INTERIM EMPLOYMENT AGREEMENT
INTERIM EMPLOYMENT AGREEMENT, dated as of May 18, 1999 (the
"Commencement Date") by and between U.S. Industries, Inc., a Delaware
corporation, with its principal United States office at 000 Xxxx Xxxxxx Xxxxx,
Xxxxxx, Xxx Xxxxxx 00000, (the "Company") and Xxxx X. Xxxx, residing at 00
Xxxxxx Xxxx Xxx, Xxxxxx, Xxxxxxx 00000 ("Executive").
W I T N E S S E T H:
WHEREAS, Executive is currently employed as the President and Chief
Operating Officer of the Company pursuant to an employment agreement dated
February 22, 1995 (the "Old Employment Agreement");
WHEREAS, the Company intends to transfer all or a part of the assets
constituting USI's diversified segment (the "Diversified Segment"), and other
assets of the Company (such assets collectively "USI Diversified") to a newly
constituted wholly owned subsidiary of the Company ("Newco") and to spinoff
Newco to the shareholders of the Company (a spinoff of Newco including at a
minimum Bearing Inspection, Inc., Atech Turbine Components, Inc., Huron Inc. and
Rexair Inc. with Executive as Chairman and Chief Executive Officer of Newco is
referred to herein as the "Spinoff");
WHEREAS, the Company and Executive desire to enter into this
agreement (this "Agreement") as to the terms of his employment by the Company,
between the dates hereof and the Spinoff or the earlier termination of
Executive's employment as provided herein and to hereby supersede and replace
the Old Employment Agreement.
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
parties agree as follows:
1. Term of Employment. Except for earlier termination as provided in
Section 7 hereof, Executive's employment under this Agreement shall be for a
term (the "Employment Term") commencing on the Commencement Date and terminating
on the earliest to occur of the events specified in Section 7(a) hereof.
2. Positions. (a) As of the Commencement Date, Executive shall serve
as President and Chief Operating Officer of the Company. It is the intention of
the parties that during the Employment Term, Executive shall also serve on the
Board of Directors of the Company (the "Board") without additional compensation.
Executive shall also serve, if requested by the Board, as an executive officer
and director of subsidiaries and a director of associated companies of the
Company and shall comply with the policy of the Compensation Committee of the
Company's Board (the "Compensation Committee") with regard to retention or
forfeiture of the director's fees. Effective September 15, 1999, the Executive
shall cease to be, and hereby resigns as, President and Chief Operating Officer
of the Company, but shall continue as a director and employee of the Company for
the remainder of the Employment Term. Executive shall be elected Chairman and
Chief Executive Officer of Newco on or before the Spinoff.
(b) Executive shall report directly to the Board or the Chief
Executive Officer of the Company and shall have such duties and authority,
consistent with his then position, as shall be determined from time to time by
the Board or the Chief Executive Officer of the Company provided that it is
recognized that Executive's primary responsibilities during the Employment Term
shall be with regard to the Spinoff.
(c) During the Employment Term, Executive shall devote substantially
all of his business time and efforts to the performance of his duties hereunder;
provided, however, that Executive shall be allowed, to the extent that such
activities do not materially interfere with the performance of his duties and
responsibilities hereunder, to manage his personal financial and legal affairs
and to serve on corporate, civic, or charitable boards or committees.
Notwithstanding the foregoing, the Executive shall not serve on any corporate
board of directors if such service would be inconsistent with his fiduciary
responsibilities to the Company.
3. Base Salary. During the Employment Term, the Company shall pay
Executive a base salary at the annual rate of not less than $500,000. Base
salary shall be payable in accordance with the usual payroll practices of the
Company. Executive's Base Salary shall be subject to annual review by the Board
or the Compensation Committee during the Employment Term and may be increased,
but not decreased, from time to time by the Board or the Compensation Committee,
except that, prior to a Change in Control, as defined in Section 10 hereof, it
may be decreased proportionately in connection with an across the board decrease
applying to all senior executives of the Company. The base salary as determined
as aforesaid from time to time shall constitute "Base Salary" for purposes of
this Agreement; provided, however, for purposes of calculating amounts payable
upon termination of Executive's employment hereunder "Base Salary" shall be
deemed to be the Base Salary immediately prior to any decrease thereof in
connection with an across the board decrease.
4. Incentive Compensation. (a) Bonus. For each fiscal year or
portion thereof during the Employment Term, Executive shall continue to
participate in an incentive pay plan of the Company substantially similar to
that in effect immediately prior the Commencement Date that provides an
annualized cash target bonus
opportunity equal to at least 100% of Base Salary.
(b) Restricted Stock. The Company shall recommend to the
Compensation Committee that, to the extent it has not already done so during May
1999, at its next meeting it award Executive, subject to his execution of a
Restricted Stock Agreement in the form customarily used by the Company for other
grants, 20,000 shares of restricted Company common stock ("Restricted Stock"),
which shall vest on such terms and conditions as set by the Compensation
Committee but which will in any event vest or be forfeited as provided in
Section 8 hereof and will vest upon a Change in Control.
(c) Other Compensation. The Company may, upon recommendation of the
Compensation Committee, award to the Executive such other bonuses and
compensation as it deems appropriate and reasonable. Notwithstanding anything
else herein, other than the Restricted Stock provided for in Section 4(b) above,
the Company shall not be obligated to grant or recommend any other equity awards
for Executive during the Employment Term.
5. Employee Benefits and Vacation. (a) During the Employment Term,
Executive shall be entitled to participate in all pension, retirement, savings,
welfare and other employee benefit plans and arrangements and fringe benefits
and perquisites maintained by the Company from time to time for the benefit of
the senior executives of the Company in accordance with their respective terms
as in effect from time to time (other than any special arrangement entered into
by contract with an executive). Executive shall be entitled to (i) coverage and
benefits at least equal in the aggregate to the benefits provided under the
benefit plans and programs, including, without limitation, any life insurance,
medical insurance, disability, pension, savings, incentive, retirement and other
plans and programs, of the Company applicable to Executive immediately prior to
the Commencement Date and (ii) fringe benefits and
perquisites of at least equal value to those provided by the Company to the
Executive immediately prior to the Commencement Date.
(b) During the Employment Term, Executive shall be entitled to
vacation each year in accordance with the Company's policies in effect from time
to time, but in no event less than four (4) weeks paid vacation per calendar
year. The Executive shall also be entitled to such periods of sick leave as is
customarily provided by the Company for its senior executive employees.
6. Business Expenses. The Company shall reimburse Executive for the
travel, entertainment and other business expenses incurred by Executive in the
performance of his duties hereunder, in accordance with the Company's policies
as in effect from time to time.
7. Termination. (a) The employment of Executive under this Agreement
shall terminate upon the occurrence of the earliest of the following events:
(i) the death of the Executive;
(ii) the termination of the Executive's employment by the
Company due to the Executive's Disability pursuant to Section 7(b)
hereof;
(iii) the termination of the Executive's employment by the
Executive for Good Reason pursuant to Section 7(c) hereof;
(iv) the termination of the Executive's employment by the
Company without Cause;
(v) the termination of employment by the Executive without
Good Reason upon sixty (60) days prior written notice;
(vi) the termination of employment by the Executive with or
without Good Reason during the period running from the date of a
Change in Control to twenty-four (24) months after the date of such
Change in Control (the "Change in Control Protection Period"),
provided that the foregoing commencement date of such right to
terminate employment pursuant to this Section 7(a)(vi) shall be
delayed until six (6) months after the Change in Control if
simultaneous with the Change in Control the Company or the person or
entity triggering the Change in Control delivers to the Executive an
irrevocable direct pay letter of credit with regard to the amounts
under Section 8(c)(A)(i) and (ii) and satisfying the requirements of
Section 7(g) hereof (and further provided that the foregoing shall
in no way affect full vesting of Restricted Stock upon a Change in
Control);
(vii) the termination of the Executive's employment by the
Company for Cause pursuant to Section 7(e);
(viii) A Spinoff occurring prior to September 30, 2000 (the
"Outside Date"), an Abandoned Spinoff or a Sale Event, in all cases
prior to a Change in Control, where
(x) "Sale Event" shall mean that prior to the earliest
of the Spinoff, an Abandoned Spinoff or the Outside
Date, one or more closings occur that results in more
than seventy-five percent (75%) of the assets
constituting the Diversified Segment as of the date
hereof being sold (or otherwise disposed of) to one or
more persons or entities and/or distributed to
shareholders through a dividend (but not including the
Spinoff or an event which would be an Abandoned
Spinoff); and
(y) "Abandoned Spinoff" shall mean that (A) no Sale
Event or Spinoff occurs prior to the Outside Date, (B)
the Company publicly announces that its Board has
abandoned the Spinoff, (C) Bearing Inspection, Inc.,
Atech Turbine Components, Inc., Huron Inc. or Rexair
Inc. is sold by the Company other than as part of a Sale
Event or the Company determines not to include any of
such companies in the Spinoff, or (D) a transaction
which would be a Spinoff occurs except that Executive is
not Chairman and Chief Executive Officer of Newco at
such time and the reason therefor is because Executive
is incapable of performing the duties of such position
as a result of physical or mental incapacity.
(b) Disability. If, by reason of the same or related physical or
mental reasons, Executive is unable to carry out his material duties pursuant to
this Agreement
for more than six (6) months in any twelve (12) consecutive month period, the
Company may terminate Executive's employment for Disability upon thirty (30)
days prior written notice, by a Notice of Disability Termination, at any time
thereafter during such twelve (12) month period in which Executive is unable to
carry out his duties as a result of the same or related physical or mental
illness. Such termination shall not be effective if Executive returns to the
full time performance of his material duties within such thirty (30) day notice
period.
(c) Termination for Good Reason. A Termination for Good Reason means
a termination by Executive by written notice given within ninety (90) days after
the occurrence of the Good Reason event unless such circumstances are fully
corrected prior to the date of termination specified in the Notice of
Termination for Good Reason (as defined in Section 7(d) hereof). For purposes of
this Agreement, "Good Reason" shall mean the occurrence or failure to cause the
occurrence, as the case may be, without Executive's express written consent, of
any of the following circumstances: (i) any material diminution of Executive's
then positions, duties or responsibilities hereunder (except in each case in
connection with the termination of Executive's employment for Cause or
Disability or as a result of Executive's death, or temporarily as a result of
Executive's illness or other absence or as otherwise provided in Section 2(a)
hereof), or the assignment to Executive of duties or responsibilities (other
than with
regard to the Spinoff) that are inconsistent with Executive's then position,
(ii) removal of, or the nonreelection of, the Executive from the positions with
the Company specified herein except on or after September 15, 1999 and prior to
a Change in Control; (iii) relocation of the Company's executive offices to a
location more than twenty-five (25) miles from their locations on the
Commencement Date; (iv) a failure by the Company, except as otherwise
specifically provided herein, (A) to continue any bonus plan, program or
arrangement in which Executive is entitled to participate on the Commencement
Date (the "Bonus Plans"), provided that any such Bonus Plans may be modified at
the Company's discretion from time to time but shall be deemed terminated if (x)
any such plan does not remain substantially in the form in effect prior to such
modification and (y) if plans providing Executive with substantially similar
benefits are not substituted therefor ("Substitute Plans"), or (B) to continue
Executive as a participant in the Bonus Plans and Substitute Plans on at least
the same basis as to potential amount of the bonus and substantially the same
level of criteria for achievability thereof as Executive participated in on the
Commencement Date; (v) any material breach by the Company of any provision of
this Agreement, including without limitation Section 11 hereof; (vi) Executive's
removal from the Board; (vii) failure of any
successor to assume in a writing delivered to Executive upon the assignee
becoming such, the obligations of the Company hereunder; or (viii) a failure of
the Compensation Committee to grant the Executive awards of Restricted Stock in
accordance with Section 4(b).
(d) Notice of Termination for Good Reason. A Notice of Termination
for Good Reason shall mean a notice that shall indicate the specific termination
provision in Section 7(c) relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for Termination for Good
Reason. The failure by Executive to set forth in the
Notice of Termination for Good Reason any facts or circumstances which
contribute to the showing of Good Reason shall not waive any right of Executive
hereunder or preclude Executive from asserting such fact or circumstance in
enforcing his rights hereunder. The Notice of Termination for Good Reason shall
provide for a date of termination not less than ten (10) nor more than sixty
(60) days after the date such Notice of Termination for Good Reason is given,
provided that in the case of the events set forth in Section 7(c)(ii) or (iii)
the date may be two (2) days after the giving of such notice.
(e) Cause. Subject to the notification provisions of Section 7(f)
below,
Executive's employment hereunder may be terminated by the Company for Cause. For
purposes of this Agreement, the term "Cause" shall be limited to (i) willful
misconduct by Executive with regard to the Company or its business which has a
material adverse effect on the Company; (ii) the refusal of Executive to follow
the proper written direction of the Board or the Chief Executive Officer,
provided that the foregoing refusal shall not be "Cause" if Executive in good
faith believes that such direction is illegal, unethical or immoral and promptly
so notifies the Board or the Chief Executive Officer; (iii) the Executive being
convicted of a felony (other than a felony involving a motor vehicle) and either
(x) exhausting all appeals without a reversal of the conviction or (y)
commencing a term of incarceration in a house of detention; (iv) the breach by
Executive of any fiduciary duty owed by Executive to the Company which has a
material adverse effect on the Company; or (v) Executive's material fraud with
regard to the Company.
(f) Notice of Termination for Cause. A Notice of Termination for
Cause shall mean a notice that shall indicate the specific termination provision
in Section 7(e) relied upon and shall set forth in reasonable detail the facts
and circumstances which provide for a basis for Termination for Cause. Further,
a Notification for Cause shall be required to include a copy of a resolution
duly adopted
by at least two-thirds of the entire membership of the Board at a meeting of the
Board which was called for the purpose of considering such termination and which
Executive and his representative had the right to attend and address the Board,
finding that, in the good faith opinion of the Board, Executive engaged in
conduct set forth in the definition of Cause herein and specifying the
particulars thereof in reasonable detail. The date of termination for a
Termination for Cause shall be the date indicated in the Notice of Termination.
Any purported Termination for Cause which is held by a court not to have been
based on the grounds set forth in this Agreement or not to have followed the
procedures set forth in this Agreement shall be deemed a Termination by the
Company without Cause.
(g) The irrevocable direct pay letter of credit required to be
delivered pursuant to Section 7(a)(vi) hereof shall be in amount equal to the
amount the Executive would be entitled to under Section 8(c)(A)(i) and (ii)
hereof if he were terminated without Cause upon the Change in Control (the
"Occurrence") and have an expiration date of no less than two (2) years after
the Occurrence. The Executive shall be entitled to draw on the letter of credit
upon presentation to the issuing bank of a demand for payment signed by the
Executive that states that (i) (A) a Good Reason
event has occurred and the Executive would be entitled to payment under Section
8(c) of this Agreement if he elected to terminate employment for Good Reason or
(B) six (6) months has expired since the Occurrence or (C) the Executive is
entitled to payment under Section 8(c) of this Agreement and (ii) assuming the
event set forth in (i) entitled him to payment under Section 8(c) of this
Agreement, the amount the Company would be indebted to him at the time of
presentation under Section 8(c)(A)(i) and (ii) if he then was eligible to
receive payments under Section 8(c). There shall be no other requirements
(including no requirement that the Executive first makes demand upon the Company
or that the Executive actually terminates employment) with regard to payment of
the letter of credit. To the extent the letter of credit is not adequate to
cover the amount owed to the Executive by the Company under this Agreement, is
not submitted by the Executive or is not paid by the issuing bank, the Company
shall remain liable to the Executive for the remainder owed the Executive
pursuant to the terms of this Agreement. To the extent any amount is paid under
the letter of credit it shall be a credit against any amounts the Company then
or thereafter would owe to the Executive under Section 8(c) of this Agreement.
The letter of credit shall be issued by a national money center bank with a
rating of at least A by Standard & Poors Ratings Services.
The Company shall bear the cost of the letter of credit.
8. Consequences of Termination of Employment. (a) Death. If
Executive's employment is terminated during the Employment Term by reason of
Executive's death, the employment period under this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement except for: (i) any compensation earned but not yet paid, including
and without limitation, any bonus if declared or earned but not yet paid for a
completed fiscal year, any amount of Base Salary earned but unpaid, any accrued
vacation pay payable pursuant to the Company's policies and any unreimbursed
business expenses payable pursuant to Section 6 (collectively "Accrued
Amounts"), which amounts shall be promptly paid in a lump sum to Executive's
estate; (ii) the product of (x) the target annual bonus for the fiscal year of
the Executive's death, multiplied by (y) a fraction, the numerator of which is
the number of days of the current fiscal year during which the Executive was
employed by the Company, and the denominator of which is 365, which bonus shall
be paid when bonuses for such period are paid to the other executives; (iii) any
other amounts or benefits owing to the Executive under the then applicable
employee benefit, long term incentive or equity plans and programs of the
Company, which shall be paid
in accordance with such plans and programs, provided that Executive shall be
fully vested in his outstanding stock options and Restricted Stock of the
Company; (iv) payment on a monthly basis of twelve (12) months of Base Salary,
which shall be paid to Executive's spouse, or if she shall predecease him, then
to Executive's children (or their guardian if one is appointed) in equal shares;
and (v) payment of the spouse's and dependent's COBRA coverage premiums to the
extent, and so long as, they remain eligible for COBRA coverage, but in no event
more than three (3) years. Section 11 hereof shall also continue to apply.
(b) Disability. If Executive's employment is terminated by reason of
Executive's Disability, Executive shall be entitled to receive the payments and
benefits to which his representatives would be entitled in the event of a
termination of employment by reason of his death (other than life insurance
benefits), provided that the payment of Base Salary shall be reduced by the
projected amount he would receive under any long-term disability policy or
program maintained by the Company during the twelve (12) month period during
which Base Salary is being paid. Section 11 hereof shall also continue to apply.
(c) Termination by Executive for Good Reason or for any Reason
During the Change in Control Protection Period or Termination by the Company
without Cause. If (i) outside of the Change in Control Protection Period,
Executive terminates his employment hereunder for Good Reason during the
Employment Term, (ii) if a Change in Control occurs and during the Change in
Control Protection Period Executive terminates his employment for any reason, or
(iii) if Executive's employment with the Company is terminated by the Company
without Cause, Executive shall be entitled to receive (A) in a lump sum within
five (5) days after such termination (i) three times Base Salary, (ii) three
times the highest annual bonus paid or, if declared or earned but not yet paid
for a completed fiscal year, payable to Executive for any of the previous three
(3) completed fiscal years by the Company and (iii) any Accrued Amounts at the
date of termination; (B) any other amounts or benefits owing to Executive under
the then applicable employee benefit, long term incentive or equity plans and
programs of the Company, which shall be paid in accordance with such plans and
programs, provided that Executive shall be fully vested in his outstanding stock
options and Restricted Stock of the Company; (C) three years of additional
service and compensation credit (at his then compensation level) for pension
purposes under any defined benefit type qualified or nonqualified pension plan
or arrangement of the Company, which payments
shall be made through and in accordance with the terms of the nonqualified
defined benefit pension arrangement if any then exists, or, if not, in an
actuarially equivalent lump sum (using the actuarial factors then applying in
the Company's defined benefit plan covering Executive); (D) three (3) years of
the maximum Company contribution (assuming Executive deferred the maximum amount
and continued to earn his then current salary) under any type of qualified or
nonqualified 401(k) plan (payable at the end of each such year); and (E) payment
by the Company of the premiums for the Executive and his dependents' health
coverage for three (3) years under the Company's health plans which cover the
senior executives of the Company or materially similar benefits. Payments under
(E) above may at the discretion of the Company be made by continuing
participation of Executive in the plan as a terminee, by paying the applicable
COBRA premium for Executive and his dependents, or by covering Executive and his
dependents under substitute arrangements, provided that, to the extent Executive
incurs tax that he would not have incurred as an active employee as a result of
the aforementioned coverage or the benefits provided thereunder, he shall
receive from the Company an additional payment in the amount necessary so that
he will have no additional cost for receiving such items or any
additional payment. In the circumstances described in each of (i) through (iv)
above,
Section 11 hereof shall also continue to apply.
(d) Termination with Cause or Voluntary Resignation without Good
Reason. If Executive's employment hereunder is terminated (i) by the Company for
Cause, or (ii) by Executive without Good Reason outside of the Change in Control
Protection Period, the Executive shall be entitled to receive only his Base
Salary through the date of termination, any bonus that has been declared or
earned but not yet paid for a completed fiscal year, and any unreimbursed
business expenses payable pursuant to Section 6. All other benefits (including,
without limitation, restricted stock and options, and the vesting thereof) due
Executive following such termination of employment shall be determined in
accordance with the Company's plans and programs.
(e) Termination as a result of a Spinoff. If Executive's employment
hereunder is terminated as a result of a Spinoff, (i) the Executive shall be
entitled to receive his Accrued Amounts, except to the extent the obligations
with regard to them are assumed by Newco, (ii) the Executive shall vest in his
1995 Restricted Stock grant, but forfeit all other Company Restricted Stock
grants, (iii) the Executive shall be treated as if he had a Termination without
Cause with regard to all his outstanding Company stock options and vest in them,
but the exercise period of such stock options shall only extend to the later of
January 15, 2000 or ninety (90) days after the termination event (the "Stock
Option Treatment") (iv) the Executive's benefit accruals and Company obligations
under the Long-Term Incentive Plan (the "LTIP") and the Supplemental Executive
Retirement Plan (the "SERP"), as well as any other employment related
entitlements shall be transferred to Newco and the Company shall have no further
liability with regard to such amounts and entitlements and (v) the Executive
shall
receive a fiscal year 1999 bonus in accordance with the terms of the Annual
Performance Incentive Plan (but with no requirement of employment on the date of
payment), provided that, if the Spinoff occurs prior to the end of the 1999
fiscal year of the Company, the Executive shall receive a pro rata bonus based
on the number of days during the fiscal year that he was employed by the Company
and the bonus he would have received if employed by the Company at the end of
the fiscal year of the Spinoff (the "1999 Bonus"). The Executive shall not be
entitled to any other amounts or benefits from the Company, except as may become
due pursuant to Section 11 hereof with regard to indemnification or the Special
Tax Provisions of Section 12 hereof or as required by law.
(f) Termination as a result of a Sale Event. If Executive's
employment hereunder is terminated as a result of a Sale Event, (i) the
Executive shall be entitled to receive his Accrued Amounts (ii) the Executive
shall vest in all of his Company Restricted Stock, (iii) the Executive shall be
entitled to the Stock Option Treatment, (iv) the Executive's benefit accruals
under the LTIP shall immediately vest and be paid to him in a lump sum within
ninety (90) days after the Sale Event and any LTIP contributions that thereafter
are made with regard to the 1999 Bonus shall be promptly paid out to him after
deposit, without in either case any regard to any requirement that he be
employed by the Company on a specified date, (v) the Executive shall receive the
1999 Bonus based on the date of the Sale Event as if it was the date of the
Spinoff, (vi) the Executive shall vest in his accrued benefit under the SERP and
it shall be paid out at Retirement in accordance with the term of the SERP (the
"SERP Treatment") and (vii) provided the Executive delivers and does not revoke
the Release referred to in Section 9(b) hereof and fulfills his obligations
under Section 13(b) hereof, the Executive shall be entitled to receive within
thirty (30) days after the Sale Event a lump sum incentive payment equal to
$1,500,000. The Executive shall not be entitled to any other
amounts or benefits from the Company, except as may become due pursuant to
Section 11 hereof with regard to indemnification or under the Special Tax
Provision of Section 12 hereof or as required by law. The lump sum incentive
payment shall not be treated as compensation for purposes of any incentive or
benefit plan or arrangement.
(g) Termination as a result of an Abandoned Spinoff. If Executive's
employment hereunder is terminated as a result of an Abandoned Spinoff, (i) the
Executive shall be entitled to receive his Accrued Amounts (ii) provided the
Executive delivers and does not revoke the Release referred to in Section 9(b)
hereof, the Executive shall fully vest in all of his Company Restricted Stock,
(iii) provided the Executive delivers and does not revoke the Release referred
to in Section 9(b) hereof, the Executive shall be entitled to his Stock Option
Treatment, (iv) provided the Executive delivers and does not revoke the Release
referred to in Section 9(b) hereof, the Executive shall be entitled to the SERP
Treatment, (v) provided the Executive delivers and does not revoke the Release
referred to in Section 9(b) hereof, the Executive's benefit entitlements under
the LTIP (taking into consideration the bonuses described in clause (vi) below)
shall immediately vest and shall be paid out to him in accordance with the terms
of the LTIP (without regard to the employment requirement as a condition of
payment) and (vi) the Executive shall be entitled to the 1999 Bonus and, if the
Abandoned Spinoff is during fiscal 2000, provided the Executive delivers and
does not revoke the Release referred to in Section 9(b) hereof, a pro rata
fiscal 2000 bonus equal to the product of (x) the target annual bonus for fiscal
2000 (one hundred percent (100%) of Base Salary), multiplied by (y) a fraction,
the numerator of which is the number of days of the 2000 fiscal year prior to
the Abandoned Spinoff, and the denominator of which is 365, such pro rated
fiscal year 2000 bonus to be paid out within ninety (90) days of the Abandoned
Spinoff. In addition, if prior to or within ninety
(90) days after an Abandoned Spinoff (other than as a result of reaching the
Outside Date), the Company has entered into a definitive agreement or agreements
to effect a sale or sales of assets which would result in the requirements of
Section 7(a)(viii)(x) being satisfied, upon the closing of such transactions
such that the above criteria is satisfied prior to the Outside Date, based on
such transactions and those that closed prior to the Abandoned Spinoff, the
Company shall pay to Executive the incentive payment provided for in Section
8(f)(vii) provided the Executive satisfies the conditions of such subsection.
The Executive shall not be entitled to any other amounts or benefits from the
Company, except as may become due pursuant to Section 11 hereof with regard to
indemnification or the Special Tax Provisions of Section 12 hereof or as
otherwise required by law.
9. No Mitigation; No Set-Off. (a) In the event of any termination of
employment under Section 8, Executive shall be under no obligation to seek other
employment and there shall be no offset against any amounts due Executive under
this Agreement on account of any remuneration attributable to any subsequent
employment that Executive may obtain. Any amounts due under Section 8 are in the
nature of severance payments and are not in the nature of a penalty. Such
amounts are inclusive, and in lieu of, any amounts payable under any other
salary continuation or cash severance arrangement of the Company and to the
extent paid or provided under any other such arrangement shall be offset from
the amount due hereunder.
(b) The Release required by Sections 8(f) and 8(g) shall be a
release of the Company, its affiliates, officers, directors, employees, agents
and shareholders in
the standard form used by the Company for senior executives (but without release
of any right of indemnifications or rights under this Agreement, equity grants
or benefit plans that by their terms are intended to survive termination of
Executive's employment).
10. Change in Control. For purposes of this Agreement, the term
"Change in Control" shall mean (i) any "person" as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934 ("Act") (other than the
Company, any trustee or other fiduciary holding securities under any employee
benefit plan of the Company, or any company owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of Common Stock of the Company), is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Act), directly or indirectly, of securities
of the Company representing twenty-five percent (25%) or more of the combined
voting power of the Company's then outstanding securities; (ii) during any
period of two (2) consecutive years (not including any period prior to the
Commencement Date), individuals who at the beginning of such period constitute
the Board, and any new director (other than a director designated by a person
who has entered into an agreement with the Company to effect a transaction
described in clause (i), (iii), or (iv) of this paragraph) whose election by the
Board or nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds of the directors then still in office who either
were directors at the beginning of the two-year period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute at least a majority of the Board; (iii) a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; provided, however, that a merger
or consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no person acquires more than twenty-five percent
(25%) of the combined voting power of the Company's then outstanding securities
shall not constitute a Change in Control of the Company; or (iv) the
stockholders of the Company approve a plan of complete liquidation of the
Company or the sale or disposition by the Company of all or substantially all of
the Company's assets other than (x) the sale or disposition of all or
substantially all of the assets of the Company to a person or persons who
beneficially own, directly or indirectly, at least fifty percent (50%) or more
of the combined voting power of the outstanding voting securities of the Company
at the time of the sale or (y) pursuant to a spinoff type transaction, directly
or indirectly, of such assets to the stockholders of the Company. In no event
shall the Spinoff constitute a Change in Control for purposes of this Agreement.
11. Indemnification. (a) The Company agrees that if Executive is
made a party to or threatened to be made a party to any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he is or was a director or officer of
the Company and/or any affiliate of the Company, or is or was serving at the
request of any of such companies as a director, officer, member, employee,
fiduciary or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including, without limitation, service with respect
to employee benefit plans, whether or not the basis of such Proceeding is
alleged action in an official capacity as a director, officer, member, employee,
fiduciary or agent
while serving as a director, officer, member, employee, fiduciary or agent, he
shall be indemnified and held harmless by the Company to the fullest extent
authorized by Delaware law (or, if other than the Company, the law applicable to
such company), as the same exists or may hereafter be amended, against all
Expenses incurred or suffered by Executive in connection therewith, and such
indemnification shall continue as to Executive even if Executive has ceased to
be an officer, director, member, fiduciary or agent, or is no longer employed by
the applicable company, and shall inure to the benefit of his heirs, executors
and administrators.
(b) As used in this Agreement, the term "Expenses" shall include,
without limitation, damages, losses, judgments, liabilities, fines, penalties,
excise taxes, settlements and costs, attorneys' fees, accountants' fees, and
disbursements and costs of attachment or similar bonds, investigations, and any
expenses of establishing a right to indemnification under this Agreement.
(c) Expenses incurred by Executive in connection with any Proceeding
shall be paid by the Company in advance upon request of Executive and the giving
by the Executive of any undertakings required by applicable law.
(d) Executive shall give the Company notice of any claim made
against him for which indemnity will or could be sought under this Agreement. In
addition, Executive shall give the Company such information and cooperation as
it may reasonably require and as shall be within Executive's power and at such
times and places as are reasonably convenient for Executive.
(e) With respect to any Proceeding as to which Executive notifies
the Company of the commencement thereof:
(i) The Company will be entitled to participate therein at its
own expense; and
(ii) Except as otherwise provided below, to the extent that it
may wish, the Company will be entitled to assume the defense thereof, with
counsel reasonably satisfactory to Executive. Executive also shall have
the right to employ his own counsel in such action, suit or proceeding and
the fees and expenses of such counsel shall be at the expense of the
Company.
(f) The Company shall not be liable to indemnify Executive under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall not settle any action or
claim in any manner which would impose any penalty or limitation on Executive
without Executive's written consent. Neither the Company nor Executive will
unreasonably withhold or delay their consent to any proposed settlement.
(g) The right to indemnification and the payment of expenses
incurred in defending a Proceeding in advance of its final disposition conferred
in this Section 11 shall not be exclusive of any other right which Executive may
have or hereafter may acquire under any statute, provision of the certificate of
incorporation or by-laws of the Company, agreement, vote of stockholders or
disinterested directors or otherwise.
(h) The Company agrees to obtain Officer and Director liability
insurance policies covering Executive and shall maintain at all times during the
Employment Term coverage under such policies in the aggregate with regard to all
officers and directors, including Executive, of an amount not less than $20
million. The Company shall maintain for a six (6) year period commencing on the
date the Executive ceased to be an employee of the Company, Officer and Director
liability insurance coverage for events occurring during the period the
Executive was an employee or director of the Company in the same aggregate
amount and under the same terms as are maintained for its active officers and
directors. The phrase "in the same aggregate amount and under the same terms"
shall include the same level of self-insurance by the Company as shall be
maintained for active officers and directors.
12. Special Tax Provision. (a) Anything in this Agreement to the
contrary notwithstanding, in the event that any amount or benefit paid, payable,
or to be paid, or distributed, distributable, or to be distributed to or with
respect to Executive by the Company (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 of ownership covered by Internal Revenue
Code (the "Code") Section 280G(b)(2) or any person affiliated with the Company
or such person) as a result of a change in ownership of the Company or a direct
or indirect parent thereof covered by Code Section 280G(b)(2) (collectively, the
"Covered Payments") is or becomes subject to the excise tax imposed by or under
Section 4999 of the Code (or any similar tax that may hereafter be imposed),
and/or any interest or penalties with respect to such excise tax (such excise
tax, together with such interest and penalties, is hereinafter collectively
referred to as the "Excise Tax"), the Company shall pay to Executive an
additional amount (the "Tax Reimbursement Payment") such that after payment by
Executive of
all taxes (including, without limitation, any interest or penalties and any
Excise Tax imposed on or attributable to the Tax Reimbursement Payment itself),
Executive retains an amount of the Tax Reimbursement Payment equal to the sum of
(i) the amount of the Excise Tax imposed upon the Covered Payments, and (ii)
without duplication, an amount equal to the product of (A) any deductions
disallowed for federal, state or local income or payroll tax purposes because of
the inclusion of the Tax Reimbursement Payment in Executive's adjusted gross
income, and (B) the highest applicable marginal rate of federal, state or local
income taxation, respectively, for the calendar year in which the Tax
Reimbursement Payment is made or is to be made. The intent of this Section 12 is
that (a) the Executive, after paying his Federal, state and local income and
payroll tax, will be in the same position as if he was not subject to the Excise
Tax under Section 4999 of the Code and did not receive the extra payments
pursuant to this Section 12 and (b) that Executive should never be
"out-of-pocket" with respect to any tax or other amount subject to this Section
12, whether payable to any taxing authority or repayable to the Company, and
this Section 12 shall be interpreted accordingly.
(b) Except as otherwise provided in Section 12(a), for purposes of
determining whether any of the Covered Payments will be subject to the Excise
Tax and the amount of such Excise Tax,
(i) such Covered Payments will be treated as "parachute
payments" (within the meaning of Section 280G(b)(2) of the Code) and such
payments in excess of the Code Section 280G(b)(3) "base amount" shall be
treated as subject to the Excise Tax, unless, and except to the extent
that, the
Company's independent certified public accountants appointed prior to the
change in ownership covered by Code Section 280G(b)(2) or legal counsel
(reasonably acceptable to Executive) appointed by such public accountants
(or, if the public accountants decline such appointment and decline
appointing such legal counsel, such independent certified public
accountants as promptly mutually agreed on in good faith by the Company
and the Executive) (the "Accountant"), deliver a written opinion to
Executive, reasonably satisfactory to Executive's legal counsel, that
Executive has a reasonable basis to claim that the Covered Payments (in
whole or in part) (A) do not constitute "parachute payments", (B)
represent reasonable compensation for services actually rendered (within
the meaning of Section 280G(b)(4) of the Code) in excess of the "base
amount" allocable to such reasonable compensation, or (C) such "parachute
payments" are otherwise not subject to such Excise Tax (with appropriate
legal authority, detailed analysis and explanation provided therein by the
Accountants); and
(ii) the value of any Covered Payments which are non-cash
benefits or deferred payments or benefits shall be determined by the
Accountant in accordance with the principles of Section 280G of the Code.
(c) For purposes of determining the amount of the Tax Reimbursement
Payment, Executive shall be deemed:
(i) to pay federal, state, local income and/or payroll
taxes at the highest applicable marginal rate of income taxation for
the calendar year in which the Tax Reimbursement Payment is made or
is to be made, and
(ii) to have otherwise allowable deductions for federal,
state and local income and payroll tax purposes at least equal to
those disallowed due to the inclusion of the Tax Reimbursement
Payment in Executive's adjusted gross income.
(d) (i) (A) In the event that prior to the time the Executive has
filed any of his tax returns for the calendar year in which the change in
ownership event covered by Code Section 280G(b)(2) occurred, the Accountant
determines, for any reason whatever, the correct amount of the Tax Reimbursement
Payment to be less than the amount determined at the time the Tax Reimbursement
Payment was made, the Executive shall repay to the Company, at the time that the
amount of such reduction in
Tax Reimbursement Payment is determined by the Accountant, the portion of the
prior Tax Reimbursement Payment attributable to such reduction (including the
portion of the Tax Reimbursement Payment attributable to the Excise Tax and
federal, state and local income and payroll tax imposed on the portion of the
Tax Reimbursement Payment being repaid by the Executive, using the assumptions
and methodology utilized to calculate the Tax Reimbursement Payment (unless
manifestly erroneous)), plus interest on the amount of such repayment at the
rate provided in Section 1274(b)(2)(B) of the Code.
(B) In the event that the determination set forth in (A) above is
made by the Accountant after the filing by the Executive of any of his tax
returns for the calendar year in which the change in ownership event covered by
Code Section 280G(b)(2) occurred but prior to one (1) year after the occurrence
of such change in ownership, the Executive shall file at the request of the
Company an amended tax return in accordance with the Accountant's determination,
but no portion of the Tax Reimbursement Payment shall be required to be refunded
to the Company until actual refund or credit of such portion has been made to
the Executive, and interest payable to the Company shall not exceed the interest
received or credited to the Executive by such tax authority for the
period it held such portion (less any tax the Executive must pay on such
interest and which he is unable to deduct as a result of payment of the refund).
(C) In the event the Executive receives a refund pursuant to (B)
above and repays such amount to the Company, the Executive shall thereafter file
for refunds or credits by reason of the repayments to the Company.
(D) The Executive and the Company shall mutually agree upon the
course of action, if any, to be pursued (which shall be at the expense of the
Company) if the Executive's claim for refund or credit is denied.
(ii) In the event that the Excise Tax is later determined by
the Accountants or the Internal Revenue Service to exceed the amount taken into
account hereunder at the time the Tax Reimbursement Payment is made (including
by reason of any payment the existence or amount of which cannot be determined
at the time of the Tax Reimbursement Payment), the Company shall make an
additional Tax Reimbursement Payment in respect of such excess (plus any
interest or penalties payable with respect to such excess) once the amount of
such excess is finally determined.
(iii) In the event of any controversy with the Internal
Revenue Service (or other taxing authority) under this Section 12, subject to
subpart (i)(D) above, the Executive shall permit the Company to control issues
related to this Section 12 (at its expense), provided that such issues do not
potentially materially adversely affect the Executive, but the Executive shall
control any other issues. In the event the issues are interrelated, the
Executive and the Company shall in good faith cooperate so as not to jeopardize
resolution of either issue, but if the parties cannot agree Executive shall make
the final determination with regard to the issues. In the event of any
conference with any taxing authority as to the Excise Tax or associated income
taxes, the Executive shall permit the representative of the Company to accompany
him and the Executive and his representative shall cooperate with the Company
and its representative.
(iv) With regard to any initial filing for a refund or any
other action required pursuant to this Section 12 (other than by mutual
agreement) or, if not required, agreed to by the Company and the Executive, the
Executive shall cooperate fully with the Company, provided that the foregoing
shall not apply to actions that are provided herein to be at the sole discretion
of the Executive.
(e) The Tax Reimbursement Payment, or any portion thereof payable
by the Company shall be paid not later than the fifth (5th) day following the
determination by the Accountant and any payment made after such fifth (5th) day
shall bear interest at the rate provided in Section 1274(b)(2)(B) of the Code).
The Company shall use its best efforts to cause the Accountant to promptly
deliver the initial determination required hereunder and, if not delivered,
within ninety (90) days after the change in ownership event covered by Section
280G(b)(2) of the Code, the Company shall pay the Executive the Tax
Reimbursement Payment set forth in an opinion from counsel recognized as
knowledgeable in the relevant areas selected by the Executive, and reasonably
acceptable to the Company, within five (5) days after delivery of such opinion.
The amount of such payment shall be subject to later adjustment in accordance
with the determination of the Accountant as provided herein.
(f) The Company shall be responsible for all charges of the
Accountant and if (e) is applicable the reasonable charges for the opinion given
by Executive's counsel.
(g) The Company and the Executive shall mutually agree on and
promulgate further guidelines in accordance with this Section 12 to the extent,
if any, necessary to effect the reversal of excessive or shortfall Tax
Reimbursement Payments. The foregoing shall not in any way be inconsistent with
Section 12(d)(i)(D) hereof.
(h) In no event shall this provision apply with regard to any change
in ownership of Newco covered by Code Section 280G(b)(2) after the Spinoff.
13. Other Provisions.
(a) Upon the Spinoff, Sale Event or Abandoned Spinoff, Executive
hereby resigns as an officer (if he has not already resigned pursuant to Section
1 hereof), director and employee of the Company and its subsidiaries and
affiliates (other than, in the case of a Spinoff of Newco and those entities
that become part of Newco), as well as a fiduciary or trustee of any benefit
plan or similar arrangement of the Company and its subsidiaries and affiliates
(other than, in the case of a Spinoff, as a fiduciary or trustee of any benefit
plan or similar arrangement of Newco and those entities that became part of
Newco). Upon request of the Company at such time Executive shall execute such
documents as necessary to additionally document the foregoing.
(b) Executive shall fully cooperate with the Company in connection
with the Spinoff or Sale Event, provided, however, he shall not be obligated to
work for an acquirer after any Sale Event.
(c) Executive agrees that upon a Spinoff, Sale Event or other
termination of employment he shall promptly return to the Company all Company
property or confidential information in his possession, except to the extent, in
the case of a Spinoff, where such property or information is transferred to
Newco. Executive further agrees that following a Spinoff, Sale Event or
termination, he will cooperate and provide information to the Company with
regard to matters arising during his period of employment with the Company or
its predecessors, including with regard to any litigation related to such
periods; provided that the Company shall reimburse him for his reasonable
out-of-pocket expenses incurred in connection therewith.
(d) Executive agrees that upon a Spinoff he will serve as Chairman
and Chief Executive Officer of Newco unless he is incapable of doing so because
of physical or mental incapacity. Refusal of the Executive to comply with the
foregoing sentence shall be deemed to be a voluntary resignation without Good
Reason by him under this Agreement and all equity plans and grants.
14. Legal and Other Fees and Expenses. In the event that a claim for
payment or benefits under this Agreement is disputed, the Company shall pay all
reasonable attorney, accountant and other professional fees and reasonable
expenses incurred by Executive in pursuing such claim, unless the claim by the
Executive is found to be frivolous by any court or arbitrator.
15. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New Jersey without reference to
principles of conflict of laws.
(b) Entire Agreement/Amendments. This Agreement and the instruments
contemplated herein, contain the entire understanding of the parties with
respect to the employment of Executive by the Company from and after the
Commencement Date and supersedes any prior agreements between the Company
and Executive with respect thereto, including the Old Employment Agreement,
provided that: (i) any option or restricted stock agreements executed by the
Company and Executive and in effect prior to the Commencement Date shall be
superceded only to the extent the terms thereof are modified herein and (ii) the
provisions of Section 11 of the Old Employment Agreement shall not be superceded
as they relate to obligations of Xxxxxx Industries and Xxxxxx PLC. This
Agreement, however, is in addition to the Employment Agreement being signed
simultaneous herewith by the Company and the Executive that will become
effective upon the Spinoff. There are no restrictions, agreements, promises,
warranties, covenants or undertakings between the parties with respect to the
subject matter herein other than those expressly set forth herein and therein.
This Agreement may not be altered, modified, or amended except by written
instrument signed by the parties hereto.
(c) No Waiver. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver of such party's rights or deprive such party of the right thereafter to
insist upon strict adherence to that term or any other term of this Agreement.
Any such waiver must be in writing and signed by Executive or an authorized
officer of the Company, as the case may be.
(d) Assignment. This Agreement shall not be assignable by Executive.
This Agreement shall be assignable by the Company only to an acquiror of all or
substantially all of the assets of the Company, provided such acquiror promptly
assumes all of the obligations hereunder of the Company in a writing delivered
to the Executive and otherwise complies with the provisions hereof with regard
to such assumption.
(e) Successors; Binding Agreement; Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees legatees and permitted assignees of the parties hereto.
(f) Communications. For the purpose of this Agreement, notices and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given (i) when faxed or delivered, or (ii) two
(2) business days after being mailed by United States registered or certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the initial page of this Agreement, provided that all
notices to the Company shall be directed to the attention of the Senior Vice
President, General Counsel and Secretary of the Company, or to such other
address as any party may have furnished to the other in writing in accordance
herewith. Notice of change of address shall be effective only
upon receipt.
(g) Withholding Taxes. The Company may withhold from any and all
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.
(h) Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of Executive's employment to the
extent necessary to the agreed preservation of such rights and obligations.
(i) 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.
(j) Headings. The headings of the sections contained in this
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the 18th day of May, 1999.
U.S. INDUSTRIES, INC.
By: /s/ Xxxx X. Xxxx
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Name: Xxxx X. Xxxx
Title: President and
Chief Operating Officer
