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EXHIBIT J
SEVERANCE AND CHANGE IN CONTROL AGREEMENT
AGREEMENT, dated as of November 6, 1997, by and between GALOOB TOYS, INC.,
a Delaware corporation (the "Company"), and Xxxxx XxXxxxx (the "Employee").
PREAMBLE
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The Compensation Committee of the Board of Directors of the Company has
determined that it is in the best interests of the Company and its stockholders
for the Company to revise and restate the termination arrangements with the
Employee in the event the Employee should leave the employ of the Company under
the circumstances described in this Agreement. In part, this Agreement is being
executed and delivered to help assure a continuing dedication by the Employee to
her duties to the Company notwithstanding the occurrence of a business
combination proposal. In particular, the Compensation Committee believes it
imperative, should the Company receive proposals from third parties with respect
to its future, to enable the Employee, without being influenced by the
uncertainties of her own situation, to assess and advise management and the
Board of Directors whether such proposals would be in the best interest of the
Company and its stockholders and to enable the Employee to take such other
action regarding such proposals as the Board of Directors might determine to be
appropriate.
NOW, THEREFORE, in view of the foregoing, and for other good and valuable
consideration, the receipt and sufficiency of which each party acknowledges, the
Company and the Employee hereby agree as follows:
1. EFFECTIVE DATE AND TERM OF AGREEMENT.
(a) This Agreement is effective and binding on both parties as of the
date hereof and, shall continue in effect through the second anniversary of the
date hereof (the "Expiration Date"); provided, however, that, if a Change in
Control (as defined in Section 3(a) hereof) shall have occurred during the term
of this Agreement, this Agreement shall continue in effect for a period of
twenty-four (24) months beyond the Expiration Date.
(b) Nothing in this Agreement shall affect any right which the Employee
may otherwise have to terminate her employment from the Company. Likewise,
nothing in this Agreement shall affect any right which the Company may have to
terminate the Employee's employment at any time in any lawful manner, except the
obligation of the Company to make the payments provided for herein.
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2. EMPLOYMENT AND SEVERANCE.
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(a) Subject to Section 3(c) below, if the Employee is terminated by the
Company for reasons other than "for Cause" or due to the Employee's "Disability"
(as those terms, respectively, are defined in Sections 3(d)(ii) and (i) hereof),
such Employee shall receive a continuation of her Base Salary (as defined in
Section 3(d)(iii) hereof) and certain other benefits as hereinafter provided
("Other Benefits", and collectively with such Base Salary, "Severance Benefits")
for a period of nine (9) months from and after the Date of Termination (as
defined in Section 3(d)(iv)) ("Extension Period"); provided, however, that from
and after the Date of Termination the Employee shall not receive or be entitled
to any continuation of any bonus, incentive or profit sharing participation or
eligibility for any part or all of the Company's fiscal year in which the Date
of Termination occurs or for any part of the Extension Period. Except as
provided below, such Base Salary during the Extension Period shall be paid in
accordance with the Company's normal payroll schedule. If, however, during the
Extension Period the Employee commences regular full-time employment elsewhere,
the ongoing Severance Benefits shall cease as of the date of commencement of
such employment; provided, however, that as of such date a calculation shall be
made to determine the aggregate amount of Base Salary (excluding Other Benefits)
that remains unpaid and which the Employee would have otherwise been entitled to
receive during the remaining portion of the Extension Period, and the Company
shall promptly pay the Employee 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 Section 2(a) above include all
medical, health and welfare and insurance benefits that were in effect and in
which the Employee participated as of the Date of Termination and these will
continue during the Extension Period until the earlier to occur of nine (9)
months from the Date of Termination or the date the Employee becomes 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 the Employee 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") shall stop
accruing and/or being earned as of the Date of Termination and all contributions
to the Company's 401K and "cafeteria" benefit plan shall stop as of the Date of
Termination. The Employee shall however be entitled to receive the amount of
any accrued but unused FTO or vacation time to which the Employee is entitled
through the Date of Termination and any amounts to be paid to the Employee
pursuant to any deferred compensation plan.
(c) The Employee's automobile allowance and automobile program
benefits, including Company gasoline credit card and reimbursement for
maintenance, insurance and other
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auto-related expenses, will cease as of the Date of Termination and shall
not be extended to the Employee during the Extension Period.
(d) For purposes of this Agreement, "regular full-time employment
elsewhere" shall not include or be deemed to include any situation where the
Employee becomes self- employed, or any self-employment circumstances where the
Employee owns or controls at least 51 percent of the stock or other controlling
equity of an entity that serves as the Employee's employer and was created after
the Date of Termination solely for the purpose of the Employee's ongoing
employment.
(e) In the event of (i) a termination for Cause, whether before or
after a Change in Control, or (ii) the voluntary termination by the Employee of
her employment at any time other than as provided for in Sections 3 and 4, the
Company shall pay the Employee no later than five (5) days after the Date of
Termination her Base Salary through the Date of Termination, the amount of any
accrued but unused FTO or vacation time to which the Employee is entitled
through the Date of Termination, and any amounts to be paid to the Employee
pursuant to any deferred compensation plan. Except as provided in the preceding
sentence, and except for other payments routinely owed to the Employee by the
Company for such items as travel and expense reimbursement, the Company shall
have no further obligations to the Employee under this Agreement or otherwise.
3. TERMINATION FOLLOWING CHANGE IN CONTROL.
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(a) For purposes of this Agreement, a "Change in Control" of the
Company shall be deemed to have occurred upon any of the following events:
(i) A person or entity or group of persons or entities, acting in
concert, shall become the direct or indirect beneficial owner (within the
meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended from
time to time) of securities of the Company representing twenty-five percent
(25%) or more of the combined voting power of the issued and outstanding common
stock of the Company (a "Significant Owner"), unless such shares are originally
issued to such Significant Owner by the Company; 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 Agreement and any other individual(s) who becomes a director
subsequent to the date of this Agreement 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 comprised the incumbent directors as of the date
of such election or nomination; or
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(iii) The Company's common stock, par value $.01 per share, shall
cease to be publicly traded; or
(iv) A sale of all or substantially all of the assets of the Company;
or
(v) The Board of Directors shall approve any merger, consolidation,
or like business combination or reorganization of the Company, the consummation
of which would result in the occurrence of any event described in clause (ii) or
(iii) above, and such transaction shall have been consummated.
(b) In the event that any person or organization commences a tender or
exchange offer, circulates a proxy statement to the Company's stockholders, or
takes other steps designed to effect a Change in Control of the Company, the
Employee agrees that, in order to receive the benefits provided by Sections 3
and 4 of this Agreement, she will not voluntarily leave the employ of the
Company and will continue to perform her regular duties and to render her
regular services, until such person or organization has abandoned or terminated
his or its efforts to effect a Change in Control or until a Change in Control
has occurred. Should the Employee voluntarily terminate her employment before a
Change in Control of the Company has so occurred, she shall not be entitled to
the payments provided for in Sections 3 and 4 hereof.
(c) If a Change in Control of the Company shall have occurred, the
Employee shall be entitled (in lieu of the payments and benefits provided for in
Sections 2(a) and 2(b)) to the payments and benefits pursuant to Section 4
hereof upon the subsequent voluntary or involuntary termination of her
employment, unless such termination is (i) due to the Employee's death or (ii)
by the Company by reason of the Employee's Disability or for Cause.
(d) For purposes of this Agreement:
(i) "Disability" shall mean that, as a result of the Employee's
incapacity due to physical or mental illness or injury, the Employee has been
absent from the full-time performance of her duties with the Company for six (6)
consecutive months and within thirty (30) days after Notice of Termination is
given to the Employee, she has not returned to the full- time performance of her
duties for a period of at least 14 consecutive days. Any question as to the
existence of Disability shall be determined by a qualified independent physician
selected by the Employee (or, if she is unable to make such selection, such
selection shall be made by any adult member of the Employee's family) and
approved by the Company. The written determination of such physician shall be
final and conclusive for purposes of this Agreement.
(ii) "for Cause" shall mean: (A) The willful and continued failure
by the Employee to substantially perform her duties with the Company (other than
any such failure
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resulting from the Employee's incapacity due to physical or mental illness or
injury); or (B) The willful engagement in conduct by the Employee which is
demonstrably and materially injurious to the Company, monetarily or otherwise;
or (C) Conviction for a felony or other crime punishable by imprisonment for
more than one (1) year, or the entering of a plea of nolo contendere thereto.
(iii) "Base Salary" shall mean (A) if a Change in Control has
occurred, the annual base salary of the Employee in effect immediately prior to
the Change in Control of the Company or immediately prior to the Date of
Termination, whichever is greater, and (B) if no Change in Control has occurred,
the annual base salary of the Employee in effect immediately prior to the Date
of Termination. Base Salary does not include any amounts paid for automobile
allowance.
(iv) "Date of Termination" shall mean (A) if the Employee's employment
is terminated for Disability, thirty (30) days after Notice of Termination is
given (provided that the Employee shall not have returned to the full-time
performance of her duties for a period of at least 14 consecutive days during
such thirty (30) day period) and (B) if the Employee's employment is terminated
otherwise by the Company or the Employee, the date specified in the Notice of
Termination.
(e) "Notice of Termination" shall mean a written notice of termination
communicated in writing by one party to the other party hereunder in accordance
with Section 6(e) hereof.
4. PAYMENTS UPON TERMINATION.
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If required pursuant to Section 3(c) hereof, the Company will pay to the
Employee as compensation for services rendered:
(a) Not later than the 5th day after the Date of Termination, the
Employee's Base Salary through the Date of Termination, the amount of any
accrued but unused FTO or vacation time to which the employee is entitled
through the Date of Termination, and any amounts to be paid to the Employee
pursuant to any deferred compensation plan; and
(b) If the Date of Termination is within twelve (12) months following a
Change in Control, the Employee shall also receive the following:
(i) no later than ten (10) days after such Date of Termination, a
lump sum payment (minus withholdings and other required deductions) of an amount
equal to one and one-half (1-1/2) times the Employee's Base Salary, plus
eighteen (18) times the amount to which
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the Employee was then entitled immediately prior to the Change in Control
for the monthly automobile allowance; and
(ii) no later than ten (10) days after such Date of Termination, an
additional lump sum payment (minus withholdings and other required deductions)
of an amount equal to one and one-half (1-1/2) times the greater of (x) the
percentage of maximum bonus otherwise payable for the full fiscal year in which
the Date of Termination occurs assuming performance relative to plan for the
entirety of such fiscal year was the same as performance relative to plan year
to date as of the Date of Termination, or (y) the largest bonus dollar amount
actually awarded to the Employee for any one of the five fiscal years
immediately preceding the year in which the Date of Termination occurs (for the
purpose of this Section 4(b)(ii), "bonus" shall include regular annual bonus
awards, any annual PIC bonus awards, any annual super performance bonus awards,
and any other designated annual (as opposed to long-term) bonus awards); and
(iii) commencing upon the Date of Termination:
(1) All Other Benefits that were in effect and in which the
Employee participated immediately prior to the Change in Control, for the period
of the earlier to occur of eighteen (18) months following the Date of
Termination or the date the Employee becomes 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 the Employee on a monthly or other periodic basis, shall be governed by
the various plans as they are in effect from time to time. Notwithstanding the
foregoing, earned FTO shall stop accruing and/or being earned as of the Date of
Termination and all contributions to the Company's 401k and "cafeteria" benefit
plan shall stop as of the Date of Termination.
(2) In addition to the lump sum payment of the monthly automobile
allowance, for the period of eighteen (18) months following the Date of
Termination the Employee shall 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 immediately prior to the Change in Control; or
(c)(i) In the event that any payment or benefit received or to be received
by the Employee pursuant to the terms of this Agreement (the "Contract
Payments") or of any other plan, arrangement or agreement of the Company (or any
affiliate) ("Other Payments" and, together with the Contract Payments, the
"Payments") would, in the written opinion of independent tax counsel selected by
the Company and reasonably acceptable to the Employee
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("Tax Counsel"), which opinion will be provided to both the Employee and
the Company, be subject to the excise tax (the "Excise Tax") imposed by section
4999 of the Internal Revenue Code of 1986, as amended (the "Code") (in whole or
in part), as determined as provided below, the Payments shall be reduced as
provided herein, (but not below zero) until no portion of the Payments would be
subject to the Excise Tax. For purposes of this limitation, (i) no portion of
the Payments the receipt or enjoyment of which the Employee shall have
effectively waived in writing shall be taken into account, (ii) only the portion
of the Payments which in the opinion of Tax Counsel constitute a "parachute
payment" within the meaning of Section 280G(b)(2) of the Code shall be taken
into account, (iii) the Payments shall be reduced only to the extent necessary
so that the Payments would not be subject to the Excise Tax, in the opinion of
Tax Counsel, and (iv) the value of any noncash benefit or any deferred payment
or benefit included in such payments shall be determined in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. The Employee shall make
the determination, by written notice to the Company, at her sole discretion, as
to exactly how the Payments shall be reduced, and shall select from among the
Payments those to be so reduced, unless the Employee refuses to make such a
determination, whereupon the Company shall determine the Payments reduction. To
assist the Employee in making the foregoing determination, the Company shall
require the Tax Counsel to counsel and advise the Employee, at the Company's
expense, as to how to reduce the Payments so the maximum net economic value can
be achieved by the Employee.
(ii) If it is established pursuant to an opinion of Tax Counsel or a
final determination of a court or an Internal Revenue Service proceeding that,
notwithstanding the good faith of the Employee and the Company in applying the
terms of Section 4(c)(i) hereof, any Payments paid to the Employee or for her
benefit exceeded the limitation contained in Section 4(c)(i) hereof, then the
Employee shall pay to the Company, within 90 days of receipt of notice of such
final determination or opinion, an amount equal to the sum of the excess of the
Payments paid to her or for her benefit over the maximum Payments that should
have been paid to or for her benefit taking into account the limitations
contained in Section 4(c)(i) hereof; provided, however, that (x) the Employee
shall not be required to make any payment to the Company pursuant to this
Section 4(c)(ii),(A) if, and to the extent that, such final determination
requires the payment by her of an Excise Tax by reason of any Payment or portion
thereof, or (B) in the case of the opinion of Tax Counsel, until the expiration
of the applicable statute of limitations or a final determination of a court or
an Internal Revenue Service proceeding that no Excise Tax is due and (y) the
Employee shall only be required to make a payment to the Company pursuant to
this Section 4(c)(ii) to the extent such payment is deductible or otherwise
reduces the Employee's tax liability for federal income tax purposes. If for
any reason hereunder, the Employee is required to pay any Excise Tax, the
Company shall pay the Employee an additional payment (a "Gross-Up Payment") in
such an amount that after the payment of all taxes (including, without
limitation, any interest and penalties on such taxes and the Excise Tax) on the
Payment and on the Gross-Up Payment, the Employee shall retain an amount equal
to the
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Payment minus all ordinary taxes on the Payment. It is the intent of the
parties that, in connection with this Section 4(c)(ii), the Company shall be
responsible for, and shall pay the Employee, any amount constituting Excise Tax
on any Payment and Gross-Up Payment and any taxes (including, without
limitation, penalties and interest) imposed on any Gross-Up Payment.
(iv) If it is established pursuant to an opinion of Tax Counsel or a
final determination of a court or an Internal Revenue Service proceeding that,
notwithstanding the good faith of the Employee and the Company in applying the
terms of Section 4(c)(i) hereof, any Payments paid to her or for her benefit
were in an amount less than the maximum Payments which could be payable to her
without such payments being subject to the Excise Tax, then the Company shall
pay to her, within ninety days of receipt of notice of such final determination
or opinion, an amount equal to the sum of (A) the excess, if any, of the
payments that should have been paid to her or for her benefit over the payments
paid to or for her benefit and (B) interest on the amount set forth in clause
(A) of this sentence at the applicable federal rate (as defined in Section
1274(d) of the Code) from the Date of her non-receipt of such excess until the
date of such payment.
5. STOCK OPTIONS
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In the event of a Change in Control, unless the employment of the Employee
is terminated for Cause, (i) all then outstanding stock options granted to the
Employee under the Amended and Restated 1984 Employee Stock Option Plan shall
become immediately exercisable without regard to any installment or vesting
provisions that may have been made part of the terms and conditions of such
options. If the Employee voluntarily terminates her employment with the Company
within 12 months following a Change in Control for a reason other than death or
Disability, or if the Employee is terminated by the Company within 12 months
following a Change in Control other than for Cause, any and all then outstanding
stock options and stock appreciation rights granted to such employee under the
1996 Share Incentive Plan shall become immediately exercisable.
6. GENERAL
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(a) Subject to the second sentence hereof, the Company shall pay to the
Employee reasonable attorneys' fees that may be incurred by the Employee in
enforcing the terms of this Agreement. If litigation or an arbitration
proceeding ensues, and the Employee prevails in such litigation or arbitration,
the Company shall promptly reimburse the Employee for her attorneys' fees and
disbursements incurred in such litigation or arbitration proceeding and pay
prejudgment interest on any money judgment obtained by the Employee calculated
at the base rate of interest charged from time to time by Citibank, N.A. from
the date that payment should have been made under this Agreement.
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(b) The Company's obligation to pay the Employee the compensation and to
make the arrangements provided herein shall be absolute and unconditional and
shall not be affected by any circumstance, including, without limitation, any
setoff, counterclaim, recoupment, defense or other right which the Company may
have against the Employee or anyone else. All amounts payable by the Company
hereunder shall be paid without notice or demand. The Employee shall not be
required to mitigate the amount of any payment provided for in this Agreement by
seeking other employment and if Employee obtains such other employment, any
compensation earned by Employee pursuant thereto shall not be applied to
mitigate any payment made to Employee pursuant to this Agreement except as
expressly provided herein.
(c) The Company shall require any successor (whether direct or indirect,
by purchase, merger, consolidation or other-wise) to all or substantially all of
the business and/or assets of the Company, by written agreement to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, the term "Company" shall mean the
Company as hereinbefore defined and any successor to its business and/or assets
as aforesaid which executes and delivers the agreement required by this Section
5(c), or which otherwise becomes bound by all terms and provisions of this
Agreement by operation of law.
(d) This Agreement shall inure to the benefit of and be enforceable by the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Employee should
die while any amounts would still be payable to the Employee hereunder if she
had continued to live, all such amounts, unless otherwise provided herein, shall
be paid in accordance with the terms of this Agreement to the Employee's
devisee, legatee or other designee or, if there be no such designee, to the
Employee's estate.
(e) For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Employee:
Xxxxx XxXxxxx
0000 Xxxxxxx Xxx
Xxxxxxxxxx, XX 00000
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If to the Company:
Galoob Toys, Inc.
000 Xxxxxx Xxxx.
Xxxxx Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attn: President
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall be
effective only upon receipt.
(f) This Agreement shall constitute the entire agreement between the
Employee and the Company concerning the subject matter hereof, and performance
of its obligations hereunder by the Company shall constitute full settlement and
release of any claim or cause of action, of whatsoever nature, which the
Employee might otherwise assert or claim against the Company or any of its
directors, stockholders, officers or employees on account of any termination.
No provisions of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing, signed by the
Employee and an authorized officer of 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 shall be deemed a waiver of any similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No assurances or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. However, this Agreement is in addition to and not
in lieu of any other plan providing for payments to or benefits for the Employee
or any agreement now existing or which hereafter may be entered into between the
Company and the Employee. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Delaware without giving effect to the provisions, principles, or policies
thereof relating to choice or conflict of laws.
(g) The invalidity or unenforceability of any provision of this Agreement
in any circumstance shall not affect the validity or enforceability of such
provision in any other circumstance or the validity or enforceability of any
other provision of this Agreement, and except to the extent such provision is
invalid or unenforceable, this Agreement shall remain in full force and effect.
Any provision in this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating or affecting the
remaining provisions hereof in such jurisdiction, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
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(h) Except as otherwise explicitly provided herein, any dispute or
controversy arising under or in connection with this Agreement shall be settled
exclusively by arbitration in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that the
Employee shall be entitled to seek specific performance of her right to be paid
as provided in this Agreement in the event of any dispute.
(i) The masculine or neuter gender shall include the feminine gender.
This Agreement may be executed in more than one counterpart, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
GALOOB TOYS, INC. Xxxxx XxXxxxx
By: /s/ Xxxxxxx Xxxxxx /s/ Xxxxxxxx X. XxXxxxx
______________________________________ __________________________________
Name: Xxxxxxx Xxxxxx Name: Xxxxxxxx X. XxXxxxx
Title: Executive V.P. Title: V.P. Finance
