Exhibit 10(i)
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement"), dated as of March 14, 2002 is between XXXXXXX
X. XXXXXXXX ("Xxxxxxxx") and ROYAL APPLIANCE MFG. CO., an Ohio corporation
("Royal").
WHEREAS, Xxxxxxxx has been President and Chief Executive Officer of Royal
pursuant to an employment agreement dated September 15, 1995;
WHEREAS, Royal desires to continue to employ Xxxxxxxx pursuant to the terms
of this Agreement;
WHEREAS, Royal and Xxxxxxxx desire to replace the Severance and Employment
Agreement between them originally executed in 1995; and
WHEREAS, Xxxxxxxx desires to accept such continuing employment on the terms
set forth in this Agreement.
NOW THEREFORE, in consideration of the premises and mutual covenants set
forth herein and for other good and valuable consideration the parties agree as
follows:
1. DEFINITION OF CERTAIN TERMS. For the purposes of this Agreement, the
terms listed below shall be defined as follows:
"Affiliate" shall mean any corporation or other business entity that
directly or indirectly is controlled by the Company and any joint venture,
partnership or other legal entity in which the Company has a significant
ownership interest.
"Board" shall mean the Company's Board of Directors.
"Cause" shall have the meaning set forth in Section 6.C.
"Company" shall mean Royal and its successors and assigns.
"Change in Control" shall mean a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A or Item 1 of Form 8-K (or any similar item or successor schedule,
form, or report) promulgated under the Securities Exchange Act of 1934 as
amended ("Exchange Act"); provided that, without limitation, such a change in
control shall be deemed to have occurred if and at such times as (i) any
"person" (as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange
Act) becomes the beneficial owner, 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 (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board cease for
any reason to constitute at least a majority (i.e., more than one-
half) thereof unless the election, or the nomination for election by the
Company's shareholders, of each new director during such two-year period was
approved by an affirmative vote of at least two-thirds of the directors then
still in office who were directors at the beginning of said two-year period. In
addition, a change of control shall be deemed to have occurred if there is (a)
the sale, lease or other transfer in one or more transactions not in the
ordinary course of business of a total of seventy percent (70%) or more of the
Company's assets, or (b) any merger or consolidation between the Company and
another corporation or other legal entity immediately after which the Company's
stockholders immediately prior to the transaction hold, directly or indirectly,
less than fifty percent (50%) of the combined voting power of the Company or its
successor.
"Disability" shall mean Merriman's inability to perform all of his
duties for an aggregate of 90 days in any 12 consecutive month period due to a
physical or mental incapacity based upon evidence of a licensed physician who
has been mutually agreed to by Xxxxxxxx (or his primary care giver if Xxxxxxxx
is physically unable to agree) and Royal.
"Effective Date" shall mean the date of this Agreement as set forth in
the first line above.
"Executive" shall mean Xxxxxxxx.
"Good Reason" shall have the meaning set forth in Section 6.C.
"Noncompete Period" shall have the meaning set forth in Section 7.
"Term" shall have the meaning set forth in Section 2.
2. TERM OF EMPLOYMENT. The initial term of this Agreement shall commence on
the Effective Date of this Agreement and shall expire on the first anniversary
thereof ("Term"); PROVIDED, HOWEVER, that the Term shall be automatically
extended for successive one-year periods, unless not later than 60 days prior to
the end of the initial term or any automatic extension thereof, the Company or
Xxxxxxxx shall have given the other party written notice to the contrary. If the
Company gives notice of its intention not to renew this Agreement, Xxxxxxxx will
be entitled to the severance benefits set forth in Section 6.A hereof.
3. POSITION.
A. During the Term, Xxxxxxxx will be employed as President and Chief
Executive Officer of the Company. Xxxxxxxx will devote substantially all his
business time to the performance of his duties hereunder, will engage in no
other business activities without permission of the Board and will perform his
duties hereunder to the best of his abilities; PROVIDED, HOWEVER, that Xxxxxxxx
may serve as an outside director for any three (3) companies that do not compete
with the Company or any of its Affiliates; and PROVIDED, FURTHER, that such
services do not adversely affect the performance of his duties hereunder.
Xxxxxxxx will report to the Board. In addition, Xxxxxxxx will serve on the Board
without additional compensation.
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B. In his capacity as President and Chief Executive Officer of the
Company, Xxxxxxxx shall have the executive authority, responsibilities and
duties typically held and executed by a chief executive officer of a nationally
recognized manufacturing and sales corporation. Without limiting the foregoing,
Xxxxxxxx shall (i) attend all meetings of the Board; and (ii) assist the Board
and its committees in the exercise of the Board's duties and responsibilities,
in each case as requested by, and pursuant to the direction of, the Board.
C. Additionally, Xxxxxxxx may make and manage personal business
investments of his choice and serve in any capacity with any civic, educational
or charitable organization, or trade association, without seeking or obtaining
written approval of the Board, if such investments, activities and services do
not significantly interfere or conflict with the performance of his duties
hereunder or the interests of the Company. Written approval is required from the
Board with respect to Xxxxxxxx serving in any capacity with any federal, state
or local governmental entity.
D. PRINCIPAL OFFICE. Merriman's principal office and normal place of
work shall be at the Company's principal executive offices in Glenwillow, Ohio.
4. COMPENSATION. During the Term, Xxxxxxxx shall be entitled to annual
compensation from the Company consisting of (i) a Salary, (ii) a Cash Bonus (if
earned), and (iii) Stock Options and Phantom Stock Rights granted by the Board
in its discretion, subject to the terms and conditions set forth in A., B., and
C. as follows:
A. SALARY. The Company shall pay Xxxxxxxx an annual base salary ("Base
Salary") of Four Hundred Thousand Dollars ($400,000) payable in 24 equal
semi-monthly installments. State, local and federal income tax withholdings and
other normal employee deductions will be deducted from the gross salary prior to
payment to Xxxxxxxx. Merriman's Base Salary shall be reviewed annually by the
Board and increases, if any, will be made at the discretion of the Board.
Merriman's Base Salary may not be reduced without his consent.
B. CASH BONUS PROGRAM. At the end of each fiscal year during the Term,
Xxxxxxxx may earn a cash bonus pursuant to the Company's annual management
incentive plan ("MIP"). The annual MIP payment to Xxxxxxxx will be calculated as
a percentage of Merriman's annual Base Salary, the percentage based upon the
Company's actual performance compared to the various targeted levels set forth
by the Board at the beginning of each fiscal year. The annual MIP payment will
be paid to Xxxxxxxx by February 15th following each annual calendar period.
C. STOCK OPTIONS AND PHANTOM STOCK RIGHTS. Xxxxxxxx may receive, from
time to time, during the Term, such stock options and phantom stock rights as
are awarded by the Board or a Committee of the Board under plans authorized by
the Board.
5. BENEFITS AND EXPENSES.
A. During the Term, the Company will provide benefits to Xxxxxxxx no
less favorable than those benefits made available to other Company senior
management members,
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including participation in group term life insurance, group health,
hospitalization, dental and vision coverage, disability coverage, the 401(k)
retirement plan, and maintenance of the current vacation plan providing for six
(6) weeks of paid vacation per year which will accrue year to year if unused.
B. Reasonable travel, entertainment and other business expenses
incurred by Xxxxxxxx in the performance of his duties hereunder shall be
reimbursed by the Company in accordance with Company policies in effect from
time to time.
C. During the Term, the Company shall provide Xxxxxxxx with a monthly
car allowance for the sole purpose of defraying lease expenses, such allowance
not to exceed $700 per month. The Company shall also reimburse Xxxxxxxx for
monthly country club dues not to exceed $700 per month. The Company shall also
continue to pay all professional dues currently paid for Xxxxxxxx, including
those to the Young Presidents Organization.
X. Xxxxxxxx shall be indemnified by the Company against claims arising
in connection with his status as an employee, officer, director or agent of the
Company in accordance with the Company's policies in effect from time to time,
subject to applicable law.
6. BENEFITS UPON TERMINATION.
A. In the event of Merriman's termination without Cause, termination
due to death or Disability, if Xxxxxxxx terminates his employment for Good
Reason or if the Company gives notice of its intention not to renew this
Agreement (collectively, "Triggering Termination"), Xxxxxxxx, or his estate,
shall be entitled to the following severance benefits:
(i) Basic severance equal to three times the sum of Merriman's current
annual Base Salary and Merriman's average annual MIP earned over the three
(3) most recent completed fiscal years of the Company, with such basic
severance payable in six (6) equal semi-annual installments beginning
within thirty (30) days after the effective date of the Triggering
Termination. Notwithstanding the foregoing, if there is a Change in Control
after the Effective Date but before the Triggering Termination, the basic
severance shall be accelerated and paid in full as a lump sum (without any
discount) within thirty (30) days after the Triggering Termination. The
balance of any unpaid basic severance shall be accelerated and paid in full
(without any discount), in a lump sum, upon any Change in Control that
occurs after a Triggering Termination;
(ii) An additional lump sum severance, payable within 30 days of the
Triggering Termination. This amount will be determined and set annually
each February by the Board and the amount so set shall govern until the
next determination by the Board. Such additional lump sum severance amount
will not be adjusted up or down by more than 33% from the previous year's
amount. The additional lump sum severance amount for 2002 through February
2003 will be $1,500,000;
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(iii) The Company shall forgive any amount remaining due from Xxxxxxxx
on the note payable to the Company in the original principal amount of
$542,750 that Xxxxxxxx signed on April 2, 2001; and
(iv) Payment of Executive's Base Salary through the date of
termination.
These severance benefits are in addition to any benefits to which
Xxxxxxxx shall be entitled to under the Company's benefit plans, including a pro
rata MIP payment (based on the period of time served during the year in which
the Triggering Termination occurs), if any, for the year in which the Triggering
Termination occurs to be paid to Xxxxxxxx by the next February 15 and any unpaid
MIP payment for a prior year, group health, hospitalization, dental and vision
coverage for him and his family on the same basis as active senior management of
the Company for the 36 months subsequent to the Triggering Termination, and
accrued vacation. As a result of any Triggering Termination or immediately after
a Change in Control, the Company agrees to continue in effect any perquisite,
benefit or compensation plan (including its annual bonus plan, long-term
incentive plan, section 401(k) plan, dental plan, life insurance plan, health
and accident plan, disability plan, 401(k) Plus Plan, or deferred compensation
plan) in which the Executive is currently participating (collectively referred
to as the "Benefit Plans"), or to maintain plans providing substantially similar
benefits, unless the continuation of any such plan (or similar plan) would, in
the good faith determination of the Board, have a material adverse economic
effect on the Company taking into account all facts and circumstances. Other
than as provided in the preceding sentence, the Company agrees after a Change in
Control and/or for the period 36 months subsequent to the Triggering Termination
not to take any action that would adversely affect the Executive's participation
in, or materially reduce the benefits under, any of the Benefit Plans or deprive
the Executive of any material fringe benefit currently enjoyed.
B. If Merriman's employment (i) is terminated by the Company for Cause,
or (ii) is voluntarily terminated by Xxxxxxxx for other than Good Reason,
Merriman's employment hereunder shall terminate. In addition to any benefits to
which Xxxxxxxx shall be entitled under the Company's benefit plans, including
the MIP payment for the year in which the termination occurred (and any such
unpaid amount for a prior year) and accrued vacation, the Company shall pay his
unpaid Base Salary to the date of that termination to Xxxxxxxx.
C. The following terms shall have the meanings specified below:
(i) "Cause" shall mean the following: (1) an act or acts of dishonesty
by the Executive constituting a felony and resulting or intended to result
directly or indirectly in substantial gain or personal enrichment at the
expense of the Company; or (2) the willful and continued failure by the
Executive substantially to perform his duties with the Company (other than
any such failure resulting from incapacity due to mental or physical
illness) after a demand in writing for substantial performance is delivered
by the Board, which demand specifically identifies the manner in which the
Board believes that the Executive has not substantially performed his
duties, and such failure results in demonstrable material injury to the
Company. The Executive's employment shall in no event be considered to have
been terminated by the Company for Cause if such
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termination took place as the result of (1) bad judgment or negligence, or
(2) any act or omission without intent of gaining therefrom directly or
indirectly a profit to which the Executive was not legally entitled, or (3)
any act or omission believed in good faith to have been in or not opposed
to the interest of the Company, or (4) any act or omission in respect of
which a determination be made that the Executive met the applicable
standard of conduct prescribed for indemnification or reimbursement or
payment of expenses under the Regulations of the Company or the laws of the
State of Ohio, in each case as in effect at the time of such act or
omission. The Executive shall not be deemed to have been terminated for
Cause unless and until there shall have been delivered to him a copy of a
resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board (other than Executive)
at a meeting of the Board called and held for that purpose (after
reasonable notice to the Executive and an opportunity for him, together
with his counsel, to be heard before the Board), finding that in the good
faith opinion of the Board the Executive was guilty of conduct set forth
above in clauses (1) or (2) of the first sentence of this paragraph and
specifying the particulars thereof in detail.
(ii) "Good Reason" will exist if any one or more of the following
occur:
(1) failure by the Company or its Affiliates to honor any of its
obligations under Sections 4.A., 4.B., 4.C., 5.A., 5.B., 5.C., 5.D. or
14., or
(2) an adverse change in nature or scope of the authority,
powers, functions, responsibilities or duties attached to the position
of President and Chief Executive Officer with the Company (as such
position existed on the Effective Date) (including but not limited to
assignment by the Company to Xxxxxxxx of duties inconsistent with his
current position, duties, responsibilities, and status with the
Company or a change of his reporting responsibilities or titles
currently in effect) without the prior written consent of Xxxxxxxx,
which is not remedied within ten (10) calendar days after receipt by
the Company of written notice from Xxxxxxxx of such change; or
(3) if a change in circumstances significantly affecting
Merriman's position has occurred (including, without limitation, a
change in the scope of the business or other activities for which he
is responsible), and as a result thereof Xxxxxxxx has been rendered
substantially unable to carry out, has been substantially hindered in
the performance of, or has suffered a substantial reduction in, any of
the authorities, powers, functions, responsibilities or duties
attached to the position of President and Chief Executive Officer (as
such position existed on the Effective Date), which situation is not
remedied within ten (10) calendar days after written notice to the
Company from Xxxxxxxx; or
(4) the Company shall, without Merriman's prior written consent,
relocate its principal executive offices, or require Xxxxxxxx to have
his principal location of work changed, to any location which is in
excess of thirty
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(30) miles from the current location thereof or cause Xxxxxxxx to
travel away from his office in the course of discharging his
responsibilities or duties significantly more (in terms of consecutive
days or aggregate days in any calendar year) than was required of him
previously; or
(5) failure to elect or reelect or maintain Xxxxxxxx as President
and Chief Executive Officer or the removal of Xxxxxxxx as a director
of the Company.
(6) After a Change in Control, any purported termination by the
Company of Executive's employment that is not effected pursuant to a
Notice of Termination satisfying the requirements of Section 6.D. and,
for purposes of this Agreement, no such purported termination shall be
effective, provided, if the failure to comply with Section 6.D. occurs
despite the Company's good faith efforts to comply, no Good Reason
shall exist and the provisions of Section 6.D. shall govern.
D. Any purported termination of employment by the Company for Cause
shall be communicated by written Notice of Termination to Xxxxxxxx in accordance
with Section 15 hereof. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
employment under the provision so indicated. Any good faith failure to comply
with the provisions of this Section D. or Section 15 shall require that the
process set forth in this Section 6D. be repeated to comply with such
provisions.
7. CONFIDENTIALITY; NONDISPARAGEMENT; NONSOLICIATION; NONCOMPETITION.
X. Xxxxxxxx acknowledges the time and expense incurred by the Company
and its subsidiaries in connection with developing proprietary and confidential
information in connection with its businesses and operations. Xxxxxxxx agrees
that he will not at any time during the Term, and for 36 months after
termination of his employment ("Noncompete Period"), divulge, communicate, use
to the detriment of the Company or any of its subsidiaries or Affiliates
(collectively, the "Group") or for the benefit of an other person, firm or
entity, or misappropriate in any way, any confidential information or trade
secrets relating to the Group, including without limitation, business
strategies, operating plans, acquisition strategies (including the identities of
(and any other information concerning) possible acquisition candidates), pro
forma financial information, marketing analyses, acquisition terms and
conditions, personnel information, trade processes, manufacturing methods,
know-how, customer lists and relationships, supplier lists, or other non-public
proprietary and confidential information relating to the Group, except to the
extent such information is lawfully obtainable from public sources or such use
or disclosure is (i) necessary to the performance of Merriman's duties under
this Agreement, (ii) required by applicable laws, regulations, or by the rules
of a self regulatory organization, or (iii) authorized by the Company.
Additionally, during the Noncompete Period, Xxxxxxxx will not make disparaging
remarks about the Company or any of its Subsidiaries, employees, directors,
suppliers or customers.
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B. During the Noncompete Period, Xxxxxxxx shall not, directly or
indirectly, for himself or on behalf of any other person, firm or entity,
employ, engage or retain any person who at any time during the preceding
12-month period was an employee or consultant of any member of the Group or
contact any supplier, customer, employee or consultant from the Group for the
purpose of soliciting or diverting any such supplier, customer, employee or
consultant from any member of the Group or otherwise interfering with the
business relationship of any member of the Group with any of the foregoing,
without prior written authorization from the Company.
C. During the Noncompete Period, Xxxxxxxx shall not, directly or
indirectly, engage in, or serve as a principal, partner, joint venturer, member,
manager, trustee, agent, stockholder, director, officer, or employee of, or
consultant or advisor to, or in any other capacity, or in any manner, own,
control, manage, operate, or otherwise participate, invest, or have any interest
in, any person, firm or entity that engages in North America in the floor care
business or in any business that is competitive with any product code or any
other business that generated 10% of the revenues of the Group within the
preceding 24-month period, without prior written authorization from the Company;
provided, however, that the ownership of less than 5% of the outstanding equity
securities of a publicly traded corporation or other publicly traded legal
entity shall not in and of itself be a violation of this Section 7.X.
X. Xxxxxxxx acknowledges that his employment by the Company and
agreements herein (including the agreements of this Section 7) are reasonable
and necessary for the protection of the Company and are essential inducements to
the Company entering into this Agreement. Accordingly, Xxxxxxxx shall be bound
by the provisions hereof (including the provisions of this Section 7) to the
maximum extent permitted by law, it being the intent and spirit of the parties
that the foregoing shall be fully enforceable. However, the parties further
agree that, if any of the provisions of this Section 7 shall for any reason be
held to be excessively broad as to duration, geographical scope, or subject
matter, such provision shall be construed by limiting and reducing it so as to
be enforceable to the extent compatible with the applicable law as it shall
herein pertain.
X. Xxxxxxxx acknowledges that the services to be rendered under the
provisions of this Agreement are of a unique nature and that it would be
difficult or impossible to replace such services and that by reason thereof,
Xxxxxxxx agrees and consents that if he violates the provisions of this Section
7, the Company, in addition to any other rights and remedies available under
this Agreement or otherwise, shall be entitled to an injunction to be issued or
specific performance to be required restricting Xxxxxxxx from committing or
continuing any violation of the provisions of this Section 7.
F. Notwithstanding any other provision of Section 7, if a Change in
Control occurs subsequent to a Triggering Termination, the Noncompete Period
shall end one year after any Change in Control unless it would otherwise
terminate earlier. If there is a Change in Control after the Effective Date but
on or before the date of a Triggering Termination, the Noncompete Period shall
end one year after such termination.
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8. GOVERNING LAW; JURISDICTION AND VENUE. This Agreement shall be
governed by and construed in accordance with the laws of the State of Ohio,
without giving effect to the conflict of law provisions thereof. Any claim or
action arising hereunder shall be litigated exclusively in the Court of Common
Pleas, Cuyahoga County, Ohio or federal courts situated in the Northern District
of Ohio, Eastern Division, and each party irrevocably consents and submits to
the personal and subject matter jurisdiction of said courts.
9. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding between the parties with respect to the subject matter hereof
and supersedes and cancels any and all prior discussions, correspondence,
agreements or understandings (whether oral or written) between the parties
hereto with respect to such matters, excluding any agreements relating to stock
option and phantom stock grants or indemnity as an employee, officer, director
or agent. Any representation, premise or condition, whether written or oral, not
specifically incorporated herein, shall be of no binding effect upon the
parties.
10. SEVERABILITY; ASSIGNMENT.
A. Except for Section 7 hereof, if any portion of this Agreement is
held invalid or unenforceable by a court of competent jurisdiction, such portion
shall be deemed deleted as though it had never been included herein, but the
remainder of this Agreement shall remain in full force and effect.
B. This Agreement shall not be assignable by Xxxxxxxx except
pursuant to the laws of decent and distribution and then only for purposes of
enforcing Merriman's rights hereunder and shall be assignable by the Company
only with the consent of Xxxxxxxx, PROVIDED, HOWEVER, that the Company may
assign its rights and obligations under this Agreement without consent of
Xxxxxxxx in the event that the Company shall effect a Sale of the Company that
would constitute a Change in Control.
11. COOPERATION WITH REGARD TO LITIGATION. Xxxxxxxx agrees to
cooperate with the Company during the Noncompete Period by making himself
reasonably available to testify on behalf of the Company or its Affiliates, in
any action, suit or proceeding, whether civil, criminal, administrative, or
investigative and to assist the Company or any of its Affiliates in any such
action, suit, or proceeding by providing information and meeting and consulting
with its counsel and representatives. Xxxxxxxx shall be reimbursed promptly for
all out of pocket expenses incurred in satisfying his obligations under this
Section 11.
12. WAIVER; AMENDMENT. No provision hereof may be waived except by a
written agreement signed by all parties hereto. The waiver of any term or of any
condition of this Agreement shall not be deemed to constitute a waiver of any
other term or condition. This Agreement may be amended only by a written
agreement signed by all parties hereto.
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13. SURVIVAL OF PAYMENT PROVISIONS. The payment provisions of Sections
5, 6, 11, 14, 18, 19 and 20 hereof shall survive the expiration, suspension or
termination, for any reason, of this Agreement.
14. SUCCESSORS; BINDING AGREEMENT. This Agreement shall inure to the
benefit of, and be binding upon, the Company, its successors and permitted
assigns. The Company will require any successor or assignee (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle the
Executive to compensation from the Company in the same amount and on the same
terms as would apply if the Executive terminated his employment for Good Reason.
This Agreement shall also inure to the benefit of and be binding upon Xxxxxxxx,
his personal or legal representatives, his executors, administrators, heirs,
distributees, devisees and legatees. If Xxxxxxxx should die while any amount
would still be payable hereunder had Xxxxxxxx continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to his devisee, legatee, or other designee or, if there
be no such designee, to his estate.
15. NOTICE. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or delivered by
recognized overnight courier or mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to the Secretary of the Company,
0000 Xxxxxxx Xxxx, Xxxxxxxxxx, Xxxx 00000, and addressed to Xxxxxxxx (currently,
00000 Xxxxx Xxxx Xxxx, Xxxxxxx Xxxxx, Xxxx 00000) at his last known address
contained in the personnel records of the Company, or to such other address as
either party may have furnished to the other in writing in accordance herewith,
except that notice of change of address shall be effective only upon receipt.
16. WITHHOLDING TAXES. The Company may withhold from any amounts
payable under this Agreement such federal, state and local taxes as may be
required to be withheld pursuant to any applicable law or regulation.
17. COUNTERPARTS. This Agreement may be signed in counterparts, each
of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
18. SET-OFF; INTEREST ON OVERDUE PAYMENTS. There shall be no right of
set-off or counterclaim against, or delay in, any payment by the Company to
Xxxxxxxx hereunder in respect of any claim against or debt or obligation of
Xxxxxxxx, whether arising hereunder or otherwise. Without limiting the rights of
Xxxxxxxx at law or in equity, if the Company fails to make any payments
hereunder on a timely basis, the Company shall pay interest on the amount
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thereof at an annualized rate equal to the rate in effect, at the time such
payment should have been made, under the Company's 401(k) plan for loans to
participants in such plan.
19. PARACHUTE PAYMENTS.
A. If it shall be determined that any payment, distribution or benefit
received or to be received by Xxxxxxxx from the Company or any of its
Affiliates, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise pursuant to or by reason of any other
agreement, policy, plan, program or arrangement, including without limitation
any stock option, phantom stock, performance share, performance unit, restricted
stock, stock appreciation right or similar right, or the lapse or termination of
any restriction on, or the vesting or exercisability of, any of the foregoing
(individually and collectively, "Payments") would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code") or to any similar tax imposed by state or local law, or to any interest
or penalties with respect to such taxes (such tax or taxes, together with any
such interest and penalties, being hereafter collectively referred to as the
"Excise Tax"), then Xxxxxxxx shall be entitled to receive an additional payment
from the Company (the "Excise Tax Gross-Up Payment") in an amount such that the
net amount retained by Xxxxxxxx, after the calculation and deduction of any
Excise Tax on the Payments (together with any penalties and interest that have
been or will be imposed on Xxxxxxxx in connection therewith) and any federal,
state and local income taxes, Excise Taxes and payroll taxes (including the tax
imposed by Section 3101(b) of the Code) on the Excise Tax Gross-Up Payment
provided for in this Section 19, shall be equal to the Payments. In computing
the amount of this payment, it shall be assumed that Xxxxxxxx is subject to tax
by each taxing jurisdiction at the highest marginal tax rate in the respective
taxing jurisdiction of Xxxxxxxx, taking into account the city and state in which
Xxxxxxxx resides, but giving effect to the tax benefit, if any, which Xxxxxxxx
may enjoy to the extent that any such tax is deductible in determining the tax
liability of any other taxing jurisdiction (provided that the highest marginal
tax rate for federal income tax purposes shall be determined under Section 1 of
the Code).
B. All determinations required to be made under this Section 19,
including whether and when an Excise Tax Gross-Up Payment is required and the
amount of such Excise Tax Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, except as specified in Section 19.A., shall be
made by the Company's independent auditors (the "Accounting Firm"), which shall
provide detailed supporting calculations both to the Company and Xxxxxxxx within
15 business days after the Company makes any Payments to Xxxxxxxx. The
determination of tax liability and the assumptions made by the Accounting Firm
shall be subject to review by Merriman's tax advisor, and, if Merriman's tax
advisor does not agree with the determination reached by the Accounting Firm,
then the Accounting Firm and Merriman's tax advisor shall jointly designate a
nationally-recognized public accounting firm within five (5) business days after
notice has been given to the Company of Merriman's disagreement with the
Accounting Firm's calculation, which shall make the determination within 15
business days after its appointment. If the parties cannot agree on a nationally
recognized public accounting firm, then both parties shall select a nationally
recognized public accounting firm who shall then jointly select a third
nationally recognized public accounting firm which shall make the determination
within 15 business days after its appointment. All fees and expenses of the
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accountants and tax advisors retained by either Xxxxxxxx or the Company shall be
borne by the Company. Any Excise Tax Gross-Up Payment, as determined pursuant to
this Section 19, shall be paid by the Company to Xxxxxxxx within five (5) days
after the receipt of the determination, subject to applicable federal, state,
local and Excise Tax withholding requirements. Any determination by a jointly
designated public accounting firm shall be binding upon the Company and
Xxxxxxxx. If an accounting firm determines that no Excise Tax is payable by
Xxxxxxxx, it shall, at the same time as it makes such determination, furnish the
Company and Xxxxxxxx an opinion that Xxxxxxxx has substantial authority not to
report any Excise Tax on his federal, state or local income or other tax return.
C. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination hereunder, it is possible
that Excise Tax Gross-Up Payments will not have been made by the Company that
should have been made consistent with the calculations required to be made
hereunder ("Underpayment"). In the event that the Internal Revenue Service
("IRS"), on audit, asserts that Xxxxxxxx has made an underpayment and Xxxxxxxx
is required (by reason of settlement or otherwise) to make a payment of any
Excise Tax, or if Xxxxxxxx is required to make one or more payments of Excise
Tax to the IRS (and/or interest or penalties thereon) upon the filing of his
original or amended tax returns which exceed the amounts taken into account in
determining the initial Excise Tax Gross-Up Payment made pursuant to Sections
19A. and B., then in either of such events, any such Underpayment calculated in
accordance with and in the same manner as the Excise Tax Gross-Up Payment in
Section 19.A. shall be promptly paid by the Company to or for the benefit of
Xxxxxxxx. In addition, the Company will pay Xxxxxxxx an amount equal to any
penalties, interest or additions to be assessed against him as a result of the
Underpayment, which amounts shall be grossed up for any federal, state, local or
Excise Taxes payable with respect to such penalties, interest or additions to
tax such that Xxxxxxxx receives a net amount equal to the penalties, interest
and additions to tax assessed against him (determined in the same manner as
described in Section 19.A.). Xxxxxxxx shall not be obligated to contest any
proposed assessment of any Underpayment and may settle any such audit action or
proceeding involving an Underpayment at his discretion; provided, however, that
Xxxxxxxx shall, upon notice of examination by the IRS, give notice thereof to
the Company and the Company, at its sole cost and in its sole discretion, may,
on behalf of Xxxxxxxx, defend and contest against any proposed IRS deficiency.
In the event that the Company assumes the defense of the proposed deficiency,
the Company shall immediately, upon written request of Xxxxxxxx, secure all of
its possible obligations to Xxxxxxxx as provided for in this Section 19.C. by
either posting cash collateral in escrow or providing Xxxxxxxx with a "clean
irrevocable letter of credit" in the amount of all of the Company's possible
obligations to Xxxxxxxx pursuant to this Section 19.C. The terms of such escrow
or clean irrevocable letter of credit shall be negotiated by Company and
Xxxxxxxx at such time. Xxxxxxxx agrees to execute any documents, including
Powers of Attorney, that may be necessary to facilitate Company's defense and/or
contesting the IRS' assertions. In the event that the Excise Tax Gross-Up
Payment exceeds the amount subsequently determined to be due, such excess shall
constitute a loan from the Company to Xxxxxxxx payable on the fifth day after
demand by the Company (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code).
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20. LEGAL FEES AND EXPENSES. It is the intent of the Company that the
Executive not be required to incur the legal expenses associated with (i)
negotiation or interpretation of any provision in, or obtaining of any right or
benefit under, this Agreement or (ii) the enforcement of his rights under this
Agreement by litigation or other legal action, because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, the Company irrevocably authorizes the
Executive from time to time to retain counsel of his choice, at the expense of
the Company as hereafter provided, to represent the Executive in connection with
the negotiation and interpretation or enforcement of this Agreement, including
the initiation or defense of any litigation or other legal action, whether by or
against the Company or any Director, officer, stockholder or other person
affiliated with the Company, in any jurisdiction. Notwithstanding any existing
or prior attorney-client relationship between the Company and such counsel, the
Company irrevocably consents to the Executive's entering into an attorney-client
relationship with such counsel, and in that connection the Company and the
Executive agree that a confidential relationship shall exist between the
Executive and such counsel. The Company shall pay or cause to be paid and shall
be solely responsible for any and all reasonable attorneys' and related fees and
expenses incurred by the Executive under this Section 20.
Executed in Glenwillow, Ohio this 14th day of March, 2002.
ROYAL APPLIANCE MFG. CO.
By:
------------------------------ ---------------------------------
R. Xxxxx Xxxxxxxxxxxx Xxxxxxx X. Xxxxxxxx
Chairman of the Board
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