GALOOB
[LOGO]
Xxxx X. Xxxxxxx July 15, 1995
President and
Chief Executive Officer
Xxxx X. Xxxxx
000 Xxxxxxx Xxxx
Xxx Xxxxxx, XX 00000
Dear Xxxx:
In connection with, and in consideration of, your continuing services in the
position of Executive Vice President - Marketing and Product Acquisition with
Xxxxx Xxxxxx Toys, Inc. (the "Company"), the Company hereby offers you the
following:
1. a. If you are terminated by the Company for reasons other than "cause"
(as hereinafter defined), or other than in connection with a change in control
of the Company (which is provided for in paragraph 2 below), you will receive a
continuation of your base annual salary ("Salary Continuation") that is in
effect as of the date of termination of your employment ("Termination Date") and
a continuation of certain other benefits as hereinafter provided ("Other
Benefits", and collectively with the Salary Continuation "Severance Benefits"),
for a maximum period of twelve (12) months from and after the Termination Date
("Extension Period"); provided, however, that from and after your Termination
Date you will not receive or be entitled to any continuation of any bonus or
profit sharing participation or eligibility for any part or all of the Company's
fiscal year in which the Termination Date occurs. Except as provided below,
Salary Continuation during the Extension Period will be paid on the Company's
normal payroll schedule. If, however, during the Extension Period you commence
regular full-time employment elsewhere, your ongoing Severance Benefits shall
cease as of the date you commence said employment; provided, however, that as of
that date a calculation shall be made to determine the aggregate amount of
Salary Continuation (excluding Other Benefits) that remains unpaid and which you
would have otherwise been entitled to receive during the remaining portion of
the Extension Period, and the Company shall promptly pay you a lump sum (minus
withholdings and other required deductions) of an amount equal to one-half (1/2)
of such unpaid amount.
b. The Other Benefits referred to in paragraph 1.a. above include all
medical, health and welfare and insurance benefits that were in effect and in
which you participated as of the Termination Date and these will continue during
the Extension Period
until the earlier to occur of twelve (12) months from the Termination Date or
the date you become eligible for benefits from a subsequent employer. The
provisions and conditions covering these Other Benefits, including but not
limited to the amount of any contributions to be made by you on a monthly or
other periodic basis, will be governed by the various plans as they are in
effect from time to time. Notwithstanding the foregoing, earned Flexible Time
Off ("FTO") stops accruing and/or being earned as of your Termination Date and
all contributions to the Company's 401k and "cafeteria" benefit plan shall stop
as of the Termination Date.
c. Your automobile allowance and automobile program benefits, including your
Company gasoline credit card and reimbursement for maintenance, insurance and
other auto-related expenses, will cease as of the Termination Date and will not
be extended to you during the Extension Period. The amount constituting the
Salary Continuation that you are paid during the Extension Period will be
adjusted downward to eliminate the monthly auto allowance that you were
receiving immediately prior to the Termination Date.
d. For purposes of this letter, "regular full-time employment elsewhere"
shall not include or be deemed to include any situation where you become self-
employed, or any self-employment circumstances where you own or control at least
51% of the stock or other controlling equity of an entity that serves as your
employer and was created after the Termination Date solely for the purpose of
your ongoing employment.
e. For purposes of this letter, "cause" shall mean:
i. Your gross neglect, knowing refusal or knowing failure to properly
perform the material duties and responsibilities of your position or to
properly perform to a material extent the reasonable directives or
instructions of your immediate supervisor, whether any of the foregoing is
evidenced by a single act or a series of acts;
ii. Your gross neglect, knowing refusal or willful failure to adhere or
conform to, or abide by, the Company's policies and procedures, whether
evidenced by a single act or a series of acts;
iii. Any act or acts of dishonesty, gross negligence, willfulness, theft,
fraud, violations of law (including, but not limited to, convictions of a felony
or other crime involving moral turpitude, or the entering of a guilty plea or a
plea of nolo contendere in connection with any such felony or moral
turpitude charge) or other intentional conduct, whether or not in the course
of or outside the scope of your employment, which in the reasonable
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opinion of the Company has had, or may or will have, a material adverse
effect on the Company's business, property, goodwill or reputation.
In the event of a termination for cause, including one that occurs after a
change in control, the Company will pay you, no later than five (5) days after
the Termination Date, any unpaid compensation for services performed prior to
the Termination Date and the amount of any accrued but unused FTO to which you
are entitled. Thereafter, the Company shall have no further obligations to you.
2. Change in Control
a. For purposes of this letter, a "change in control" of the Company
shall be deemed to occur as of the date on which: (i) a person or entity or
group of persons or entities, acting in concert ("Person") shall, in a
transaction in which the Company is not a party, become the direct or indirect
beneficial owner (within the meaning of Rule 13d-3 of the Securities and
Exchange Act of 1934, as amended from time to time) of securities of the Company
representing fifty-one percent (51%) or more of the combined voting power of the
issued and outstanding common stock of the Company (a "Majority Owner") or (ii)
the majority of the Company's Board of Directors is no longer comprised of the
incumbent Directors who constitute the Board of Directors on the date of this
letter and any other individual(s) who becomes a Director subsequent to the date
of this letter whose initial election or nomination for election as a Director,
as the case may be, was approved by at least a majority of the Directors who
comprise the incumbent Directors as of the date of such election or nomination
("Incumbent Directors"); provided, however, that if the composition of the
Company's Board of Directors changes after or in conjunction with a transaction
to which the Company is a party that results in a Person becoming a Majority
Owner then, for purposes of this Paragraph 2.a., and notwithstanding the
approval of the majority of the Incumbent Directors, a change in control will be
deemed to have taken place if, and on the date that, there is a change in more
than one-third (1/3) of the Board of Directors during the twelve (12) month
period following such a transaction or in more than one-half (1/2) of the Board
of Directors during the twenty-four (24) month period following such a
transaction.
b. Subject to paragraph 2.d. below, if within a period of eighteen (18)
months following the date of such a change in control:
(i) you are either terminated for reasons other than cause, or
(ii) you experience a material diminution of your job responsibilities or
authority or a demotion in the level of your reporting relationship or a
reduction in your then-existing salary, or you are required to relocate
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outside of the San Francisco Bay area, and within thirty (30) days from the
occurrence of such act you exercise your right under this subparagraph b.
to terminate your employment by written notice to the Company,
whereupon the Termination Date will be the date of receipt of such notice
by the Company,
then, no later than five (5) days after such Termination Date you will receive
the following:
(aa) A lump sum payment (minus withholdings and other required
deductions) of an amount equal to two (2) times your total base annual salary
that is in effect immediately prior to the Termination Date or, if applicable,
immediately prior to the date of a reduction in salary, plus twenty-four (24)
times the amount to which you are then entitled for the monthly automobile
allowance; and
(bb) An additional lump sum payment (minus withholdings and other
required deductions) of an amount equal to the greater of two (2) times: (x)
the bonus that was actually paid to you for the year's results for the Company's
fiscal year immediately preceding the year in which your Termination Date
occurs, or (y) the bonus anticipated, if any, for the current fiscal year in
which your Termination Date occurs based upon the actual results as
compared to the Company's financial plan as of such Termination Date.
For clarification purposes, an example of this alternative bonus calculation
is set forth in Schedule 1, which is attached hereto and hereby made part of
this letter. It is also acknowledged that the amount payable under this
subparagraph may be zero if there was no bonus paid in the preceding year
and no bonus anticipated in the current year as of the Termination Date.
c. Subject to paragraph 2.d. below, in addition to the lump sum payments
provided for in paragraph 2.b. above, commencing upon the Termination Date you
will also start receiving and be entitled to the following:
(i) All Other Benefits that were in effect and in which you participated
immediately prior to the Termination Date, for the period of the earlier to
occur of twenty-four (24) months following the Termination Date or the
date you become eligible for benefits from a subsequent employer. The
provisions and conditions covering these Other Benefits, including but not
limited to the amount of any contributions to be made by you on a monthly
or other periodic basis, will be governed by the various plans as they are in
effect from time to time. Notwithstanding the foregoing, earned FTO
stops accruing and/or being earned as of your Termination Date and all
contributions to the Company's 401k and "cafeteria" benefit plan shall stop
as of the Termination Date.
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(ii) In addition to the lump sum payment of the monthly automobile allowance
(referred to in paragraph 2.b.(i) above), for the period of twenty-four (24)
months following the Termination Date you will be entitled to continue to
receive reimbursement for items such as automobile maintenance, insurance
and other auto-related expenses, including the use of a Company gasoline
credit card, all in accordance with the Company's executive automobile
allowance and reimbursement program as it is in effect on the Termination
Date and from time to time thereafter.
d. It is acknowledged and understood that the compensation plus other
benefits for which you are otherwise eligible pursuant to a change in control of
the Company in accordance with paragraphs 2b. and c. above may constitute
"parachute payments" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), and that payment of the aggregate total
of such compensation and benefits could constitute an "excess parachute payment"
under Section 280G of the Code if it equals an amount in excess of 2.99 times
your "Base Amount" as that term is defined in said Section 280G, thereby
resulting in some or all of such aggregate total being subject to the excise tax
under Section 4999 of the Code. (See attached letter from Shereff, Xxxxxxxx
for further explanation.) It is agreed that in such event your payment shall be
your choice of either (i) the aggregate total of such compensation and benefits,
or (ii) the aggregate total of such compensation and benefits reduced by the
minimum amount necessary so that no portion thereof will be subject to the
excise tax under Section 4999 of the Code. It is also understood and agreed that
the Company will not "gross-up" or make any other additional payments to you
that are intended, directly or indirectly, to partially or wholly offset any
such excise tax obligations.
3. This letter and the other documents expressly referenced herein constitute
the sole and exclusive agreement between you and the Company with regard to the
specific subject matter contained herein concerning your severance for a
termination other than for cause, the definition of "cause", and a change in
control, and this letter supersedes and replaces that portion of any prior
agreement or covenant, whether written or oral, between you and the Company
expressly covering any one or more of these specific items, including without
limitation that letter agreement dated July 15, 1993. However, subject to this
paragraph 3 and except as expressly set forth and/or amended herein, any other
written agreement that you have with the Company concerning your current
employment will remain in full force and effect.
4. The terms and conditions of this letter shall continue in full force and
effect for a period of twenty-four (24) months from the date of this letter, at
which time such terms and conditions shall automatically terminate unless
renewed in writing by the Company, or unless prior to that date you have been
terminated pursuant to the terms hereof or a
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change in control has occurred in which event the terms and conditions of this
letter will continue for the purposes thereof.
Please sign and date the duplicate originals of this letter in the place
provided below, retain one fully executed original for your file and return the
other fully executed original to my attention.
Sincerely yours,
XXXXX XXXXXX TOYS, INC.
/s/ Xxxx X. Xxxxxxx
Xxxx X. Xxxxxxx
President and
Chief Executive Officer
ACCEPTED AND AGREED TO THIS 27 DAY OF JULY, 1995:
/s/ Xxxx X. Xxxxx
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Xxxx X. Xxxxx
Attachments - Schedule 1
Tax Letter
