July 15, 1995
Xxxxx X. Xxxxx
00 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Dear Xxx:
In connection with, and in consideration of, your continuing services in the
position of Executive Vice President & Chief Operating Officer with Xxxxx Xxxxxx
Toys, Inc. (the "Company"), the Company hereby offers you the following:
1. a. If you are terminated by the Company for reasons other than
"cause" (as hereinafter defined), or other than in connection with a change in
control of the Company (which is provided for in paragraph 2 below), you will
receive a continuation of your base annual salary ("Salary Continuation") that
is in effect as of the date of termination of your employment ("Termination
Date") and a continuation of certain other benefits as hereinafter provided
("Other Benefits", and collectively with the Salary Continuation "Severance
Benefits"), for a maximum period of twelve (12) months from and after the
Termination Date ("Extension Period"); provided, however, that from and after
your Termination Date you will not receive or be entitled to any continuation of
any bonus or profit sharing participation or eligibility for any part or all of
the Company's fiscal year in which the Termination Date occurs. Except as
provided below, Salary Continuation during the Extension Period will be paid on
the Company's normal payroll schedule. If, however, during the Extension Period
you commence regular full-time employment elsewhere, your ongoing Severance
Benefits shall cease as of the date you commence said employment; provided,
however, that as of that date a calculation shall be made to determine the
aggregate amount of Salary Continuation (excluding Other Benefits) that remains
unpaid and which you would have otherwise been entitled to receive during the
remaining portion of the Extension Period, and the Company shall promptly pay
you a lump sum (minus withholdings and other required deductions) of an amount
equal to one-half (1/2) of such unpaid amount.
b. The Other Benefits referred to in paragraph l.a. above include
all medical, health and welfare and insurance benefits that were in effect and
in which you participated as of the Termination Date and these will continue
during the Extension Period
until the earlier to occur of twelve (12) months from the Termination Date or
the date you become eligible for benefits from a subsequent employer. The
provisions and conditions covering these Other Benefits, including but not
limited to the amount of any contributions to be made by you on a monthly or
other periodic basis, will be governed by the various plans as they are in
effect from time to time. Notwithstanding the foregoing, earned Flexible Time
Off ("FTO") stops accruing and/or being earned as of your Termination Date and
all contributions to the Company's 401k and "cafeteria" benefit plan shall stop
as of the Termination Date.
c. Your automobile allowance and automobile program benefits,
including your Company gasoline credit card and reimbursement for maintenance,
insurance and other auto-related expenses, will cease as of the Termination Date
and will not be extended to you during the Extension Period. The amount
constituting the Salary Continuation that you are paid during the Extension
Period will be adjusted downward to eliminate the monthly auto allowance that
you were receiving immediately prior to the Termination Date.
d. For purposes of this letter, "regular full-time employment
elsewhere" shall not include or be deemed to include any situation where you
become self-employed, or any self-employment circumstances where you own or
control at least 51% percent of the stock or other controlling equity of an
entity that serves as your employer and was created after the Termination Date
solely for the purpose of your ongoing employment.
e. For purposes of this letter, "cause" shall mean:
i. Your gross neglect, knowing refusal or knowing failure
to properly perform the material duties and responsibilities of your position or
to properly perform to a material extent the reasonable directives or
instructions of your immediate supervisor, whether any of the foregoing is
evidenced by a single act or a series of acts;
ii. Your gross neglect, knowing refusal or willful failure
to adhere or conform to, or abide by, the Company's policies and procedures,
whether evidenced by a single act or a series of acts;
iii. Any act or acts of dishonesty, gross negligence,
willfulness, theft, fraud, violations of law (including, but not limited to,
convictions of a felony or other crime involving moral turpitude, or the
entering of a guilty plea or a plea of nolo contendre in connection with any
such felony or moral turpitude charge) or other intentional conduct, whether or
not in the course of or outside the scope of your employment, which in the
reasonable
opinion of the Company has had, or may or will have, a material adverse effect
on the Company's business, property, goodwill or reputation.
In the event of a termination for cause, including one that occurs after
a change in control, the Company will pay you, no later than five (5) days after
the Termination Date, any unpaid compensation for services performed prior to
the Termination Date and the amount of any accrued but unused FTO to which you
are entitled. Thereafter, the Company shall have no further obligations to you.
2.. Change in Control
a. For purposes of this letter, a "change in control" of the
Company shall be deemed to occur as of the date on which: (i) a person or entity
or group of persons or entities, acting in concert ("Person") shall, in a
transaction in which the Company is not a party, become the direct or indirect
beneficial owner (within the meaning of Rule 13d-3 of the Securities and
Exchange Act of 1934, as amended from time to time) of securities of the Company
representing fifty-one percent (51%) or more of the combined voting power of the
issued and outstanding common stock of the Company (a "Majority Owner") or (ii)
the majority of the Company's Board of Directors is no longer comprised of the
incumbent Directors who constitute the Board of Directors on the date of this
letter and any other individual(s) who becomes a Director subsequent to the date
of this letter whose initial election or nomination for election as a Director,
as the case may be, was approved by at least a majority of the Directors who
comprise the incumbent Directors as of the date of such election or nomination
("Incumbent Directors"); provided, however, that if the composition of the
Company's Board of Directors changes after or in conjunction with a transaction
to which the Company is a party that results in a Person becoming a Majority
Owner then, for purposes of this Paragraph 2.a., and notwithstanding the
approval of the majority of the Incumbent Directors, a change in control will be
deemed to have taken place if, and on the date that, there is a change in more
than one-third (1/3) of the Board of Directors during the twelve (12) month
period following such a transaction or in more than one-half (1/2) of the Board
of Directors during the twenty-four (24) month period following such a
transaction.
b. Subject to paragraph 2.d. below, if within a period of eighteen
(18) months following the date of such a change in control:
(i) you are either terminated for reasons other than cause,
or
(ii) you experience a material diminution of your job
responsibilities or authority or a demotion in the level of your reporting
relationship or a reduction in your then-existing salary, or you are required to
relocate
outside of the San Francisco Bay area, and within thirty (30) days from the
occurrence of such act you exercise your right under this subparagraph b. to
terminate your employment by written notice to the Company, whereupon the
Termination Date will be the date of receipt of such notice by the Company,
then, no later than five (5) days after such Termination Date you will
receive the following:
(aa) A lump sum payment (minus withholdings and other
required deductions) of an amount equal to two (2) times your total base annual
salary that is in effect immediately prior to the Termination Date or, if
applicable, immediately prior to the date of a reduction in salary, plus twenty-
four (24) times the amount to which you are then entitled for the monthly
automobile allowance; and
(bb) An additional lump sum payment (minus withholdings and
other required deductions) of an amount equal to the greater of two (2) times:
(x) the bonus that was actually paid to you for the year's results for the
Company's fiscal year immediately preceding the year in which your Termination
Date occurs, or (y) the bonus anticipated, if any, for the current fiscal year
in which your Termination Date occurs based upon the actual results as compared
to the Company's financial plan as of such Termination Date. For clarification
purposes, an example of this alternative bonus calculation is set forth in
Schedule 1, which is attached hereto and hereby made part of this letter. It is
also acknowledged that the amount payable under this subparagraph may be zero if
there was no bonus paid in the preceding year and no bonus anticipated in the
current year as of the Termination Date.
c. Subject to paragraph 2.d. below, in addition to the lump sum
payments provided for in paragraph 2.b. above, commencing upon the Termination
Date you will also start receiving and be entitled to the following:
(i) All Other Benefits that were in effect and in which you
participated immediately prior to the Termination Date, for the period of the
earlier to occur of twenty-four (24) months following the Termination Date or
the date you become eligible for benefits from a subsequent employer. The
provisions and conditions covering these Other Benefits, including but not
limited to the amount of any contributions to be made by you on a monthly or
other periodic basis, will be governed by the various plans as they are in
effect from time to time. Notwithstanding the foregoing, earned FTO stops
accruing and/or being earned as of your Termination Date and all contributions
to the Company's 401k and "cafeteria" benefit plan shall stop as of the
Termination Date.
(ii) In addition to the lump sum payment of the monthly
automobile allowance (referred to in paragraph 2.b.(i) above), for the period of
twenty four (24) months following the Termination Date you will be entitled to
continue to receive reimbursement for items such as automobile maintenance,
insurance and other auto-related expenses, including the use of a Company
gasoline credit card, all in accordance with the Company's executive automobile
allowance and reimbursement program as it is in effect on the Termination Date
and from time to time thereafter.
d. It is acknowledged and understood that the compensation plus
other benefits for which you are otherwise eligible pursuant to a change in
control of the Company in accordance with paragraphs 2b. and c. above may
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), and that payment of the
aggregate total of such compensation and benefits could constitute an "excess
parachute payment" under Section 280G of the Code if it equals an amount in
excess of 2.99 times your "Base Amount" as that term is defined in said Section
280G, thereby resulting in some or all of such aggregate total being subject to
the excise tax under Section 4999 of the Code. (See attached letter from
Shereff, Xxxxxxxx for further explanation.) It is agreed that in such event your
payment shall be your choice of either (i) the aggregate total of such
compensation and benefits, or (ii) the aggregate total of such compensation and
benefits reduced by the minimum amount necessary so that no portion thereof will
be subject to the excise tax under Section 4999 of the Code. It is also
understood and agreed that the Company will not "gross-up" or make any other
additional payments to you that are intended, directly or indirectly, to
partially or wholly offset any such excise tax obligations.
3. This letter and the other documents expressly referenced herein
constitute the sole and exclusive agreement between you and the Company with
regard to the specific subject matter contained herein concerning your severance
for a termination other than for cause, the definition of "cause", and a change
in control, and this letter supersedes and replaces that portion of any prior
agreement or covenant, whether written or oral, between you and the Company
expressly covering any one or more of these specific items, including without
limitation that letter agreement dated July 15, 1993. However, subject to this
paragraph 3 and except as expressly set forth and/or amended herein, any other
written agreement that you have with the Company concerning your current
employment will remain in full force and effect.
4. The terms and conditions of this letter shall continue in full force and
effect for a period of twenty-four (24) months from the date of this letter, at
which time such terms and conditions shall automatically terminate unless
renewed in writing by the Company, or unless prior to that date you have been
terminated pursuant to the terms hereof or a
change in control has occurred in which event the terms and conditions of this
letter will continue for the purposes thereof.
Please sign and date the duplicate originals of this letter in the place
provided below, retain one fully executed original for your file and return the
other fully executed original to my attention.
Sincerely yours,
XXXXX XXXXXX TOYS, INC.
/s/ Xxxx X. Xxxxxxx
-------------------
Xxxx X. Xxxxxxx
President and
Chief Executive Officer
ACCEPTED AND AGREED TO THIS 28TH DAY OF JULY, 1995:
/s/ Xxxxx X. Xxxxx
---------------------
Xxxxx X. Xxxxx
Attachments - Schedule 1
Tax Letter
