1
EXHIBIT 10.16
-------------
June , 1997
TO: (name)
RE: XXXXXX PROTECTIVE COMPENSATION AND BENEFIT AGREEMENT
----------------------------------------------------
Dear (salutation):
Xxxxxx International, Inc. ("Xxxxxx" or the "Company") believes it is
important to provide you, as a key member of Xxxxxx'x management, with a certain
degree of security in regard to your employment with Xxxxxx in the event of a
change in control of Xxxxxx. In accordance with this belief and in consideration
of your services, this letter, when accepted by you as provided below, will
constitute our agreement regarding certain benefits to be accorded to you in the
event of a "Change of Control" (as defined below).
1. If a Change in Control occurs on or before the expiration date of this
Agreement and
a. Within 12 months of the date of the occurrence, you
voluntarily resign your employment for "Good Reason" (as
defined below), or
b. Within 24 months of the date of the occurrence, your
employment is terminated by the Company, other than due to
death, "Disability", or
"Cause" (each as defined below),
you shall be entitled to receive the following compensation ("Change in Control
Compensation"):
x. Xxxxxx shall pay you in cash a lump sum in an
amount equal to 2.00 times the sum of (x) your
annual base salary (including any deferrals) at
the rate in effect immediately preceding the date
of the Change in Control and (y) the "Bonus
Amount" which shall be equal to the average bonus
paid or payable to you (including any amounts
which were or will be deferred) in respect of the
two fiscal years immediately preceding the fiscal
year in which the Change in Control occurs. The
payment provided for in this subparagraph (i)
shall be made not later than 30 days after the
date of the termination of your employment.
ii. For a period of 2 years from the date of
termination of your employment, the Company, at
the Company's expense, shall provide you with
health, medical, dental, and life insurance
2
coverage to the same extent to which you were
covered under the Company's group plans, policies
and programs (and any supplemental plans) on the
date immediately preceding the date of a Change in
Control if more favorable to you. The Company's
obligation with respect to such benefits shall be
satisfied to the extent that you obtain similar
benefits pursuant to a subsequent employer's
benefit plan. Also, you shall have the option to
have assigned to you at no cost and with no
apportionment of prepaid premiums, any assignable
insurance policy owned by the Company and relating
specifically to you. This subparagraph is not
intended as a limitation on any benefits you may
be entitled to under any plans, policies or
programs of the Company.
iii. If requested, the Company will pay the cost
of outplacement services, provided, however,
the amount payable by the Company for such
services shall not exceed $15,000.
If more than one Change in Control shall occur during the term of this
Agreement, you will be entitled to Change in Control Compensation only once.
2. For purpose of this Agreement, the term "Change in Control" shall
mean the first to occur of the following events:
a. The "acquisition" after the date hereof by any "Person" (as
such term is defined below) of "Beneficial Ownership"
(within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "1934
Act"), as in effect on the date hereof) of any securities of
Xxxxxx (the "Voting Securities") which, when added to the
Voting Securities then "Beneficially Owned" by such Person,
would result in such Person "Beneficially Owning"
thirty-three and one-third percent (33-1/3%) or more of the
combined voting power of Xxxxxx'x then outstanding Voting
Securities; provided, however, that for purposes of this
paragraph (a), a Person shall not be deemed to have made an
acquisition of Voting Securities if such Person: (i)
acquires Voting Securities as a result of a stock split,
stock dividend of other corporate restructuring in which all
stockholders of the class of such Voting Securities are
treated on a pro rata basis; (ii) is generally engaged in
the business of underwriting securities and acquires the
Voting Securities ("Underwriting Securities") (x) pursuant
to the terms of an underwriting agreement (an "Underwriting
Agreement") to which Xxxxxx and such underwriter are parties
and which Underwriting Agreement in accordance with Rule
10b-7 promulgated under the 1934 Act or (z) to cover over
allotments created in connection with a distribution of
Voting Securities pursuant to an Underwriting Agreement;
(iii) acquires the Voting Securities directly from Xxxxxx;
(iv) becomes the Beneficial Owner of more than the permitted
percent of Voting Securities by Xxxxxx which, by reducing
the number of Voting
3
Securities outstanding, increases the proportional number of
shares Beneficially Owned by such Person; (v) is Xxxxxx or
any corporation or other Person of which a majority of its
voting power or its equity securities or equity interest is
owned directly or indirectly by Xxxxxx (a "Subsidiary") or
(vi) acquires Voting Securities in connection with a
"Non-Control Transaction" (as defined in paragraph (c)
below).
b. The individuals who, as of the date of the initial public
offering, are members of the Board of Directors of Xxxxxx
(the "Incumbent Board"), cease for any reason to constitute
at least two-thirds of the Board of Directors of Xxxxxx;
provided, however that if either the election of any new
director or the nomination for election of any new director
by Xxxxxx'x stockholders was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall
be considered as a member of the Incumbent Board; provided
further, however, that no individual shall be considered a
member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened
"Election Contest" (as described in Rule 14a-11) promulgated
under the 1934 Act, as in effect on the date hereof) or
other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board of
Directors (a "Proxy Contest") including by reason of any
agreement intended to avoid or settle any Election Contest
or Proxy Contest; or
c. Approval by stockholders of Xxxxxx of:
(1) A merger, consolidation or reorganization
involving Xxxxxx (a "Business Combination"),
unless
(i) the stockholders of Xxxxxx, immediately
before the Business Combination, own,
directly or indirectly immediately
following the Business Combination, at
least 67% of the combined voting power
for the election of directors generally
of the outstanding securities of the
corporation resulting from the Business
Combination (the "Surviving
Corporation") in substantially the same
proportion as their ownership of the
Voting Securities immediately before the
Business Combination, and
(ii) the individuals who were members of the
Incumbent Board immediately prior to the
execution of the agreement providing for
the Business Combination constitute at
least two-thirds of the members of the
Board of Directors of the Surviving
Corporation,
4
(iii) no Person (other than Xxxxxx or any
Subsidiary, a trustee or other fiduciary
holding securities under one or more
employee benefit plans or arrangements
(or any trust forming a part thereof)
maintained by Xxxxxx, the Surviving
Corporation, or any Subsidiary) or any
Person who, immediately prior to the
Business Combination, had Beneficial
Ownership of thirty-three and one-third
percent (33-1/3%) or more of the then
outstanding Voting Securities) upon
consummation of the Business Combination
is the Beneficial Owner of thirty-three
and one-third percent (33-1/3%) or more
of the combined voting power for the
election of directors generally of the
Surviving Corporation's then outstanding
securities (a transaction described in
clauses (i) through (ii) shall be
referred to as a "Non-Control
Transaction")
(2) A complete liquidation or dissolution of Xxxxxx;
or
(3) An agreement for the sale or other disposition of
all or substantially all of the assets of Xxxxxx
to any Person (other than a transfer to a
Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because thirty-three and one-third percent (33-1/3%) or more of
the then outstanding Voting Securities is Beneficially Owned by (i) a trustee or
other fiduciary holding securities under one or more employee benefit plans or
arrangements (or any trust forming a part thereof) maintained by Xxxxxx or any
Subsidiary or (ii) any corporation which, immediately prior to its acquisition
of such interest, is owned directly or indirectly by the stockholders of Xxxxxx
in the same proportion as their ownership of stock in Xxxxxx immediately prior
to such acquisition. Furthermore, if an employee's employment is terminated and
the employee reasonably demonstrates that such termination (i) was at the
request of a third party who has indicated an intention or taken steps
reasonably calculated to effect a Change in Control and who effectuates a Change
in Control or (ii) otherwise occurred in connection with, or in anticipation of,
a Change in Control which actually occurs, then for all purposes hereof, a
Change in Control shall be deemed to have occurred and the date of a Change in
Control with respect to the employment shall mean the date immediately prior to
the date of such termination of employment.
3. The impact of a Change in Control relative to your stock
options is covered under the terms of the stock option plan pursuant
to which such stock options were granted.
4. For the purpose of this Agreement, the following definitions
shall be used:
a. A voluntary resignation shall be deemed to be for "Good
Reason" if such
5
resignation is based upon (i) a determination by you made in
good faith that as a result of a Change in Control and a
change in circumstances thereafter significantly affecting
your position, you have been rendered substantially unable
to carry out, or have been substantially hindered in the
performance of, any of your authorities, powers, functions,
responsibilities or duties in respect of the Company
immediately prior to the Change in Control, which situation
is not remedied within 10 calendar days after receipt by the
Company of written notice from you of such determination,
(ii) a reduction in your annual base salary (including any
deferrals), (iii) a change in any Company bonus plan in
which you participate which results in a reduction in your
reward opportunities thereunder in terms of the maximum
bonus that you may earn, or a change in the performance
targets applicable thereunder (unless such change in the
performance target applies to all employees generally), in
either case which adversely affects your ability to qualify
for the maximum bonus, (iv) action by the Company requiring
you be based in any place more than 30 miles from the
location of your employment immediately prior thereto, or
that the travel in connection with your employment is
required to a materially greater degree than was customary
for you immediately before the Change in Control, (v) the
failure by the Company to provide you with benefits
substantially similar in terms of benefit levels to those
provided to you immediately prior to the Change in Control
(other than a failure which is the result of a reduction or
change in benefits that applies to employees generally),
(vi) a reduction in the number of vacation days available to
you annually, or (vii) a material breach by the Company of
this Agreement or (viii) a failure or refusal by a successor
to assume the obligations of the Company under this
Agreement.
b. A termination for "Cause" shall mean that you have been
terminated from employment because: you have been convicted
of a felony, or you committed an act of fraud or
embezzlement against the Company, or you committed a willful
and substantial violation of established written Company
policy.
c. A termination for "Disability" shall mean that due to a
physical or mental illness or injury (regardless of whether
such illness or injury is job related), you have been unable
to perform on a full-time basis the duties of your position
for a consecutive period of 12 months.
5. (a) In the event that you become entitled to Change in
Control Compensation pursuant to Paragraph 2 hereinabove,
and any amount of the Change in Control Compensation may be
Subject to the tax (the "Excise Tax") imposed by section
4999 of the Internal Revenue Code (or any similar tax that
may hereafter be imposed), the Company shall pay to you at
the time specified below, an additional amount (the
"Gross-Up Payment") such that the net amount retained by
you, after deduction of any Excise Tax on the
6
"Total Payments" (as hereinafter defined) and any federal,
state and local income tax and Excise Tax upon the payment
provided for by this Paragraph 5, shall be equal to the
Total Payments. For purposes of determining whether any of
the Total Payments will be subject to the Excise Tax and the
amount of such Excise Tax, (i) the Change in Control
Compensation and any other payments or benefits received or
to be received by you in connection with a Change in Control
of the Company or termination of your employment (whether
pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any person whose
actions result in a Change in Control of the Company or any
person affiliated with the Company or such person) (which
payments and benefits, together with the Change in Control
Compensation , shall constitute the "Total Payments") shall
be treated as "Parachute payments" within the meaning of
section 280G(b) (2) of the Code, and all "excess parachute
payments" within the meaning of section 280G(b) (1) shall be
treated as subject to the Excise Tax, except to the extent
that, in the opinion of tax counsel selected by the
Company's independent auditors and acceptable to you, the
Total Payments do not constitute parachute payments, or such
excess parachute payments represent reasonable compensation
for services actually rendered within the meaning of section
280G(b) (4) of the Code in excess of the base amount within
the meaning of section 280G(b) (3) of the Code, or are
otherwise not subject to the Excise Tax, and (ii) the value
of any non-cash benefits or any deferred payment or benefit
shall be determined by the Company's independent auditors in
accordance with the principles of sections 280G(d) (3) and
(4) of the Code.
b. For purposes of determining the amount of your Gross-Up
Payment, you shall be deemed to pay (i) federal income taxes
at the highest marginal rate of federal income taxation in
the calendar year in which the Gross-Up Payment is made and
(ii) state and local income taxes at the highest marginal
rate of taxation in the calendar year in which the Gross-Up
Payment is made (but based on the rates of taxation of the
states and localities with respect to which the Gross-Up
Payment will be taxable), net of the maximum reduction in
federal income taxes which could be obtained from deduction
of such state and local taxes.
c. The Gross-Up Payment provided for in this paragraph shall be
an estimate. The Company will cause its independent auditors
to make an estimate of Excise Tax liability and Gross-Up
Payment within 60 days of the date of termination of your
employment (a copy of which is to be furnished to you as
soon as possible) and the Company shall pay to you the
Gross-Up Payment in cash in a lump sum within 30 days of
such estimate. In the event that the amount of the estimated
Excise Tax liability exceeds the amount of the actual Excise
Tax liability as conclusively and finally determined, you
shall promptly repay the portion
7
of the Gross-Up Payment attributable to the reduced Excise
Tax and such excess shall constitute a loan by the Company
to you, payable on the fifth day after demand by the Company
(together with interest from the date you received the
Gross-Up Payment at the rate provided in section 1274(b) (2)
(B) of the Code).
d. In the event the Internal Revenue Service subsequently makes
a determination resulting in an Excise Tax in excess of the
estimate as determined by the Company's auditors, you shall
promptly notify the Company and the Company shall have the
right at its expense, to contest and participate. If any
additional Excise Tax is assessed in respect of you by the
Internal Revenue Service, such additional Excise Tax, plus
any penalties and interest assessed, shall be paid to you by
the Company (together with an amount sufficient for all
other federal, state and local taxes on the additional
Excise Tax and the payments provided for in this Paragraph)
within 10 days of the date that the Internal Revenue Service
makes such an assessment.
6. The payment provided in Paragraph 1 shall be offset by any other
severance pay to which you have be entitled under any other Company
plan, program or policy. However, in addition to any other payments
provided herein, you shall also be entitled upon termination of your
employment to the following:
a. A lump sum cash payment in an amount equal to any accrued
(but not taken) vacation calculated through the effective
date of termination of your employment.
b. A lump sum in an amount equal to a pro-rata portion of the
Bonus Amount, based on the number of days which have elapsed
in the fiscal year in which termination of your employment
occurs.
c. Any other payments or benefits which employees are entitled
to receive under the Company's plans, programs, and policies
in effect upon termination of your employment.
7. All amounts paid to you under this Agreement shall be subject to
withholding for federal, state, local and F.I.C.A. taxes and such
other payroll deductions as required pursuant to any applicable law
and regulation.
8. This Agreement shall not be assignable by you or the Company
without the written consent of the other party; provided, however,
that the Company shall assign this Agreement to any person or entity
which has acquired substantially all of the business or assets of the
Company and shall require such acquiror to expressly assume and agree
to perform this Agreement and all obligations of the Company under
this Agreement. All the terms and provisions hereof shall be binding
upon, inure to the benefit of, and be enforceable by you, your assigns
and your beneficiaries and the Company and its
8
successors and assigns.
9. The Company shall pay all legal fees and related expenses
(including the costs of experts, evidence and counsel) incurred by you
as a result of termination of your employment, including your seeking
to obtain or enforce any right or benefit in connection with
termination of your employment following a Change in Control as set
forth in this Agreement.
10. You shall have the right and option to elect (in lieu of
litigation) to have any dispute or controversy arising under or in
connection with this Agreement settled by arbitration, conducted
before a panel of three arbitrators sitting in a location you select
within fifty (50) miles from the location of your job in accordance
with the commercial rules of the American Arbitration Association then
in effect. Judgment may be entered on the award of the arbitrator in
any court having jurisdiction. The Company shall pay any fees and
expenses associated with the arbitration, including your attorney's
fees. Any determination by such panel of arbitrators shall be
consistent with the provisions of this Agreement as set forth herein.
11. You shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking employment or otherwise and
no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to you in any subsequent employment
(other than as expressly set forth in Paragraph 1).
12. Notwithstanding anything to the contrary contained herein, this
Agreement is not intended to create, nor should it be interpreted to
create, any right on your part to be continued in employment with the
Company. In the event your employment shall terminate prior to a
Change in Control, this Agreement shall thereupon terminate and you
will have no rights or benefits under this Agreement.
13. This Agreement shall not be modified, waived, or discharged
unless such modification, waiver, or discharge is agreed to in writing
and signed by you and the Company's Chief Executive Officer.
14. Any waiver by you or the Company, at any time, of any breach by
the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by the other party shall
not be deemed a waiver of any other provision or condition at the same
or at any prior or subsequent time.
15. You agree not to discuss this Agreement with any of your
associates within the Company as they may not have a similar
arrangement.
16. This agreement shall continue in effect until December 31, 1999;
provided however, that on each anniversary date of this Agreement, the
term of this Agreement shall automatically be extended for one (1)
year unless either you or the Company shall have given notice to the
other at least sixty (60) days prior thereto that the term of this
Agreement shall not be so extended; and provided, further, however,
that notwithstanding
9
any notice by the Company not to extend this Agreement, this Agreement
shall not expire before the second anniversary of the date on which a
Change in Control occurs. Notwithstanding the expiration of this
Agreement, all of your rights and all obligations of the Company with
respect to any Change in Control which accrued on or prior to the
expiration of this Agreement shall survive until fully performed.
10
17. This Agreement shall to the extent not preempted by federal law
be governed by the laws of the State of Ohio without giving effect to
the principals of conflict of law thereof.
Please confirm your agreement, to an acknowledgment of, the foregoing
by signing the enclosed copies of this Agreement and by returning one (1)
original executed copy to me.
Very truly yours,
Xxxxxxx Xxxxxx Xxxxx
Chairman and C.E.O.
This day of , 199 ,
------ -------------------------- ------
the undersigned hereby agrees to and acknowledges the foregoing.
Signed:__________________________________
(name)
477567.1
