the
Company. In addition, if you and the Company or its affiliates have executed
such a retirement agreement and if the Change in Control of the Company occurs
before the effective date of your retirement, then you shall receive the
Severance Payment payable under Subsection 4(c)(ii) herein in addition to the
lump sum cash payment of the present value of your total unpaid deferred
payments and other payments under the retirement agreement as aforesaid. All
benefits (other than the payments accelerated and paid out to you in a lump sum
as provided above) to which you or your estate or any beneficiary are entitled
under such retirement agreement shall continue in effect notwithstanding the
Change in Control of the Company. This Subsection 4(e) shall survive your
retirement.
(f) Notwithstanding that a Change in Control shall not have yet
occurred, if you so elect, by written notice to the Company given at any time
after the date hereof and prior to the time such amounts are otherwise payable
to you:
(i) The Company shall deposit with an escrow agent, pursuant
to an escrow agreement between the Company and such escrow agent, a sum
of money, or other property permitted by such escrow agreement, which
are substantially sufficient in the opinion of the Company's management
to fund payment of the following amounts to you, as such amounts become
payable (provided such deposit will not be necessary to the extent the
escrow already contains funds or other assets which are substantially
sufficient in the opinion of the Company's management to fund such
payments) :
-16-
(A) Amounts payable, or to become payable, to you or
to your beneficiaries or your estate under the Company's
Executive Deferred Compensation Plan and under any agreements
related thereto in existence at the time of your election to
make the deposit into escrow.
(B) Amounts payable, or to become payable, to you or
to your beneficiaries or your estate by reason of your
deferral of payments payable to you prior to the date of your
election to make the deposit into escrow under any other
deferred compensation agreements between you and the Company
in existence at the time of your election to make the deposit
into escrow, including but not limited to deferred
compensation agreements relating to the deferral of salary or
bonuses.
(C) Amounts payable, or to become payable, to you or
to your beneficiaries or your estate under any executed
agreement that expressly provides for your retirement from the
Company (including payments described under Subsection 4(e)
above) which agreement is in existence at the time of your
election to make the deposit into escrow, other than amounts
payable by a plan qualified under Section 401(a) of the Code.
(D) Subject to the approval of the Committee, amounts
then due and payable to you, but not yet paid, under any other
benefit plan or incentive compensation plan of the Company
(whether such amounts are stock or cash) other than amounts
payable to you under a plan qualified under Section 401(a) of
the Code.
(ii) Within 5 days after the occurrence of a Potential Change
of Control, the Company shall deposit with an escrow agent (which shall
be the same escrow agent, if one exists, acting pursuant to clause (i)
of this Subsection 4(f)), pursuant to an escrow agreement between the
Company and such escrow agent, a sum of money, or other property
permitted by such escrow agreement, substantially sufficient in the
opinion of Company management to fund the payment to you of the amounts
specified in Subsection 4(c) of this Agreement.
(iii) It is intended that any amounts deposited in escrow
pursuant to the provisions of clause (i) or (ii) of this Subsection
4(f), shall be subject to the claims of the Company's creditors, as set
forth in the form of such escrow agreement.
-17-
(g) You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in this Section 4 be
reduced by any compensation earned by you as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by you to the Company, or otherwise (except as specifically provided in
this Section 4).
(h) In addition to all other amounts payable to you under this Section
4, you shall be entitled to receive all benefits payable to you under any
benefit plan of the Company in which you participate to the extent such benefits
are not paid under this Agreement.
5. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle you to compensation from the Company in the same amount and on the
same terms as you would be entitled to hereunder if you terminate your
employment voluntarily for Good Reason following a Change in Control of the
Company, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devises and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or, if there
is no such designee, to your estate.
-18-
6. NOTICES. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage prepaid, by FAX
if available, or by overnight courier service, addressed as follows:
To the Company:
Secretary
Xxxxxx'x Entertainment, Inc.
0000 Xxxxxx Xxxx
Xxxxxxx, XX 00000
FAX: 000-000-0000
To you:
Addressed to your name at your office address (or FAX
number) with the Company or its affiliates (or any
successor thereto) at the time the notice is sent and
your home address at that time; and if you are not
employed by the Company at the time of the notice,
your home address as shown on the records of the
Company or its affiliates (or any successor thereto)
on the date of the notice.
To such other address as either party may have furnished to the other
in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
7. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by you and such officer as may be specifically designated
by the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Delaware. All references to sections of the Exchange
Act or the Code shall be deemed also to refer to any successor provisions to
such sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the Company under Section 4 shall survive the expiration of the
term of this Agreement.
-19-
8. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. COUNTERPARTS. 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.
10. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Memphis, Tennessee in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction; provided, however, that you shall be entitled to
seek specific performance of your right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.
11. SIMILAR PROVISIONS IN OTHER AGREEMENT. The Severance Payment under
this Agreement supersedes and replaces any previous severance agreement and any
other severance payment to which you may be entitled under any previous
agreement between you and the Company or its affiliates.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our binding agreement on this subject.
Very truly yours,
XXXXXX'X ENTERTAINMENT, INC.
By: /s/ X. X. Xxxxxxxx, Xx.
-----------------------
X. X. Xxxxxxxx, Xx.
Senior Vice President
Agreed:
/s/ Xxxxxxx X. Xxxx
------------------------
Xxxxxxx X. Xxxx
-20-
