Change in Control Protection and Severance Agreement
Exhibit 10.1
Change in Control
Protection and Severance Agreement
Protection and Severance Agreement
This CHANGE IN CONTROL PROTECTION AND SEVERANCE AGREEMENT is dated August 11, 2010 by and
between Xxxxxxx Furniture Company, Inc., a Delaware corporation (the “Company”), and Xxxxx X.
Xxxxxxxxx (the “Executive”).
PURPOSE
In order to induce the Executive to accept employment with the Company and to remain in the
employment of the Company, particularly in the event of the threat or occurrence of a Change in
Control (as hereafter defined), the Company desires to enter into this Agreement to provide the
Executive with certain benefits in the event the Executive’s employment is terminated as a result
of a Change in Control or in certain circumstances in the first year of employment.
NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein,
it is agreed as follows:
SECTION 1. Definitions
For purposes of this Agreement, the following terms have the meanings set forth below:
“Accrued Compensation” means an amount which includes all amounts earned or accrued by the
Executive through and including the Termination Date but not paid to the Executive on or prior to
such date, including (a) all base salary, (b) all vacation pay, and (c) all bonuses and incentive
compensation.
“Base Salary Amount” means the Executive’s annual base salary at the rate in effect on the
Termination Date.
“Board” means the Board of Directors of the Company.
“Bonus Amount” means the average of the annual cash bonuses paid to the Executive for the two
fiscal years immediately prior to the fiscal year in which the Termination Date occurs. Bonus
Amount includes only the annual cash bonus and does not include any multi-year cash bonus,
restricted stock awards, options or other long-term incentive compensation that may have been
awarded to the Executive.
“Cause” means gross or willful neglect of duty which is not corrected after 30 days’ written
notice thereof; misconduct, malfeasance, fraud or dishonesty which materially and adversely affects
the Company or its reputation in the industry; or the commission of a felony or a crime involving
moral turpitude.
“Change in Control” of the Company means, and shall be deemed to have occurred upon, any of
the following events:
(i) The acquisition by a Group of Beneficial Ownership of 35% or more of the Stock or the
Voting Power of the Company and Xx. Xxxxx Xxxxxxxxx ceases to be the chief executive officer
of the Company, but excluding for this purpose: (A) any acquisition by the Company (or a
subsidiary), or an employee benefit plan of the Company; or (B) any acquisition of common
stock of the Company by management employees of the Company. “Group” means any individual,
entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the “Act”), “Beneficial Ownership” has the meaning in Rule 13d-3
promulgated under the Act, “Stock” means the then outstanding shares of common stock, and
“Voting Power” means the combined voting power of the outstanding voting securities entitled
to vote generally in the election of directors.
(ii) Individuals who constitute the Board on the effective date of this Agreement (the
“Incumbent Board”) cease to constitute at least a majority of the Board, provided that any
director whose nomination was approved by a majority of the Incumbent Board shall be
considered a member of the Incumbent Board unless such individual’s initial assumption of
office is in connection with an actual or threatened election contest (as such terms are used
in Rule 14a-12(c) of Regulation 14A promulgated under the Act).
(iii) Consummation of a reorganization, merger or consolidation, in each case, in which
the owners of more than 50% of the Stock or Voting Power of the Company do not, following such
reorganization, merger or consolidation, beneficially own, directly or indirectly, more than
50% of the Stock or Voting Power of the corporation resulting from such reorganization, merger
or consolidation.
(iv) A complete liquidation or dissolution of the Company or of its sale or other
disposition of all or substantially all of the assets of the Company.
“Code” means the Internal Revenue Code of 1986, as amended.
“Disability” means either of the following occurs:
(i) The Executive is unable to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment that can be expected to result in
death or can be expected to last for a continuous period of not less than 12 months, or
(ii) The Executive is, by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last for a continuous
period of not less than 12 months, receiving income replacement benefits for a period of not
less than three months under an accident and health plan covering employees of the Company.
“Good Reason” means any of the following events occur:
(i) A material diminution in the Executive’s base compensation.
(ii) A material diminution in the Executive’s authority, duties, or responsibilities.
(iii) A requirement that the Executive report to a corporate officer other than the Chief
Executive Officer of the Company.
(iv) A change of more than 75 miles in the geographic location at which the Executive
must perform the services from the Company’s offices in High Point, North Carolina.
(v) Any other action or inaction that constitutes a material breach by the Company or its
successor of this Agreement.
“Pro Rata Bonus” shall mean the annual bonus based on actual results for the year of
termination and the relative portion of the year during which the Executive provided services, paid
when the annual bonus would have been paid if the Executive had continued employment.
“Release” means a waiver and release by the Executive of claims against the Company in a form
reasonably determined by the Company (which shall have no post-employment obligation or limitation
in it and shall except out rights of indemnification, rights to directors and officers liability
insurance coverage and amounts due under this Agreement).
“Subsidiary” means any corporation with respect to which another specified corporation has the
power under ordinary circumstances to vote or direct the voting of sufficient securities to elect a
majority of the directors.
“Successor” means a corporation or other entity acquiring all or substantially all the assets
and business of the Company, whether by operation of law, by assignment or otherwise.
“Termination Date” means (a) in the case of the Executive’s death, the Executive’s date of
death, and (b) in all other cases, the final date of Executive’s employment with the Company.
Notwithstanding anything to the contrary herein, an Executive’s employment shall not be considered
to have terminated unless
the Executive has experienced a “separation from service,” as defined in Code Section 409A and
the regulations thereunder.
SECTION 2. Term of Agreement
The term of this Agreement (the “Term”) will commence on the Executive’s first day of
employment with the Company, and will continue in effect until December 31, 2011; provided however
that on January 1, 2012 and on each January 1 thereafter, the Term shall automatically be extended
for an additional one (1) year, unless not later than October 1 prior to the end of one of the
periods, either the Company or the Executive shall have given notice to the other party not to
extend the Term. Notwithstanding the foregoing, the Term shall be deemed to have immediately
expired without any further action, and this Agreement will immediately terminate and be of no
further effect if, prior to a Change in Control, the Executive’s employment is terminated for any
reason or if Executive does not commence employment with the Company. For the avoidance of doubt,
notwithstanding termination of this Agreement after Executive has commenced employment, the
provisions of Section 4 shall survive in accordance with their terms. Additionally, in the event
that a Change in Control occurs during the Term, then the Term shall automatically extend for a
period of up to two additional years, if necessary, so that the Term coincides with the two-year
post-Change in Control period specified in Section 3.1 below.
SECTION 3. Termination of Employment after Change in Control
3.1 If the Executive’s employment with the Company is terminated within two (2) years
following a Change in Control that occurs during the Term, the Executive will be entitled to the
following compensation and benefits:
(a) If the Executive’s employment with the Company is terminated (i) by the Company for
Cause, (ii) by the Executive other than for Good Reason, or (iii) by reason of the Executive’s
death or Disability, then the Company will pay to the Executive the Accrued Compensation.
(b) If the Executive’s employment with the Company is terminated by the Company other
than for Cause, or the Executive terminates his employment for Good Reason, the Executive will
be entitled to the following:
(i) the Company will pay the Executive all Accrued Compensation and the Pro Rata
Bonus;
(ii) all unvested stock awards then held by the Executive shall accelerate and
become immediately vested to the extent that the awards would have been vested if
Executive had remained an employee for two (2) years following the Change in Control;
and
(iii) subject to the Executive providing the Company with a Release, the Company
will pay the Executive as severance pay, and in
lieu of any further compensation for periods subsequent to the Termination Date, in
a single payment an amount in cash equal to two times the sum of (A) the Base Salary
Amount and (B) the Bonus Amount.
(c) The Accrued Compensation and the amount provided for in Section 3.1(b)(iii) will be
paid in a single lump sum cash payment by the Company to the Executive within sixty (60) days
after the Termination Date, subject to the provisions of Section 11. The Pro Rata Bonus will
be paid when the bonus would have been paid if the Executive had continued in employment.
3.2 Except as otherwise noted herein, during the term of this Agreement the compensation to
be paid to the Executive hereunder will be in lieu of any similar severance or termination
compensation (i.e., compensation based directly on the Executive’s annual salary or annual salary
and bonus) to which the Executive may be entitled under any other Company severance or termination
agreement, plan, program, policy, practice or arrangement. The Executive’s entitlement to any
compensation or benefits of a type not provided in this Agreement will be determined in accordance
with the Company’s employee benefit plans and other applicable programs, policies and practices as
in effect from time to time.
3.3 The Executive shall not be required to mitigate any amounts payable under this Agreement
and no such amounts shall be offset or reduced by the amount of any compensation or benefits from
any subsequent employment.
SECTION 4. Termination of Employment During First Year of Term
4.1 If a Change in Control has not occurred and the Executive’s employment with the Company
is terminated during the first 12 months of the Term, the following provisions shall apply:
(a) If the Executive’s employment with the Company is terminated (i) by the Company for
Cause, (ii) by the Executive other than for Good Reason, or (iii) by reason of the Executive’s
death or Disability, then the Company will pay to the Executive the Accrued Compensation. If
the Executive’s employment with the Company is terminated by the Executive other than for Good
Reason, the Executive will either forfeit the right to the $75,000 bonus payable on February
1, 2011 or, if previously paid, repay the Company the $75,000 bonus. The Company may offset
the Accrued Compensation by the amount of the bonus that the Executive must repay the Company.
(b) Subject to Sections 4.4 and 4.5, if the Executive’s employment with the Company is
terminated by the Company other than for Cause, or the Executive terminates his employment for
Good Reason, the Executive will be entitled to the following:
(i) the Company will pay the Executive all Accrued Compensation and the Pro Rata
Bonus;
(ii) all unvested stock awards then held by the Executive shall accelerate and
become immediately vested to the extent that the awards would have been vested if
Executive had remained an employee for one (1) year following the Termination Date;
(iii) subject to the Executive providing the Company with a Release, the Company
will pay the Executive as severance pay, and in lieu of any further compensation for
periods subsequent to the Termination Date, in a single payment an amount in cash equal
to one times the sum of (A) the Base Salary Amount and (B) the Bonus Amount, and
(iv) if not previously paid, the Company will pay the Executive the $75,000 bonus
otherwise payable on February 1, 2011.
(c) The Accrued Compensation and the amounts provided for in Section 4.1(b)(iii) and
(iv) will be paid in a single lump sum cash payment by the Company to the Executive within
sixty (60) days after the Termination Date, subject to the provisions of Section 11. The Pro
Rata Bonus will be paid when the bonus would have been paid if the Executive had continued in
employment.
4.2 Except as otherwise noted herein, during the first 12 months of the Term the
compensation to be paid to the Executive hereunder will be in lieu of any similar severance or
termination compensation (i.e., compensation based directly on the Executive’s annual salary or
annual salary and bonus) to which the Executive may be entitled under any other Company severance
or termination agreement, plan, program, policy, practice or arrangement. The Executive’s
entitlement to any compensation or benefits of a type not provided in this Agreement will be
determined in accordance with the Company’s employee benefit plans and other applicable programs,
policies and practices as in effect from time to time.
4.3 The Executive shall not be required to mitigate any amounts payable under this Agreement
and no such amounts shall be offset or reduced by the amount of any compensation or benefits from
any subsequent employment.
4.4 In the event Executive receives payments pursuant to Section 4.1(b), except with the
prior consent in writing of the Company, the Executive shall not, for a period of one (1) year
after the Termination Date, directly or indirectly manage, operate, control, be employed by,
participate in, invest in or be connected in any manner with the management, operation, ownership
or control of any business or venture which is in competition in the United States with the
business of the Company, provided that nothing herein shall prohibit the
Executive from owning securities of the Company or up to 5% of the outstanding voting
securities of any issuer which is listed on the New York or American Stock Exchange or as to which
trading is reported or quoted on the NASDAQ System.
4.5 In the event Executive receives payments pursuant to Section 4.1(b), except with the
prior consent in writing of the Company, the Executive shall not, for a period of one (1) year
after the Termination Date, directly or indirectly hire or employ in any capacity or solicit the
employment of or offer employment to or entice away or in any other manner persuade or attempt to
persuade any person employed by the Company or any of its subsidiaries to leave the employ of any
of them.
4.6 It is agreed and understood by the parties hereto that, in view of the nature of the
business of the Company, the restrictions in Section 4.4 and 4.5 are reasonable and necessary to
protect the legitimate interests of the Company, monetary damages alone are not an adequate remedy
for any breach of such provisions, and any violation thereof would result in irreparable injuries
to the Company. The Executive therefore acknowledges that, in the event of his violation of any of
such restrictions, the Company shall be entitled to obtain from any court of competent jurisdiction
preliminary and permanent injunctive relief as well as damages and an equitable accounting of all
earnings, profits and other benefits arising from such violation, which rights shall be cumulative
and in addition to any other rights or remedies to which the Company may be entitled.
4.7 If the period of time or the area specified in Section 4.4 is determined to be
unreasonable in any proceeding, such period shall be reduced by such number of months or the area
shall be reduced by the elimination of such portion thereof, or both, so that such restrictions may
be enforced for such time and in such area as is determined to be reasonable. If the Executive
violates any of the restrictions contained in Section 4.4, the restrictive period shall not run in
favor of the Executive from the time of the commencement of any such violation until such time as
such violation shall cease.
SECTION 5. Successors; Binding Agreement. This Agreement will be binding upon and will inure to
the benefit of the Company and its Successors, and the Company will require any Successors 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 or assignment had taken place.
Neither this Agreement nor any right or interest hereunder will be assignable or transferable by
the Executive or by the Executive’s beneficiaries or legal representatives, except by will or by
the laws of descent and distribution. This Agreement will inure to the benefit of and be
enforceable by the Executive’s legal representatives.
SECTION 6. Notice. For the purposes of this Agreement, notices and all other communications
provided for in the Agreement will be in writing and will be deemed to have been duly given when
personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the respective addresses last given
by each party to the other, provided that all notices to the Company will be directed to the
attention of the Chief Executive Officer of the Company with a copy to the Secretary of the
Company. All notices and communications will be deemed to have been received on the date of
delivery thereof or on the third business day after the mailing thereof, except that notice of
change of address will be effective only upon receipt.
SECTION 7. Miscellaneous. No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed by the Executive
and the Company. No waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to be performed by such
other party will be deemed a waiver of similar or dissimilar provisions or conditions at the same
or at any prior or subsequent time. No agreement or representation, oral or otherwise, express or
implied, with respect to the subject matter hereof has been made by either party which is not
expressly set forth in this Agreement.
SECTION 8. Governing Law. This Agreement will be governed by and construed and enforced in
accordance with the laws of the Commonwealth of Virginia without giving effect to the conflict of
laws principles thereof.
SECTION 9. Severability. The provisions of this Agreement will be deemed severable and the
invalidity or unenforceability of any provision will not affect the validity or enforceability of
the other provisions hereof.
SECTION 10. Entire Agreement. This Agreement constitutes the entire agreement between the parties
hereto and supersedes all prior agreements, if any, understandings and arrangements, oral or
written, between the parties hereto with respect to severance protection in connection with a
Change in Control or during the first year of the Term.
SECTION 11. Code Section 409A.
(a) It is intended that any amounts payable under this Agreement shall either be exempt
from or comply with Section 409A of the Code (including the Treasury regulations and other
published guidance relating thereto) (“ Code Section 409A ”) so as not to subject the
Executive to payment of any interest or additional tax imposed under Code Section 409A. To
the extent that any amount payable under this Agreement would trigger the additional tax,
penalty or interest imposed by Code Section 409A, this Agreement shall be modified to avoid
such additional tax, penalty or interest yet preserve (to the nearest extent reasonably
possible) the intended benefit payable to the Executive.
(b) To the extent a payment or benefit is nonqualified deferred compensation subject to
Code Section 409A, a termination of employment
shall not be deemed to have occurred for purposes of any provision of this Agreement
providing for the payment of any amounts upon or following a termination of employment unless
such termination is also a “separation from service” within the meaning of Code Section 409A
and, for purposes of any such provision of this Agreement, references to a “termination,”
“termination of employment” or like terms shall mean “separation from service.” If the
Executive is deemed on the date of a separation from service (within the meaning of Code
Section 409A) to be a “specified employee” (within the meaning of that term under Section
409A(a)(2)(B) of the Code and determined using any identification methodology and procedure
selected by the Company from time to time, or, if none, the default methodology and procedure
specified under Code Section 409A), then with regard to any payment or the provision of any
benefit that is “nonqualified deferred compensation” within the meaning of Code Section 409A
and which is paid as a result of the Executive’s “separation from service,” such payment or
benefit shall not be made or provided prior to the date which is the earlier of (A) the
expiration of the six (6)-month period measured from the date of such “separation from
service” of the Executive, and (B) the date of the Executive’s death (the “Delay Period”).
Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this
clause (whether they would have otherwise been payable in a single sum or in installments in
the absence of such delay) shall be paid or reimbursed to the Executive in a lump sum, and any
remaining payments and benefits due under this Agreement shall be paid or provided in
accordance with the normal payment dates specified for them herein.
(c) For purposes of Code Section 409A, the Executive’s right to receive any installment
payments pursuant to this Agreement shall be treated as a right to receive a series of
separate and distinct payments. Whenever a payment under this Agreement specifies a payment
period with reference to a number of days (e.g., “payment shall be made within thirty (30)
days following the date of termination”), the actual date of payment within the specified
period shall be within the sole discretion of the Company.
(d) With regard to any provision herein that provides for reimbursement of costs and
expenses or in-kind benefits, except as permitted by Code Section 409A, (i) the right to
reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another
benefit; (ii) the amount of expenses eligible for reimbursement, or in-kind benefits, provided
during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind
benefits to be provided, in any other taxable year, provided, that the foregoing clause (ii)
shall not be violated with regard to expenses reimbursed under any arrangement covered by
Section 105(b) of the Internal Revenue Code solely because such expenses are subject to a
limit related to the period the arrangement is in effect; and (iii) such payments shall be
made on or before the last day of the Executive’s taxable year following the taxable year in
which the expense was incurred.
IN WITNESS WHEREOF, the parties have executed and delivered this Change in Control Protection
Agreement as of the date first above written.
| Xxxxxxx Furniture Company, Inc. |
||||
| s/ Xxxxx Xxxxxxxxx | ||||
| Chief Executive Officer | ||||
| Xxxxx X. Xxxxxxxxx |
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| s/ Xxxxx X. Xxxxxxxxx | ||||
| Executive’s Signature | ||||
