Exhibit (10)(h)(1)
EMPLOYMENT AGREEMENT
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EMPLOYMENT AGREEMENT dated as of April 8, 1996, between XXXX
MANUFACTURING CO., a Pennsylvania corporation (the "Company"), and XXXXXX X.
XXXXXXXX (the "Executive").
W I T N E S S E T H T H A T
WHEREAS, the Company desires to employ Executive as its
Chairman and Chief Executive Officer, and Executive desires to accept such
employment; and
WHEREAS, the parties further desire to set forth herein the
terms and conditions of the Executive's employment by the Company in an
Employment Agreement.
THEREFORE, in consideration of the mutual obligations and
agreements contained herein and the mutual benefits to be derived herefrom, and
intending to be legally bound hereby, the Executive and the Company agree as
follows:
SECTION 1. CAPACITY AND DUTIES
1.1 Employment; Acceptance of Employment. Company hereby
employs Executive and Executive hereby accepts employment by Company for the
period and upon the terms and conditions hereinafter set forth.
1.2 Capacity and Duties.
(a) Executive shall be employed by Company generally
as its Chairman and Chief Executive Officer and, subject to the supervision of
the Board of Directors of Company (the "Board"), shall perform such duties and
shall have such authority consistent with his position as may from time to time
be specified by the Board. Executive shall report directly to the Board and
shall perform his duties for Company principally from Company's office located
in the Philadelphia metropolitan area, except for periodic travel that may be
necessary or appropriate in connection with the performance of Executive's
duties hereunder.
(b) Executive shall devote his full working time,
energy, skill and best efforts to the performance of his duties hereunder, in a
manner which will faithfully and diligently further the business and interests
of Company and its affiliates (as defined below), and shall not be employed by
or participate or engage in or be a part of in any manner the management or
operation of any business enterprise other than Company and its affiliates
without the prior written consent of
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the Board, which consent may be granted or withheld in its sole discretion. For
purposes of this Agreement, "affiliate" means any entity of which at least 50%
of the voting power thereof is controlled by the Company.
SECTION 2. TERM OF EMPLOYMENT
2.1 Term. The Executive's employment under this Agreement
shall commence as of June 1, 1996, or such earlier date as the Company and
Executive shall agree, and shall, unless sooner terminated in accordance with
the provisions hereof, continue uninterrupted for an initial two-year term
expiring May 31, 1998. The Executive's employment shall continue thereafter from
year-to-year, until terminated in accordance with the provisions hereof.
SECTION 3. COMPENSATION
3.1 Basic Compensation. As compensation for Executive's
services hereunder, Company shall pay to Executive a salary at the annual rate
of $450,000 (the "Base Salary"), payable in periodic installments in accordance
with Company's regular payroll practices in effect from time to time. If
Executive commences employment prior to June 1, 1996, he shall be paid a pro
rata portion of the Base Salary for the period of his employment prior to June
1, 1996. The Base Salary shall be reviewed from time to time by the Compensation
Committee of the Board as conditions warrant, but not less frequently than on
each anniversary of the Executive's employment; such review shall consider, but
not be limited to, Executive's performance as determined by the Compensation
Committee. Executive's Base Salary may be increased as a result of such review
but shall not be decreased except as part of an overall reduction in the
compensation of the Company's senior executive officers.
3.2 Incentive Compensation; Stock Options; Phantom Stock.
(a) Annual Incentive Pay/Bonus. In addition to the
Base Salary provided for in Section 3.1, the Executive will participate in the
Company's Incentive Compensation Program, with targets to be established by the
Board, under which the Executive may receive incentive pay up to a maximum of 70
percent of Base Salary in each of the Company's fiscal years (such Base Salary
for the fiscal year ending November 26, 1996 to be the amount actually paid to
the Executive for such fiscal year pursuant to Section 3.1 hereof), provided,
however, that for the 1996 fiscal year, such incentive pay shall not be less
than $300,000, such minimum amount to be paid on or before December 31, 1996,
and for the 1997 fiscal year ending in November, 1997, shall not be less than
$225,000, such minimum amount to be paid on or before December 31, 1997.
(b) Stock Option Grants. As an inducement to the
Executive to increase shareholder value, the Company desires that the Executive
acquire a substantial number of shares of the Company's common stock. To carry
out this purpose, the following stock option grants will be provided by the
Company:
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(i) One-Time Grant. On the Executive's employment
commencement date, the Company will grant a nonqualified stock option to the
Executive to purchase 175,000 shares of the Company's common stock ("Common
Stock") pursuant to a separate stock option agreement made under and subject to
the Company's 1993 Stock Option and Stock Grant Plan (the "Stock Option Plan"),
with the exercise price under the option to be the mean between the highest and
lowest quoted selling prices of the Common Stock on the New York Stock Exchange
on the Executive's employment commencement date, or, if such date is not a
regular business day, on the immediately preceding regular business day, and
with such option to be exercisable, in whole or in part, beginning one year
after the date of grant and continuing for ten years from the date of grant.
(ii) Annual Stock Option Grants. During the
Executive's employment hereunder, the Company will make, commencing in fiscal
1997, annual grants of nonqualified stock options to the Executive for a number
of shares of Common Stock as determined by the Compensation Committee of the
Board but which shall be equivalent in value, on the date of grant, of up to one
times the Executive's Base Salary. Such annual grants shall be made generally at
such times, at such exercise prices, and in a manner consistent with, and under
the same terms and conditions as are contained in, options granted to other
senior officers of the Company, as determined by the Compensation Committee, and
shall be made under and subject to the Stock Option Plan, or any successor plan.
By way of illustration, such annual grants are customarily made within two
months following the close of the Company's fiscal year.
(iii) Long-Term Incentive Stock Option Grants. It is
intended that the Executive during his employment hereunder shall participate in
a long-term incentive program for the executive officers of the Company now in
the process of development by the Compensation Committee. Until such program has
been completed and adopted by the Board, the Company will make, commencing in
fiscal 1997, an annual grant of nonqualified stock options to the Executive in a
number of shares of Common Stock as determined by the Compensation Committee
equivalent in value, on the Date of Grant, of up to one and one-half times the
Executive's Base Salary. Such annual grants shall be made generally at such
times, at such exercise prices, and in a manner consistent with, and under the
same terms and conditions as are contained in options granted to other senior
officers of the Company, as determined by the Compensation Committee, and shall
be made under and subject to the Stock Option Plan, or any successor plan. By
way of illustration, such annual grants are customarily made within two months
following the close of the Company's fiscal year.
(c) Phantom Stock Award. On the Executive's
employment commencement date, the Executive will become a participant in a
special phantom stock plan, as set forth in Appendix A hereto, which will
include an award to the Executive of 175,000 phantom shares of Company Common
Stock, and in which the Executive shall become vested in accordance with the
following vesting schedule:
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No. of Phantom Shares
Date Becoming Vested
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December 1, 1996 43,750
December 1, 1997 43,750
December 1, 1998 43,750
December 1, 1999 43,750
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175,000
The specific terms and conditions pertaining to the phantom
stock are set forth in Appendix A.
3.3 Executive Benefits. In addition to the compensation
provided for in Sections 3.1 and 3.2 hereof, the Executive shall be entitled
during the term of his employment hereunder to participate in the benefit plans
maintained by the Company for its senior corporate officers, which currently
include, among others, the Company's Pension Plan, Savings Plan, Supplemental
Executive Benefits Plan, and Group Life and Medical Plans. Executive shall also
be eligible for such other of Company's employee benefit plans and benefit
programs as may from time to time be provided for other employees of Company
whose duties, responsibilities, and compensation are reasonably comparable to
those of Executive, but, other than as set forth in Sections 4.4 and 4.5 hereof,
shall not be eligible for any severance or termination benefits under any
Company plans, policies or procedures providing for such benefits, including,
but not limited to, the Xxxx Manufacturing Co. Officers' Severance Plan and the
Xxxx Manufacturing Co. Non-Officer Severance Plan, and any predecessor or
successor plan.
3.4 Vacation. After ninety days of service, Executive shall be
entitled to five weeks of paid vacation during each twelve-month period ending
on the anniversary of his date of employment.
3.5 Expense Reimbursement. During the term of his employment
hereunder, Company shall reimburse Executive for all reasonable expenses
incurred by him in connection with the performance of his duties hereunder in
accordance with its regular reimbursement policies as in effect from time to
time and upon receipt of itemized vouchers therefor and such other supporting
information as Company may reasonably require. In addition, Company shall
reimburse Executive for the reasonable moving expenses incurred by him in moving
his family's residence from Los Angeles, CA to Philadelphia, PA to commence
employment hereunder, including specifically the cost of a relocation service to
purchase Executive's home at its current appraised value; the cost of the
physical move of household goods; prevalent real estate sales commissions; legal
expenses; mortgage points that are customary and prevalent at the time of
purchase of a principal residence, provided such points are incurred within one
year from his date of employment; temporary living expenses for a period not in
excess of three months; and the cost of two trips from Los Angeles to
Philadelphia for Executive and his spouse, of up to five days' duration each,
for the purpose of locating a satisfactory personal residence. Temporary living
expenses shall include rental of temporary housing; laundry
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charges; breakfast and dinner expenses; the cost of a rental car until the
Company-provided leased car arrives; and temporary living costs while waiting
for a moving truck to arrive in Los Angeles or Philadelphia. Reasonable moving
expenses shall also include the reimbursement of Executive's interest expense,
for a period of up to six months, on a swing loan obtained by the Executive
pending the sale of his Los Angeles residence and the reimbursement of duplicate
carrying charges consisting of interest and real estate taxes, for a period of
up to six months, on Executive's personal residence in Los Angeles following his
purchase of a personal residence in Philadelphia. To the extent that the
expenses reimbursed under this Section 3.5 are included in the Executive's
income for purposes of federal, state or local taxes, the Company shall increase
such reimbursement, first, by an amount sufficient to provide for the payment of
such taxes, and, second, by an amount sufficient to provide for the payment of
taxes on such taxes, but not by any additional amount.
3.6 Automobile. During the term of his employment hereunder,
Company shall provide Executive with a leased automobile, for which the Company
shall pay a minimum of $22,500 over the term of a three-year lease, with
increasing payments in accordance with Company policies, for use in connection
with the performance of his duties hereunder and shall reimburse him for all
expenses reasonably incurred by him for the maintenance, insurance and
operation, including fuel, of such automobile in connection with the performance
of his duties hereunder, upon receipt of itemized vouchers therefor and such
other supporting information as Company may reasonably require. In accordance
with Company policies, the Executive shall be charged for personal use of the
automobile. Company shall also provide a car telephone and reimburse Executive
for monthly business telephone charges.
3.7 Other Perquisites. In addition to the fringe benefits
described in Sections 3.3 through 3.6, during the term of his employment
hereunder the Company will reimburse Executive for the cost of his participation
in airline clubs used when travelling on Company business on commercial
airlines; for initiation fees and monthly dues for membership in a business club
in Philadelphia; for the cost of preparation of Executive's tax returns; and
will provide a Company computer for use in his home on Company business,
including hardware and necessary software.
SECTION 1. TERMINATION OF EMPLOYMENT
1.1 Death of Executive. Executive's employment hereunder shall
immediately terminate upon his death. If the Executive's death occurs during the
initial two-year term of his employment, the Company shall promptly pay to
Executive's estate all of the compensation provided for in Sections 3.1 and
3.2(a) hereof to be paid during the remainder of such term, but in no event for
less than six months following the date of death. If Executive's death occurs
after the initial two-year term of his employment, the Company shall promptly
pay to Executive's estate all of the compensation provided for in Sections 3.1
and 3.2(a) hereof for a period of six months following the date of death. The
Company shall also be obligated to provide such additional vesting as is
specified in Section 4.4(c) hereof, relating to termination without Cause.
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1.2 Disability of Executive. In the event of the Executive's
Disability (as defined below), the Board shall have the right to terminate
Executive's employment upon 90 days' prior written notice to Executive at any
time during the continuation of such Disability. For purposes of this Agreement,
"Disability" shall mean: (A) a physical or mental disability which, at least 26
weeks after its commencement, is determined to be total and permanent by a
physician selected by the Company or its insurers and reasonably acceptable to
the Executive or the Executive's legal representative or (B) if the Company then
has in effect a disability plan covering executives generally, including the
Executive, the definition of covered total and permanent "disability" set forth
in such plan. If the Executive's employment is terminated pursuant to this
Section 4.2 during the initial two-year term of his employment, Company shall
continue to pay to Executive the compensation provided for in Sections 3.1 and
3.2(a) hereof until the end of such term but in no event for less than six
months following the date of termination. If the Executive's employment is
terminated pursuant to this Section 4.2 after the initial two-year term, the
Company shall continue to pay to Executive the compensation provided for in
Sections 3.1 and 3.2(a) hereof for six months following the date of termination.
The Company shall also be obligated to provide such additional vesting and other
benefits as are specified in Section 4.4(c), relating to termination without
Cause.
1.3 Termination for Cause. Executive's employment hereunder
shall terminate immediately upon notice that the Board is terminating Executive
for "Cause" (as defined below), in which event Company shall not thereafter be
obligated to make any further payments hereunder other than amounts (including
salary, bonuses, expense reimbursement, etc.) accrued under this Agreement as of
the date of such termination in accordance with generally accepted accounting
principles. As used herein, "Cause" shall mean: (A) willful and material breach
of this Agreement by the Executive, (B) Executive's dishonesty, fraud, willful
malfeasance, gross negligence or other gross misconduct, in each case relating
to the performance of the Executive's employment hereunder, or (C) conviction of
or plea of guilty to a felony; such Cause to be determined, in each case, by a
resolution approved by at least two-thirds of the Directors of Company after
having afforded the Executive a reasonable opportunity to appear before the
Board and present his position. The Company shall give the Executive not less
than 60 days prior written notice of any intended termination of the Executive's
employment by the Company and its subsidiaries for Cause. Such notice shall
specify the grounds for such termination, and the Company and its subsidiaries
shall only be entitled to terminate the Executive for Cause if the Executive
shall have failed to remedy such Cause within said 60-day notice period.
1.4 Resignation; Termination without Cause.
(a) After the initial term of his employment, the
Executive may resign at any time upon not less than 180 days' prior written
notice to the Board of such proposed resignation, or upon such shorter notice as
the parties may agree. The Executive shall, in any event, retire from Company on
the first day of the month following his 65th birthday. If Executive's
employment is terminated by such resignation or retirement, the Company shall be
obligated only to provide the compensation, benefits, etc. set forth in Section
3 hereof up to the date of termination; provided, however, that the Executive
shall be entitled to such additional compensation and benefits, if any, as
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may be provided for under the express terms of any benefit plans or programs of
the Company and its subsidiaries in which he is then participating, including,
without limitation, the Executive's Phantom Stock Plan attached as Appendix A
hereto.
(b) The Board in its sole discretion may terminate
Executive's employment hereunder without Cause at any time upon 180 days' prior
written notice to Executive, or upon such shorter notice as the parties may
agree. In the event of the termination of Executive's employment by the Board
pursuant to this Section 4.4(b), or if the Executive resigns from his employment
as a result of a material reduction in the nature or scope of his authority,
power, functions or duties from those described in Section 1.2(a) hereof, the
Company shall continue to pay to Executive, for a period of two years from the
date of termination, the Base Salary described in Section 3.1 hereof and the
average annual incentive compensation determined pursuant to Section 3.2(a)
hereof, if any, received by Executive during the period of his employment, such
Base Salary to be paid monthly and such annual incentive pay to be paid at the
conclusion of the applicable fiscal year.
(c) In the event of a termination of Executive's
employment pursuant to Section 4.4(b) hereof, and in addition to the payments to
be made pursuant to Section 4.4(b), any shares of phantom stock which have not
become vested by reason of the passage of time shall become vested upon the date
of termination of employment and the Executive's benefits described in Section
3.3 hereof shall be continued during the two-year period following the date of
termination of Executive's employment, either pursuant to the applicable plan
or, in the sole discretion of the Company, on an unfunded basis by the Company.
Executive shall not be entitled to participate in the Company's Savings Plan
following his termination of employment, but during the two-year period shall be
entitled to receive comparable benefits pursuant to the Supplemental Executive
Benefits Plan. Executive shall also be entitled to receive all pension benefits
accrued pursuant to the Company's Pension Plan and Supplemental Executive
Benefits Plan to the date of termination and during the two-year period
thereafter during which Executive receives payments under Section 4.4(b) hereof.
If the Executive has not become fully vested in his accrued benefit under the
Company's Pension Plan on the date of the termination of his employment, the
Company shall provide for such accrued benefit to be paid pursuant to the
Supplemental Executive Benefits Plan and, likewise, shall provide for additional
pension accruals subsequent to the termination of Executive's employment to be
paid from the Supplemental Executive Benefits Plan.
1.5 Change in Control.
(a) Effective Date of Section 4.5. At such time, if
any, as a Change in Control (as defined in Section 4.5(b) hereof) of the Company
occurs, the provisions of this Section 4.5 shall become effective (the "Change
in Control Date"); provided, however, that the provisions of this Section 4.5
shall be of no further force and effect if:
(i) a Change in Control shall not have occurred by
December 31, 1999, or such later date as shall have been approved by the Board
and agreed to by the Executive; or
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(ii) prior to the Change in Control Date, the
Executive ceases, for any reason, to be an officer of the Company, except that
if the Executive's status as an officer of the Company is terminated by the
Company prior to a Change in Control and it is reasonably demonstrated that such
termination
(1) was at the request of a person or entity who
or which has taken steps reasonably calculated to effect an imminent Change in
Control, or
(2) otherwise arose in connection with or in
anticipation of an imminent Change in Control, then this Section 4.5 shall
become effective, and the "Change in Control Date" shall be, the date of such
termination.
(b) Change in Control. As used in this Section 4.5, a
"Change in Control" of the Company shall be deemed to have occurred if:
(i) any person (a "Person"), as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than
(1) the Company and/or its wholly-owned
subsidiaries,
(2) any ESOP or other employee benefit plan of
the Company, and any trustee or other fiduciary in such capacity holding
securities under such plan,
(3) any corporation owned, directly or
indirectly, by the shareholders of the Company in substantially the same
proportions as their ownership of stock of the Company or
(4) the Executive or any group of Persons of
which he voluntarily is a part), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 30% or more of the combined voting power
of the Company's then outstanding securities, or such lesser percentage of
voting power, but not less than 15%, as the Board shall determine;
provided, however that a Change in Control shall not be deemed to have occurred
under the provisions of this subsection (i) by reason of the beneficial
ownership of voting securities by members of the Xxxxxx Family (as defined
below) unless and until the beneficial ownership of all members of the Xxxxxx
Family (including any other individuals or entities who or which, together with
any member or members of the Xxxxxx Family, are deemed under Sections 13(d) or
14(d) of the Exchange Act to constitute a single Person) exceeds 50% of the
combined voting power of the Company's then outstanding securities;
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(ii) during any two-year period beginning after June
1, 1996, or, if earlier, the date of Executive's employment, Directors of the
Company in office at the beginning of such period plus any new Director (other
than a Director designated by a Person who has entered into an agreement with
the Company to effect a transaction within the purview of subsections (i) or
(iii) hereof) whose election by the Board, or whose nomination for election by
the Company's shareholders, 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
period or whose election or nomination for election was previously so approved,
shall cease for any reason to constitute at least a majority of the Board; or
(iii) the Company's shareholders or the Board shall
approve
(1) any consolidation or merger of the Company in
which the Company is not the continuing or surviving corporation or pursuant to
which the Company's voting Common Stock would be converted into cash, securities
and/or other property, other than a merger of the Company in which holders of
voting Common Stock immediately prior to the merger have the same proportionate
ownership of common shares of the surviving corporation immediately after the
merger as they had in the voting Common Stock immediately before,
(2) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of all or substantially
all the assets or earning power of the Company, or
(3) the liquidation or dissolution of the
Company.
As used in this Agreement, "members of the Xxxxxx Family"
shall mean the wife, children and descendants of such children of the late
Xxxxxx X. Xxxxxx III, their respective spouses and estates, any trusts primarily
for the benefit of any of the foregoing and the administrators, executors and
trustees of any such estates or trusts.
(c) Continuation of Employment.
(i) If a Change in Control occurs, the Executive's
employment shall continue after the Change in Control Date in accordance with
the terms and conditions contained in the other Sections of this Agreement.
However, if the Executive's employment is terminated under the circumstances set
forth in Section 4.5(d)(ii) before the second anniversary of the Change in
Control Date or, if earlier, the first day of the month following the
Executive's 65th birthday (the "Change in Control Period"), the Executive shall
be entitled to the Severance Allowance set forth in Section 4.5(d)(iii) hereof.
(ii) Notwithstanding any other provision of this
Section 4.5,
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(1) the Board may authorize an increase in the
amount, duration and nature of and or the acceleration of any compensation or
benefits payable under this Section 4.5, as well as waive or reduce the
requirements for entitlement thereto, and
(2) the Company may deduct from amounts otherwise
payable to the Executive such amounts as it reasonably believes it is required
to withhold for the payment of federal, state and local taxes.
(d) Compensation, Benefits, etc. upon Termination.
(i) If the Executive's employment is terminated
during the Change in Control Period by death, Disability, Cause or by his
resignation (other than a resignation in the circumstances set forth in
subsections (ii)(2) or (ii)(3) below), Executive or his estate shall be entitled
to the compensation and benefits set forth in Sections 4.1, 4.2, 4.3 and 4.4(a)
respectively.
(ii) If the Executive's employment is terminated
during the Change in Control Period by:
(1) the Company without Cause;
(2) resignation of the Executive at any time
during the four-month period commencing one year after the Change in Control
Date; or
(3) resignation of the Executive as a result
of:
(A) a material change in the nature or
scope of the Executive's authorities, powers, functions or duties from those
described in Section 1 hereof; a material change in the Executive's travel
requirements or a change in the Executive's primary employment location to a
location which is more than 25 miles from the location at which he was primarily
employed prior to the Change in Control; a reduction in the Executive's total
compensation, benefits, etc. from those provided for in Section 3 hereof; or a
material breach by the Company of any other provision of this Agreement, or
(B) a reasonable determination by the
Executive that, as a result of a Change in Control of the Company and a change
in the Company's circumstances and/or operations thereafter significantly
affecting his position, he is unable effectively to exercise the authorities,
powers, functions or duties contemplated by Section 1 hereof;
there shall have been deemed to be a "Covered Termination" for the purposes of
this Agreement, and the Executive shall be entitled to the compensation,
benefits, etc. hereinafter provided in this Section 4.5(d), including the
Phantom Stock Plan referred to above.
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(iii) In the event of a Covered Termination of the Executive
during the Change in Control Period, the Company shall pay or cause to be paid
to the Executive in cash a severance allowance (the "Severance Allowance") equal
to 2.99 times the sum of the amounts determined in accordance with the following
paragraphs (1) and (2):
(1) an amount equivalent to the highest annualized
base salary which the Executive was entitled to receive from the Company and its
subsidiaries at any time prior to the Covered Termination; and
(2) an amount equal to the average of the aggregate
annual cash amounts paid or payable to the Executive under all applicable
short-term and long-term incentive compensation plans maintained by the Company
and its subsidiaries during the three calendar years prior to the year such
Covered Termination occurs (provided, however, that
(A) such calculation shall be made on an
individual incentive plan basis,
(B) in determining the average amount paid under
a given incentive plan during such period there shall be excluded any year in
which no amounts were paid to the Executive under the plan, and
(C) there shall be excluded from such calculation
any amounts paid to the Executive under any such incentive compensation plan as
a result of the acceleration of such payments under such plan due to termination
of the plan, a Change in Control of the Company or a similar occurrence).
(iv) The Severance Allowance shall be paid to the Executive:
(1) in a lump sum within 60 days after the date of
any termination of the Executive covered by Sections 4.5(d)(ii)(1) or
4.5(d)(ii)(3)(A); and
(2) in 36 equal monthly installments beginning within
30 days after any termination by the Executive covered by Sections 4.5(d)(ii)(2)
or 4.5(d)(ii)(3)(B), subject to subsection (viii) below.
(v) Subject to subsection (viii) below:
(1) for a period of one year following a Covered
Termination of the Executive, the Company shall make or cause to be made
available to the Executive, at its expense,
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(A) outplacement counseling and other
outplacement services comparable to those available for the Company's senior
executives prior to the Change in Control Date and
(B) an office with standard telephone equipment
at the Executive's primary place of business prior to termination, or at another
location reasonably satisfactory to the Executive; and
(2) for a period of three years following a Covered
Termination of the Executive, the Executive and the Executive's dependents shall
be entitled to participate in the Company's life, medical and dental insurance
plans at the Company's expense (to the extent provided in such plans at the time
of such Covered Termination) as if the Executive were still employed by the
Company or its subsidiaries under this Agreement. The Executive also shall be
entitled during such period to the continued use of an automobile, at the
Company's or its subsidiaries' expense, if one was being provided by the Company
or its subsidiaries for the Executive's use at the time of such Covered
Termination or at any time prior thereto; provided that if such automobile is
under lease, such right to continued use shall not extend beyond the expiration
of the term of such lease, but if the Company, its subsidiaries or the Executive
have an option to purchase the automobile under such lease, the Executive shall
have the right to cause such purchase option to be exercised and to purchase
said automobile at its depreciated cost (as determined in accordance with the
Company's policies as in effect on June 1, 1996).
(vi) If, despite the provisions of subsection (v) above, life,
medical or dental insurance benefits are not paid or provided under any such
plan to the Executive or his dependents because the Executive is no longer an
employee of the Company or its subsidiaries, the Company itself shall, to the
extent necessary, pay or otherwise provide for such benefits to the Executive or
his dependents.
(vii) Except as expressly provided in subsections (i), (iii),
(iv), (v) and (vi) above or under the express terms of any compensation or
benefit plans of the Company or its subsidiaries applicable to the Executive,
upon the date of any Covered Termination, all other compensation and benefits of
the Executive shall cease to accrue; provided, however, that the Severance
Allowance payable hereunder shall be in lieu of any severance payments to which
the Executive might otherwise be entitled under the terms of any severance pay
plan, policy or arrangement maintained by the Company and shall be credited
against any severance payments to which the Executive may be entitled by
statute.
(viii) Except as otherwise provided under the express terms of
any compensation or benefit plans of the Company or its subsidiaries, including
the Phantom Stock Plan for Xxxxxx X. Xxxxxxxx, attached hereto as Appendix A,
the Company's obligations to make payments or continue benefits pursuant to
Sections 4.5(d)(iv)(2), 4.5(d)(v) and 4.5(d)(vi) shall terminate on the earlier
to occur of:
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(1) the termination date therefor specified in such
sections
and
(2) the date of a determination by a court or
arbitration panel pursuant to Sections 5.4 or 6.1 hereof, respectively, that the
Executive has materially and willfully violated the provisions of Sections 5.1
or 5.3 hereof. Further, in the event the Executive becomes employed (as defined
below) during the period with respect to which payments or benefits are
continuing pursuant to Sections 4.5(d)(iv)(2), 4.5(d)(v) and/or 4.5(d)(vi)
hereof:
(A) the Executive shall notify the Company not
later than the day such employment commences,
(B) the benefits provided for in Sections
4.5(d)(v) and 4.5(d)(vi) shall terminate as of the date of such employment, and
(C) the amount of the Severance Allowance which
the Company is obligated to pay the Executive pursuant to Section 4.5(d)(iv)(2)
shall be reduced on a continuing basis by the Internal Revenue Service Form W-2
"wages, tips or other compensation" block, or equivalent compensation earned by
the Executive from such new employment.
For the purposes of this subsection (viii), the Executive shall be deemed to
have become "employed" by another entity or person only if the Executive becomes
essentially a full-time employee of a person or an entity (not more than 30% of
which is owned by the Executive and/or members of his family); and the
Executive's "family" shall mean his parents, his siblings and their spouses, his
children and their spouses, and the Executives spouse and her parents and
siblings. Nothing herein shall relieve the Company of its obligations for
compensation or benefits accrued up to the time of termination provided for
herein.
(e) Set-Off Mitigation. Subject to Section 4.5(d)(viii)
hereof, 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 set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. 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.
(f) Certain Additional Payments by the Company.
(i) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive by reason of
a Change in Control with respect to which the Change in Control Date is on or
before May 31, 1998 (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this Section 4.5(f) (a
"Payment") would be subject to the excise
13
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), or any interest or penalties are incurred by the Executive with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(ii) Subject to the provisions of Section
4.5(f)(iii), all determinations required to be made under this Section 4.5(f),
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Company's independent auditors (the
"Accounting Firm") which shall provide detailed supporting calculations both to
the Company and the Executive within 15 business days of the receipt of notice
from the Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the Change
of Control, the Executive may appoint another nationally recognized accounting
firm to make the determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section 4.5(f), shall be paid by the Company to
the Executive within five days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is payable
by the Executive, it shall furnish the Executive with a written opinion that
failure to report the Excise Tax on the Executive's applicable federal income
tax return would not result in the imposition of a negligence or similar
penalty. Any determination by the Accounting Firm shall be binding upon the
Company and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 4.5(f)(iii) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(iii) The Executive shall notify the Company in
writing of any claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such notification
shall be given as soon as practicable but no later than ten business days after
the Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which he gives such notice to the Company
(or such shorter period ending on the date that any payment of
14
taxes with respect to such claim is due). If the Company notifies the Executive
in writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
(1) give the Company any information in Executive's
possession reasonably requested by the Company relating to such claim,
(2) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company.
(3) cooperate with the Company in good faith in order
effectively to contest such claim, and
(5) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 4.5(f), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and xxx for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however that if the Company directs the Executive to pay
such claim and xxx for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for a taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(iv) If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 4.5(f)(iii), the Executive
becomes entitled to receive any refund with respect to such claim, the Executive
shall (subject to the Company's complying with the
15
requirements of Section 4.5(f)(iii)) promptly pay to the Company the amount of
such refund (together with any interest paid or credited thereon after taxes
applicable thereto), If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 4.5(f)(iii), a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
(g) Limitation on Payment Obligation for Change in Control on
or after June 1, 1998.
(i) For purposes of this Section 4.5(g), all terms
capitalized but not otherwise defined herein shall have the meanings as set
forth in Section 280G of the Code, together with any applicable regulations
thereunder. In addition:
(1) The term "Parachute Payment" shall mean a
payment described in Section 280G(b)(2)(A) or Section 280G(b)(2)(B) (including,
but not limited to, any stock option rights, stock grants and other cash and
noncash compensation amounts that are treated as payments under either such
section), and not excluded under Section 280G(b)(4)(A) or Section 280G(b)(6), of
the Code;
(2) The term "Reasonable Compensation" shall mean
reasonable compensation for prior personal services as defined in Section
280G(b)(4)(B) of the Code and subject to the requirement that any such
reasonable compensation must be established by clear and convincing evidence;
and
(3) The portion of the "Base Amount" and the
amount of "Reasonable Compensation" allocable to any "Parachute Payment" shall
be determined in accordance with Section 280G(b)(3) and (4) of the Code.
(ii) Notwithstanding any other provision of this
Agreement, each Parachute Payment to be made to or for the benefit of the
Executive, whether pursuant to this Agreement or otherwise, by reason of a
Change in Control with respect to which the Change in Control Date is on or
after June 1, 1998, shall be reduced if and to the extent necessary so that the
aggregate Present Value of all such Parachute Payments shall be at least one
dollar ($1) less than the greater of
(1) three times the Executive's Base Amount and
(2) the aggregate Reasonable Compensation
allocable to such Parachute Payments. Unless otherwise agreed by the Executive
and the Company, any
16
reduction in Parachute Payments caused by reason of this subsection (ii) shall
be made, first, against the Severance Allowance and, second, proportionately
with respect to each other Parachute Payment.
This subsection (ii) shall be interpreted and applied
to limit the amounts otherwise payable to the Executive under this Agreement or
otherwise only to the extent required to avoid any material risk of the
imposition of excise taxes on the Executive under Section 4999 of the Code or
the disallowance of a deduction to the Company under Section 280G(a) of the
Code. In the making of any such interpretation and application, the Executive
shall be presumed to be a disqualified individual for purposes of applying the
limitations set forth in this subsection (ii) without regard to whether or not
the Executive meets the definition of disqualified individual set forth in
Section 280G(c) of the Code. In the event that the Executive and the Company are
unable to agree as to the application of this subsection (ii), the Company's
independent auditors shall select independent tax counsel to determine the
amount of such limits. Such selection of tax counsel shall be subject to the
Executive's consent, provided that the Executive shall not unreasonably withhold
his consent. The determination of such tax counsel under this Section shall be
final and binding upon the Executive and the Company.
(iii) Notwithstanding any other provision of this
Section 4.5, no payments shall be made hereunder to or for the benefit of the
Executive if and to the extent that such payments are determined to be illegal.
1.6 No Additional Benefits. The compensation and benefits
required to be paid by the Company pursuant to Section 4 are the only
compensation and benefits to which the Executive is entitled upon a termination
of employment or Change in Control, except as otherwise required by law or by
the express terms of any benefit plan of the Company.
SECTION 2. RESTRICTIVE COVENANTS
2.1 Confidentiality. Executive acknowledges a duty of
confidentiality owed to Company and shall not, at any time during or after his
employment by Company, retain in writing, use, divulge, furnish, or make
accessible to anyone, without the express authorization of the Board, any trade
secret, private or confidential information or knowledge of Company or any of
its affiliates obtained or acquired by him while so employed. All computer
software, address books, rolodexes, business cards, telephone lists, customer
lists, price lists, contract forms, catalogs, books, records, and files and
know-how acquired while an employee of Company, are acknowledged to be the
property of Company and shall not be duplicated, removed from Company's
possession or made use of other than in pursuit of Company's business and, upon
termination of employment for any reason, Executive shall deliver to Company,
without further demand, all copies thereof which are then in his possession or
under his control.
2.2 Inventions and Improvements. During the term of his
employment, Executive shall promptly communicate to Company all ideas,
discoveries and inventions which are or may be useful to Company or its
business. Executive acknowledges that all ideas, discoveries, inventions,
17
and improvements which are made, conceived, or reduced to practice by him and
every item of knowledge relating to Company's business interests (including
potential business interests) gained by him during his employment hereunder are
the property of Company, and Executive hereby irrevocably assigns all such
ideas, discoveries, inventions, improvements, and knowledge to Company for its
sole use and benefit, without additional compensation. The provisions of this
Section shall apply whether such ideas, discoveries, inventions, improvements or
knowledge are conceived, made or gained by him alone or with others, whether
during or after usual working hours, whether on or off the job, whether
applicable to matters directly or indirectly related to Company's business
interests (including potential business interests), and whether or not within
the specific realm of his duties. It shall be conclusively presumed that ideas,
inventions, and improvements relating to Company's business interests or
potential business interests conceived during the two-year period following
termination of employment are, for the purposes of this Agreement, conceived
prior to termination of employment. Executive shall, upon request of Company,
but at no expense to Executive, at any time during or after his employment with
Company, sign all instruments and documents requested by Company and otherwise
cooperate with Company to protect its right to such ideas, discoveries,
inventions, improvements, and knowledge, including applying for, obtaining, and
enforcing patents and copyrights thereon in any and all countries.
2.3 Noncompetition. During the term of Executive's employment
and for two years after any termination of employment, and, if Executive's
employment is terminated by Executive pursuant to Sections 4.5(f)(ii)(2) or
4.5(f)(ii)(3)(B), for so long as payments are being made to the Executive
pursuant to Section 4.5(f)(iv)(2) hereof, Executive shall not directly or
indirectly: (i) engage, anywhere in the world, in the manufacture, assembly,
design, distribution or marketing of any product or equipment substantially
similar to any product or equipment which at any time during the term of such
employment or the immediately preceding twelve month period has been
manufactured, sold or distributed by Company or any product or equipment which
Company was developing during such period for future manufacture, sale or
distribution; (ii) be or become a stockholder, partner, owner, officer, director
or employee or agent of, or a consultant to or give financial or other
assistance to, any person or entity considering engaging in any such activities
or so engaged; (iii) seek in competition with the business of Company to procure
orders from or do business with any customer of Company; (iv) solicit, or
contact with a view to the engagement or employment by, any person or entity of
any person who is an employee of Company; (v) seek to contract with or engage
(in such a way as to adversely affect or interfere with the business of Company)
any person or entity who has been contracted with or engaged to manufacture,
assemble, supply or deliver products, goods, materials or services to Company;
or (vi) engage in or participate in any effort or act to induce any of the
customers, associates, consultants, or employees of Company or any of its
affiliates to take any action which might be disadvantageous to Company or any
of its affiliates; provided, however, that nothing herein shall prohibit the
Executive and his affiliates from owning, as passive investors, in the aggregate
not more than 5% of the outstanding publicly traded stock of any corporation so
engaged. The duration of the Executive's covenants set forth in this Section
shall be extended by a period of time equal to the number of days, if any,
during which the Executive is finally determined by a court of competent
jurisdiction to be in violation of the provisions hereof.
18
2.4 Injunctive and Other Relief.
(a) Executive acknowledges and agrees that the
covenants contained herein are fair and reasonable in light of the consideration
paid hereunder, and that damages alone shall not be an adequate remedy for any
breach by Executive of his covenants contained herein and accordingly expressly
agrees that, in addition to any other remedies which Company may have, Company
shall be entitled to injunctive relief in any court of competent jurisdiction
for any breach or threatened breach of any such covenants by Executive. Nothing
contained herein, including, without limitation, Section 6.1 hereof, shall
prevent or delay Company from seeking, in any court of competent jurisdiction,
specific performance or other equitable remedies in the event of any breach or
intended breach by Executive of any of its obligations hereunder.
(b) Notwithstanding the equitable relief available to
Company, the Executive, in the event of a breach of his covenants contained in
Section 5 hereof, understands and agrees that the uncertainties and delay
inherent in the legal process would result in a continuing breach for some
period of time, and therefore, continuing injury to Company until and unless
Company can obtain such equitable relief. Therefore, in addition to such
equitable relief, Company shall be entitled to monetary damages for any such
period of breach until the termination of such breach, in an amount deemed
reasonable to cover all actual and consequential losses, plus all monies
received by Executive as a result of said breach and all costs and attorneys'
fees incurred by Company in enforcing this Agreement. If Executive should use or
reveal to any other person or entity any confidential information, this will be
considered a continuing violation on a daily basis for so long a period of time
as such confidential information is made use of by Executive or any such other
person or entity.
SECTION 3. MISCELLANEOUS
3.1 Arbitration.
(a) All disputes arising out of or relating to this
Agreement which cannot be settled by the parties shall promptly be submitted to
and settled exclusively by arbitration in the City of Philadelphia, Pennsylvania
in accordance with the laws of the Commonwealth of Pennsylvania by three
arbitrators, one of whom shall be appointed by the Company, one by the Executive
and the third of whom shall be appointed by the first two arbitrators. The
arbitration shall be conducted in accordance with the rules of the American
Arbitration Association, except with respect to the selection of arbitrators
which shall be as provided in this Section 6.1. Judgment upon the award rendered
by the arbitrators may be entered in any court having jurisdiction thereof.
(b) In the event that it shall be necessary or
desirable for the Executive to retain legal counsel and/or incur other costs and
expenses in connection with the enforcement of any and all of his rights under
this Agreement, the Company shall pay (or the Executive shall be entitled to
recover from the Company, as the case may be) his reasonable attorneys' fees and
costs and
19
expenses in connection with the enforcement of his said rights (including those
incurred in or related to any arbitration proceedings provided for in subsection
(a) above and the enforcement of any arbitration award in court), regardless of
the final outcome, unless the arbitrators or a court shall determine that under
the circumstances recovery by the Executive of all or a part of any such fees
and costs and expenses would be unjust.
3.2 Prior Employment. Executive represents and warrants that
he is not a party to any other employment, non-competition or other agreement or
restriction which could interfere with his employment with Company or his or
Company's rights and obligations hereunder; and that his acceptance of
employment with Company and the performance of his duties hereunder will not
breach the provisions of any contract, agreement, or understanding to which he
is party or any duty owed by him to any other person.
3.3 Severability. The invalidity or unenforceability of any
particular provision or part of any provision of this Agreement shall not affect
the other provisions or parts hereof. If any provision hereof is determined to
be invalid or unenforceable by a court of competent jurisdiction, Executive and
Company shall negotiate in good faith to provide Company and Executive with
protection as nearly equivalent to that found to be invalid or unenforceable and
if any such provision shall be so determined to be invalid or unenforceable by
reason of the duration or geographical scope of the covenants contained therein,
such duration or geographical scope, or both, shall be considered to be reduced
to a duration or geographical scope to the extent necessary to cure such
invalidity.
3.4 Assignment. This Agreement shall not be assignable by
Executive, and shall be assignable by Company only to any person or entity which
may become a successor in interest (by purchase of assets or stock, or by
merger, or otherwise) to Company in the business or a portion of the business
presently operated by it. Subject to the foregoing, this Agreement and the
rights and obligations set forth herein shall inure to the benefit of, and be
binding upon, the parties hereto and each of their respective permitted
successors, assigns, heirs, executors and administrators.
3.5 Notices. All notices hereunder shall be in writing and
shall be sufficiently given if hand-delivered, sent by documented overnight
delivery service or registered or certified mail, postage prepaid, return
receipt requested or by telegram, fax or telecopy (confirmed by U.S. mail),
receipt acknowledged, addressed as set forth below or to such other person
and/or at such other address as may be furnished in writing by any party hereto
to the other. Any such notice shall be deemed to have been given as of the date
received, in the case of personal delivery, or on the date shown on the receipt
or confirmation therefor, in all other cases. Any and all service of process and
any other notice in any such action, suit or proceeding shall be effective
against any party if given as provided in this Agreement; provided that nothing
herein shall be deemed to affect the right of any party to serve process in any
other manner permitted by law.
20
(a) If to Company:
Xxx Xxxxxxxx Xxxxxx
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000-0000
Tel: (000) 000-0000
Fax: (000) 000-0000
Attention: Vice President, Human Resources
With a copy to:
Xxxx X. Xxxxxxx, Xx., Esq.
Drinker Xxxxxx & Xxxxx
Philadelphia National Bank Building
11th Floor
0000 Xxxxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000-0000
Tel: (000) 000-0000
Fax: (000) 000-0000
(b) If to Executive:
Xxxxxx X. Xxxxxxxx
00 Xxxxxxxx Xxxx
Xxxx Xxxxx, XX 00000
With a copy to:
Wm. Xxxxx Xxxxxxxx, III, Esq.
Dechert Price & Xxxxxx
4000 Xxxx Atlantic Tower, 0000 Xxxx Xx.
Xxxxxxxxxxxx, XX 00000-0000
Tel: (000) 000-0000
Fax: (000) 000-0000
3.6 Entire Agreement and Modification. This Agreement
constitutes the entire agreement between the parties hereto with respect to the
matters contemplated herein and supersedes all prior agreements and
understandings with respect thereto. Any amendment, modification, or waiver of
this Agreement shall not be effective unless in writing. Neither the failure nor
any delay on the part of any party to exercise any right, remedy, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or of any other right, remedy, power, or privilege
21
with respect to any occurrence be construed as a waiver of any right, remedy,
power, or privilege with respect to any other occurrence.
3.7 Governing Law. This Agreement is made pursuant to, and
shall be construed and enforced in accordance with, the internal laws of the
Commonwealth of Pennsylvania (and United States federal law, to the extent
applicable), without giving effect to otherwise applicable principles of
conflicts of law.
3.8 Headings; Counterparts. The headings of paragraphs in this
Agreement are for convenience only and shall not affect its interpretation. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed to be an original and all of which, when taken together, shall be deemed
to constitute but one and the same Agreement.
3.9 Further Assurances. Each of the parties hereto shall
execute such further instruments and take such other actions as any other party
shall reasonably request in order to effectuate the purposes of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
XXXX MANUFACTURING CO.
By
----------------------------
Chief Executive Officer
-----------------------------
Xxxxxx X. Xxxxxxxx
Executive
22
APPENDIX A
XXXX MANUFACTURING CO.
PHANTOM STOCK PLAN
FOR
XXXXXX X. XXXXXXXX
ARTICLE I
Purpose of Plan
0.1 Purpose. The purpose of the XXXX MANUFACTURING CO. PHANTOM
STOCK PLAN FOR XXXXXX X. XXXXXXXX (the "Plan") is to further the long-term
growth in earnings of Xxxx Manufacturing Co. by offering long-term financial
incentives to the Chairman and Chief Executive Officer of the Company.
ARTICLE II
Definitions
Whenever the following terms are used in the Plan, they shall
have the meanings specified below unless the context clearly indicates to the
contrary:
0.1 Beneficiary shall mean such person or persons or legal
entity as may be designated by the Participant to receive benefits hereunder
after the Participant's death, or in the absence of such designation, the
personal or legal representative of the Participant.
0.2 Benefit Account shall mean the account established
pursuant to Section 6.2(A).
0.3 Board shall mean the Board of Directors of the Company.
0.4 Code shall mean the Internal Revenue Code of 1986, as
amended.
0.5 Committee shall mean the Compensation Committee of the
Board.
0.6 Common Stock shall mean shares of Xxxx Manufacturing Co.
common stock, par value $.10 per share.
0.7 Company shall mean Xxxx Manufacturing Co.
A-1
APPENDIX A
0.8 Dividend Account shall mean the account established by the
Committee for the Participant and to which the undistributed portion of the
Participant's Dividend Amounts and payments attributable thereto are credited or
debited.
0.9 Dividend Amount shall mean the amount to which the
Participant becomes entitled at the time that shareholders of Common Stock are
paid cash dividends on such Stock, determined as provided in Article V.
0.10 Effective Date shall mean June 1, 1996, or, if earlier,
the date on which the Participant commences employment with the Company.
0.11 ERISA shall mean the Employee Retirement Income Security
Act of 1974, as amended.
0.12 Interest shall mean the average monthly rate of interest
paid on ten-year bonds on a specified date, as evidenced by the Xxxxx'x Ten-Year
Bond Index, multiplied by 1.333.
0.13 Participant shall mean Xxxxxx X. Xxxxxxxx.
0.14 Phantom Stock shall mean the number of shares credited to
the Participant's Stock Account as provided in Article V.
0.15 Plan shall mean the XXXX MANUFACTURING CO. PHANTOM STOCK
PLAN FOR XXXXXX X. XXXXXXXX.
0.16 Plan Year shall mean the fiscal year of the Plan ending
each December 31.
0.17 Separation Date shall mean the date on which a
Participant terminates employment with the Company (whether by retirement,
death, resignation, discharge, or otherwise).
0.18 Stock Account shall mean the account established by the
Committee for the Participant and to which the Participant's Phantom Stock and
all assumed appreciation, depreciation, and payments attributable thereto are
credited or debited.
0.19 Valuation Date shall mean June 1, 1996, and the last day
of each calendar month thereafter.
0.20 Vesting Percentage shall mean that percentage of the
Participant's Stock Account to which he has a vested (non-forfeitable) right.
A-2
ARTICLE III
Participation
0.1 Participation. Participation shall begin on the Effective
Date. Participation in the Plan shall continue until the Participant's
Separation Date.
ARTICLE IV
Establishment of Stock Account
0.1 Stock Account. The Committee shall establish and maintain,
for the Participant, a Stock Account to record the value of the Participant's
interest under the Plan. On the Effective Date, for the purpose of computing the
value of the cash benefits to which Participant is entitled hereunder, the
Participant's Stock Account shall be credited with 175,000 shares of Phantom
Stock which shall be deemed to be the equivalent of an equal number of shares of
Common Stock.
0.2 Valuation of Stock Account. As of each Valuation Date the
Committee shall determine the value of each share of Phantom Stock credited to
the Stock Account by reference to the mean between the highest and lowest quoted
selling prices of the Common Stock on the New York Stock Exchange on the
Valuation Date, as reported in The Wall Street Journal or, if the Valuation Date
is not a regular business day, on the immediately preceding regular business
day. Such value, as determined by the Committee, shall be conclusive.
0.3 Adjustments to Stock Account. In the event of a change in
the outstanding shares of Common Stock by reason of a recapitalization, stock
split, stock dividend, merger, consolidation, reorganization, or similar
corporate change, the Committee shall make equitable adjustments in the Stock
Account of the Participant so that the number of shares of Phantom Stock
credited to the Stock Account is not diluted as a result of such change.
0.4 No Shareholder Rights. The crediting of Phantom Stock to
the Participant's Stock Account shall not entitle the Participant to voting
rights or any other rights of a shareholder with respect to such Phantom Stock
(except for the crediting to Participant's Dividend Account of an amount equal
to the dividends paid on the Common Stock.)
ARTICLE V
Establishment of Dividend Account and
Allocation and Crediting of Dividend Amounts
0.1 Dividend Account. The Committee shall establish and
maintain, for the Participant, a separate Dividend Account to record the
undistributed Dividend Amounts of the Participant.
A-3
0.2 Entitlement to and Calculation of Dividend Amounts.
Whenever the shareholders of Common Stock become entitled to receive cash
dividends on such common stock, the Participant shall become entitled to a
Dividend Amount. Such Dividend Amount shall be determined by multiplying the per
share cash dividend payable to shareholders of the Common Stock by the number of
shares of Phantom Stock allocated to the Participant's Stock Account.
0.3 Distribution of Vested Dividend Amounts. Not later than
November 30, 1996, and each November 30 thereafter until the Participant's
Separation Date, the Participant may elect, by filing an appropriate form with
the Committee, to receive a cash distribution of the Dividend Amount otherwise
allocable to the Participant's Dividend Account for the following calendar year,
multiplied by the Participant's Vesting Percentage. Such cash distribution shall
be made to the Participant at the same time that cash dividends are paid to the
shareholders of Common Stock. Such cash distributions shall not be treated as
"compensation" for purposes of benefits pursuant to the Company's benefit plans.
0.4 Treatment of Undistributed Dividend Amounts. That portion
of the Participant's Dividend Amount which is not distributed in accordance with
Section 5.3 shall be credited to his Dividend Account and shall vest in
accordance with Section 6.1(B). Amounts credited to the Participant's Dividend
Account shall be credited with earnings, on the last day of each month, at the
rate of Interest in effect on the first day of the month. The vested amount in
the Participant's Dividend Account shall be distributed in accordance with
Section 6.2.
ARTICLE VI
Distribution of Benefits on Separation
0.1 Vesting.
(A) Stock Account. The Participant's right to the
cash value of the amounts credited to his Stock Account shall become vested
(non-forfeitable) in accordance with the following schedule, provided
Participant is employed by the Company on each of the dates shown:
25% on December 1, 1996
50% on December 1, 1997
75% on December 1, 1998
100% on December 1, 1999
(B) Dividend Account. The Participant shall have a
vested (non-forfeitable) right to the amount credited to his Dividend Account
equal to:
(1) the product of (a) the total of all Dividend
Amounts to which the Participant has become entitled (including portions of such
Dividend Amounts which have been
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distributed to the Participant), multiplied by (b) the Participant's Vesting
Percentage (as determinedunder Section 6.1(A); less
(2) the total of all Dividend Amounts which have
been distributed to the Participant.
(C) Special Vesting. The preceding provisions of
Section 6.1 notwithstanding, the Participant shall have a vested
(non-forfeitable) right to the amounts credited to his Stock Account and
Dividend Account in the event of (1) the termination of his employment by the
Company without Cause, as provided in Section 4.4 of the Employment Agreement
between the Participant and the Company dated April ___, 1996; (2) a Change in
Control of the Company, as defined in Section 4.5(b) of the Employment
Agreement; (3) the Participant's death; or (4) the Participant's Disability, as
determined pursuant to Section 4.2 of the Employment Agreement.
0.2 Distribution of Benefits on Separation.
(A) Amount of Benefits. The amount of benefits
payable to a Participant (or his Beneficiary) under the Plan, as a distribution
after the Participant's Separation Date, shall be equal to the sum of (a) the
Participant's vested interest in his Dividend Account, such vesting to be
determined pursuant to Section 6.1(B) or (C), plus (b) the product of his
Vesting Percentage (determined as of his Separation Date) multiplied by the
value of the Participant's Stock Account as of the Valuation Date last preceding
such Separation Date. Such valuation shall be determined in accordance with
Section 4.2. Effective as of such Valuation Date, the amount of benefit so
determined shall be credited to the Participant's Benefit Account and shall
thereafter be credited with Interest on the last day of each month at the rate
of Interest determined on the first day of such month.
(B) Method and Timing of Payment. The Participant's
Benefit Account, as determined under Section 6.2(A), shall be distributed to him
(or to his Beneficiary if he has died) in 240 monthly installments, payable on
the first of each month commencing on January 1 of the year following the
Participant's Separation Date. The amount of each installment shall be equal to
1/n multiplied by the balance credited to the Participant's Benefit Account as
of the last day of the month preceding the payment date, where "n" equals the
number of payments yet to be made. The final payment will equal the balance in
the Participant's Benefit Account on the date of payment. For example, if
payments begin on January 1, 2005, the first payment will be equal to 1/240 of
the balance in the Benefit Account on December 31, 2004, the February 1, 2005
payment will be equal to 1/239 of the balance in the Benefit Account of January
31, 2005, and so on until 240 installments have been paid.
0.3 Emergency Distributions.
(A) The Compensation Committee may at any time make a
payment to a Participant in an amount up to the Participant's vested portion of
his Stock and Dividend Accounts
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upon a showing of an unforeseeable emergency. An unforeseeable emergency is a
severe financial hardship to the Participant resulting from a sudden and
unexpected illness or accident of the Participant or of a dependent (as defined
in section 152(a) of the Code) of the Participant, loss of property due to
casualty, or other similar extraordinary and unforeseeable circumstances arising
as a result of events beyond the control of the Participant. The need to send a
Participant's child to college or the desire to purchase a home are not
unforeseeable emergencies. Payments may not be made to the extent the hardship
is or may be relieved (1) through reimbursement or compensation by insurance or
otherwise, or (2) by liquidation of the Participant's assets, to the extent such
liquidation would not itself cause severe financial hardship. The determination
of whether an unforeseeable emergency within the meaning of this Section 6.3(A)
exists shall be made at the sole discretion of the Compensation Committee. The
amount of any such emergency distribution shall be limited to the amount
necessary to meet the emergency.
(B) In addition to the distributions permitted under
Section 6.3(A), the Participant may, at any time, request the Compensation
Committee to distribute all or part of the vested portion of his Stock and
Dividend Accounts to him, which distributions shall be reduced by an 8% discount
as a restriction on the availability of distributions pursuant to this Section
6.3(B).
ARTICLE VII
Funding
0.1 Plan Unfunded. The Plan shall be unfunded and no trust
shall be created. The Participant's Stock Account shall be reflected solely
through bookkeeping entries. No actual funds shall be set aside. All benefits
shall be paid by the Company from its general assets, and the Participant (or
his Beneficiary) shall have only the rights of a general, unsecured creditor
against the Company for any distributions due hereunder. The foregoing
notwithstanding, the Company shall establish a grantor or "rabbi" trust for the
purpose of enabling the Company to provide for the payment of benefits hereunder
as they come due. Contributions to the rabbi trust shall be made by the Company
at such times and in such amounts as the Board, in its sole discretion, shall
determine.
ARTICLE VIII
Administration
0.1 Compensation Committee. The Compensation Committee of the
Board shall be in charge of the operation and administration of the Plan. The
Committee may, however, delegate specific administrative responsibilities to
officers or employees of the Company or to other individuals, all of whom shall
serve at the pleasure of the Committee and, if full-time employees of the
Company, without additional compensation.
0.2 Powers and Duties of Committee. The Committee shall
administer the Plan in accordance with its terms and shall have all the powers
necessary to carry out such terms. The
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Committee shall act by a majority of its members at the time in office, and such
action may be taken by a vote at a meeting or in writing without a meeting. The
Chairman, or any member of the Committee designated by the Chairman, shall
execute any certificate, instrument or other written direction on behalf of the
Committee and shall direct the payment of benefits under the Plan. All
interpretations of the Plan, and questions concerning its administration and
application, shall be determined by the Committee in its sole discretion, and
such determination shall be binding on all Participants and their Beneficiaries.
0.3 Records and Reports. The Committee shall maintain records
which shall contain all relevant data pertaining to the Participant and his
rights under the Plan. It shall have the duty to carry into effect all rights or
benefits provided hereunder to the extent Company assets are properly available
therefor.
0.4 Payments of Expenses. The Company shall pay all expenses
of administering the Plan.
0.5 Indemnification for Liability. The Company shall indemnify
the members of the Committee and other employees of the Company to whom the
Committee has delegated administrative or fiduciary duties against any and all
claims, losses, damages, expenses, and liabilities arising from their
responsibilities in connection with the Plan, unless the same is determined to
be due to gross negligence or willful misconduct.
0.6 Claims Procedure. A claim for benefits under the Plan
shall be filed with the Chairman of the Committee. Written notice of the
disposition of a claim shall be furnished the Participant within 30 days after
the application therefor is filed. In the event the claim is denied, the
specific reasons for such denial shall be set forth, pertinent provisions of the
Plan shall be cited and, where appropriate, an explanation as to how the
Participant can perfect his claim will be provided.
0.7 Claims Review Procedure. The Participant or a Beneficiary
who has been denied a benefit, shall be entitled, upon request to the Chairman
of the Committee, to receive a written notice of such action, together with a
full and clear statement of the reasons for the action. If the Participant or
Beneficiary wishes further consideration of such claimant's position, the
claimant may by written application request a hearing. The written request
together with a written statement of the claimant's position, shall be filed
with the Committee no later than 90 days after receipt of the written
notification provided for above or in Section 8.6. The Committee shall schedule
an opportunity for a full and fair hearing of the issue within 30 days following
receipt of the claimant's written statement. The decision following such hearing
shall be made within 30 days of such hearing and shall be communicated in
writing to the claimant.
0.8 Reporting and Disclosure Requirements. In order to comply
with the requirements of Title I of ERISA, the Company shall:
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(a) File a statement with the Secretary of Labor that
includes the name and address of the employer, the employer identification
number assigned by the Internal Revenue Service, a declaration that the Company
maintains the Plan primarily for the purpose of providing deferred compensation
for a management and highly compensated employee and a statement of the number
of such plans and the number of employees in each; and
(b) Provide plan documents, if any, to the Secretary
of Labor upon request as required by Section 104(a)(1) of ERISA. It is intended
that this provision comply with requirements of DOL Reg. ss.2520.104-23.
ARTICLE IX
Amendment and Termination
0.1 Amendment and Termination. The Board shall have the right,
at any time, by an affirmative vote of a majority thereof, to amend or
terminate, in whole or in part, the Plan, provided that such amendment or
termination shall not adversely affect the right of the Participant to the
benefits set forth in the Plan as effective June 1, 1996, including the right to
accrue further Interest as provided herein.
ARTICLE X
Miscellaneous Provisions
0.1 Alienation or Assignment of Benefits. The Participant's
rights and interest under the Plan may not be assigned or transferred prior to
his death, and then only pursuant to the provisions of this Plan.
0.2 Right to Withhold. The Company shall have the right to
deduct from all cash payments any Federal, state or local taxes required by law
to be withheld with respect to such cash payments.
0.3 Construction. All legal questions pertaining to the Plan
shall be determined in accordance with the laws of the Commonwealth of
Pennsylvania except as preempted by Federal law.
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0.4 Headings. The headings are for reference only. In the
event of a conflict between a heading and the content of an Article or Section,
the content of the Article or Section shall control.
IN WITNESS WHEREOF, XXXX MANUFACTURING CO. has caused this
Plan to be duly executed, under seal, this ___________ day
of _________________________, 1996.
ATTEST: XXXX MANUFACTURING CO.
___________________________ By:________________________________
Secretary Chief Executive Officer
[Corporate Seal]
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