EXHIBIT 10(b)
SEVERANCE AND NONCOMPETITION AGREEMENT
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(Senior Management)
THIS AGREEMENT ("AGREEMENT") is made and entered into this 15th day of
October, 1998, by and between XXXXXX X. XXXXXX ("EMPLOYEE") and UNITOG COMPANY,
a Delaware corporation, including its wholly-owned subsidiaries and affiliated
companies (collectively, "EMPLOYER").
RECITALS
WHEREAS, the Board of Directors of Employer (the "BOARD") has
determined that it is in the best interests of Employer to reinforce and
encourage the continuity of management personnel in anticipation of a possible
or potential Change of Control (as defined below); and
WHEREAS, the Board believes this objective can best be served by
providing for a compensation arrangement for Employee upon Employee's
termination of employment under certain circumstances in the event of a Change
of Control.
NOW, THEREFORE, in consideration of the mutual promises and covenants
as hereinafter set forth, the parties agree as follows:
AGREEMENT
1. GENERAL. Employer is engaged in the rental and sale of garments,
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linens, mats, mops, towels, dust control and other related items on a nationwide
basis. Employee is employed by Employer in a senior management position in
which Employee has or will have access to the Employer's confidential
information and trade secrets.
2. EMPLOYMENT RELATIONSHIP. Employee understands that his
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employment is on an at-will basis and, subject to the provisions of Section 3
hereof, may be terminated for any reason at any time by either Employee or
Employer.
3. TERMINATION UPON CHANGE OF CONTROL.
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(a) Severance Payment. In the event that Employee's
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employment is terminated within two (2) years following a "Change of
Control" (as defined below) and such termination is either (i) Without
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Cause (as defined below), or (ii) is a Constructive Termination (as defined
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below), Employee shall receive, in addition to all compensation due and
payable to or accrued for the benefit of Employee as of the date of
termination, a lump sum payment equal to two (2) times Employee's Annual
Compensation ("SEVERANCE PAYMENT"). "Annual Compensation" shall mean
Employee's base annual salary plus annual bonus (computed at par levels),
an amount equal to the annual cost to Employee of obtaining annual
healthcare coverage comparable to that currently provided
by Employer (grossed-up to compensate Employee for the taxable nature of
such payment), an amount equal to normal annual matching by Employer in
Employer's 401(k) plan (as grossed-up to compensate Employee for the
taxable nature of such payment), annual automobile allowance or the annual
cost to Employee of obtaining a motor vehicle comparable to that provided
by Employer to Employee, as the case may be, annual tax preparation costs
and an amount equal to the annual cost to Employee of obtaining life
insurance and insurance coverage for accidental death and disability
comparable to that provided by Employer to Employee (as grossed-up to
compensate Employee for the taxable nature of such payment). Employer shall
use its best efforts to convert the existing life insurance and accidental
death and disability insurance policies to individual policies in the name
of Employee.
(b) Excise Tax.
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(i) Notwithstanding anything to the contrary set forth in
this Agreement, in no event shall a Severance Payment payable pursuant
to this Section 3 exceed an amount equal to the lesser of (i) 2.99
times the "base amount" (as defined in Section 280G(b)(3) of the
Internal Revenue Code of 1986, as amended (the "CODE")) of Employee's
compensation, or (ii) such other amount which would constitute an
"excess parachute payment" (as defined in Section 280G of the Code).
In the event that it shall be determined that any Severance Payment to
Employee (whether paid or payable or distributed or distributable)
would be subject to the excise tax imposed by Section 4999 of the
Code, or any successor provision thereto (the "EXCISE TAX"), then
Employee shall be entitled to receive from Employer an additional
payment (the "GROSS-UP PAYMENT") in an amount such that the net amount
of the Severance Payment and the Gross-Up Payment retained by Employee
after the calculation and deduction of all Excise Taxes (including any
interest or penalties imposed with respect to such taxes) on the
payment and all Federal, state and local income tax, employment tax
and Excise Tax (including any interest or penalties imposed with
respect to such taxes) on the Gross-Up Payment provided for in this
Section, and taking into account any lost or reduced tax deductions on
account of the Gross-Up Payment, shall be equal to the Severance
Payment. In the event Employer exhausts its remedies pursuant to this
Section and Employee is required to make a payment of any Excise Tax,
the Gross-Up Payment shall be promptly paid by Employer to or for
Employee's benefit.
(ii) Employee shall notify Employer in writing of any claim
by the Internal Revenue Service that, if successful, would require the
payment by Employer of the Gross-Up Payment. Such notification shall
be given as soon as practicable after Employee is informed in writing
of such claim and shall apprise Employer of the nature of such claim
and the date on which such claim is requested to be paid. Employee
shall not pay such claim prior to the expiration of the 30-day period
following the date on which Employee gives such notice to Employer (or
such shorter period ending on the date that any payment of taxes,
interest and/or penalties with respect to such claim is due). If
Employer notifies Employee in writing prior to the expiration of such
period that it desires to contest such claim, Employee shall:
(A) give Employer any information reasonably requested
by Employer relating to such claim;
(B) take such action in connection with contesting
such claim as Employer shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by Employer;
(C) cooperate with Employer in good faith in order to
effectively contest such claim; and
(D) permit Employer to participate in any proceedings
relating to such claims;
provided, however, that Employer shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify Employee for and hold
Employee harmless from, on an after-tax basis, any Excise Tax or
income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of all related
costs and expenses. Without limiting the foregoing provisions of this
section, Employer shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and
all administrative appeals, proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole
option, either direct Employee to pay the tax claimed and xxx for a
refund or contest the claim in any permissible manner, and Employee
agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one
or more appellate courts, as Employer shall determine; provided,
however, that if Employer directs Employee to pay such claim and xxx
for a refund, Employer shall advance the amount of such payment to
Employee, on an interest-free basis, and shall indemnify Employee for
and hold Employee harmless from, on an after-tax basis, any Excise Tax
or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed
income with respect to such advance (including as a result of any
forgiveness by Employer of such advance); provided, further, that any
extension of the statute of limitations relating to the payment of
taxes for the taxable year of Employee with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, Employer's control of the contest shall
be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and Employee shall be entitled to settle or contest,
as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(C) Change of Control. "Change of Control" shall mean: (i) a
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person, corporation, entity or group (A) makes a tender or exchange offer
for the issued and outstanding voting stock of Employer and beneficially
owns twenty-five percent (25%) or more of the issued and outstanding voting
stock of Employer after such tender or exchange offer, or (B) acquires,
directly or indirectly, the beneficial ownership of twenty-five percent
(25%) or more of the issued and outstanding voting stock of Employer in a
single transaction or a series of transactions; (ii) Employer is a party to
a merger, consolidation or similar transaction and following such
transaction, fifty percent (50%) or more of the issued and outstanding
voting stock of the resulting entity is not beneficially owned by those
persons, corporations or entities that constituted the stockholders of
Employer immediately prior to the transaction; (iii) Employer sells fifty
percent (50%) or more of its assets to any other person or persons (other
than an affiliate or affiliates of Employer); or (iv) individuals who, as
of the date hereof, constitute the Board (the "INCUMBENT BOARD") cease for
any reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the date
hereof, whose election or nomination was approved by a majority of the
directors then comprising the Incumbent Board, shall be considered a member
of the Incumbent Board, but not including any individual whose initial
Board membership is a result of an actual or threatened election contest
(as that term is used in Rule 14a-11 promulgated under the Securities
Exchange Act of 1934, as amended) or an actual or threatened solicitation
of proxies or consents by or on behalf of a party other than the Board.
(d) Termination Without Cause. Termination "Without Cause"
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shall mean termination of Employee by Employer for reasons other than: (i)
the willful, persistent failure of Employee (after thirty (30) days written
notice and an opportunity to cure) to perform his or her material duties
hereunder for reasons other than death or disability; (ii) the breach by
Employee of any material provision of this Agreement; or (iii) Employee's
conviction of a felony by a trial court of competent jurisdiction, whether
or not an appeal is taken.
(c) Constructive Termination. "Constructive Termination"
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shall mean: (i) a material, adverse change of Employee's responsibilities,
authority, status, position, offices, titles, duties or reporting
requirements (including directorships); (ii) an adverse change in
Employee's annual compensation or benefits; (iii) a requirement to relocate
in excess of fifty (50) miles from Employee's then current place of
employment; or (iv) the breach by Employer of any material provision of
this Agreement. For purposes of this definition, Employee's
responsibilities, authority, status, position, offices, titles, duties and
reporting requirements are to be determined as of the date of this
Agreement. For purposes of this Section, all determinations of
Constructive Termination shall be made in good faith by Employee and shall
be conclusive.
4. ESCROW ACCOUNT. Within a reasonable period of time following
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the date hereof, Employer shall establish an account (the "Escrow Account") at a
nationally recognized bank or other financial institution which shall be funded
in an amount equal or greater than the aggregate amount of any Severance
Payments payable to Employee hereunder and any amounts payable to
other employees of Employer under similar agreements. The amount of funding by
Employer of such Escrow Account shall be exclusive of any potential Gross-Up
Payments payable pursuant to Section 3 hereof. Promptly upon the establishment
of the Escrow Account, Employer shall provide Employee with information and
instructions regarding the Escrow Account such that, upon meeting the
requirements of Section 3 hereof, Employee would be able to request and obtain
access to any Severance Payment payable to Employee pursuant to and in
accordance with Section 3 hereof.
5. EMPLOYEE'S ACKNOWLEDGMENTS AND COVENANTS.
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(a) Confidential Materials and Information. Employer has
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developed confidential information, strategies and programs, which include
customer lists, prospects lists, expansion and acquisition plans, market
research, sales systems, marketing programs, computer systems and programs,
product development strategies, manufacturing strategies and techniques,
budgets, pricing strategies, identity and requirements of national
accounts, customer lists, methods of operating, service systems, training
programs and methods, other trade secrets and other information about the
business in which Employer is engaged that is not known to the public and
gives Employer an opportunity to obtain an advantage over competitors who
do not know of such information (collectively, "CONFIDENTIAL INFORMATION").
In performing duties for Employer, Employee regularly will be exposed to
and work with the Confidential Information. Employee acknowledges that
such Confidential Information is critical to Employer's success and that
Employer has invested substantial sums of money in developing the
Confidential Information. While Employee is employed by Employer and after
such employment ends for any reason, Employee will never reproduce,
publish, disclose, use, reveal, show or otherwise communicate to any person
or entity any Confidential Information unless specifically directed by
Employer to do so in writing.
(b) Nonsolicitation of Employees. While Employee is employed by
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Employer and for eighteen (18) months after such employment ends for any
reason, Employee, acting either directly or indirectly, or through any
other person, firm, or corporation, will not hire, contract with or employ
any employee of Employer or induce or attempt to induce or influence any
employee of Employer to terminate employment with Employer. Such
nonsolicitation restriction shall not apply to Employee in the case of the
solicitation of his or her immediate family members.
(c) Covenant Against Unfair Competition. While Employee is
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employed by Employer and for eighteen (18) months after such employment
ends for any reason, Employee will not, directly or indirectly, or through
any other person, firm or corporation (i) be employed by, consult for, have
any ownership interest in or engage in any activity on behalf of any
competing business that operates a facility within one hundred (100) miles
of any facility operated by Employer; (ii) be employed by, consult for, or
engage in any activity on behalf of Xxxxxxxx Corporation, Aramark
Corporation, Cintas Corporation, Xxxxx Textile Services, Inc., G & K
Services, Inc., Xxxxxx Small Manufacturing, Lion Apparel, Inc., Mission
Industries, Xxxxxx Services, Inc., National
Linen Service, Division of NSI, Omni Service, Inc., Protexall, Inc., Red
Kap Industries, Inc., Riverside Manufacturing Co., Xxxx Corporation,
UniFirst Corporation, Xxx Xxxx-Xxxxxx, Inc., or any subsidiary or
affiliated company or any successor to any of those companies; or (iii)
call on, solicit or communicate with any of Employer's customers (whether
actual or potential) for the purpose of renting or selling (or servicing on
a customer-owned-goods basis) garments, linens, mats, mops, towels, dust
control items and other related items to such customer other than for the
benefit of Employer. (As used in this Agreement, the term "competing
business" means a business that rents or sells uniforms, linens, mats,
mops, towels, dust control items or other related items, and the term
"customer" means any customer (whether actual or potential) with whom
Employee or any other employee of Employer had business contact on behalf
of Employer during the eighteen (18) months immediately before Employee's
employment with Employer ended.) Notwithstanding the foregoing, this
paragraph shall not be construed to prohibit Employee from owning less than
five percent (5%) of the outstanding securities of a corporation which is
publicly traded on a securities exchange or over-the-counter.
(d) Return of Confidential Materials and Information. Employee
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agrees that whenever Employee's employment with Employer ends for any
reason, all documents containing or referring to Confidential Information
as may be in Employee's possession or control will be delivered by Employee
to Employer immediately, with no request being required.
(e) Acknowledgments; Irreparable Harm. Employee agrees that the
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restrictions on competition, solicitation and disclosure in this Agreement
are fair, reasonable and necessary for the protection of the interests of
Employer. Employee further agrees that a breach of any of the covenants
set forth in this Section 5 will result in irreparable injury and damage to
Employer for which Employer would have no adequate remedy at law, and
Employee further agrees that in the event of a breach, Employer will be
entitled to an immediate restraining order and injunction to prevent such
violation or continued violation, without having to prove damages, in
addition to any other remedies to which Employer may be entitled at law or
equity.
(f) Notification to Subsequent Employers. Employee grants
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Employer the right to notify any future employer or prospective employer of
Employee concerning the existence of and terms of this Agreement and grants
Employer the right to provide a copy of this Agreement to any such
subsequent employer or prospective employer.
6. FULL SETTLEMENT. Employer's obligation to make the payments
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provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which Employer may have against Employee
or others. In no event shall Employee be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to Employee
under any of the provisions of this Agreement and such amounts shall not be
reduced whether or not Employee obtains other employment. Employer agrees to
pay promptly as incurred, to the
full extent permitted by law, all legal fees and expenses which Employee may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by Employer, Employee or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by Employee regarding the amount
of any payment pursuant to this agreement), plus in each case interest on any
delayed payment at the rate published from time to time in The Wall Street
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Journal as the prime rate of interest plus two percent (2%).
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7. RESOLUTION OF DISPUTES. If there shall be any dispute between
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Employer and Employee (i) in the event of any termination of Employee's
employment by Employer, whether such termination was Without Cause, or (ii) in
the event of any Constructive Termination of employment by Employer, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was not Without Cause or
that the determination by Employee of the existence of Constructive Termination
was not made in good faith, Employer shall pay all amounts, and provide all
benefits, to Employee and/or Employee's family or other beneficiaries, as the
case may be, that Employer would be required to pay or provide pursuant to
Section 3 as though such termination were by Employer Without Cause or was a
Constructive Termination by Employer; provided, however, that Employer shall not
be required to pay any disputed amounts pursuant to this Section except upon
receipt of an undertaking by or on behalf of Employer to repay all such amounts
to which Employee is ultimately adjudged by such court not to be entitled.
8. WITHHOLDING. Employer may withhold from any amounts payable
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under this Agreement the minimum Federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
9. SUCCESSORS. This Agreement is binding on, and shall inure to the
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benefit of Employee and Employer, and all successors and assigns of Employer.
Employer will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of Employer to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that Employer would be
required to perform it if no such succession had taken place. Failure of
Employer to obtain such agreement prior to the effectiveness of any such
succession shall be a material breach of this Agreement and shall entitle
Employee to any Severance Payment payable pursuant to Section 3(a) hereof.
10. APPLICABLE LAW. This Agreement will be interpreted, governed and
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enforced according to the law of the State of Missouri.
11. SEPARABILITY. If any portion of this Agreement is held to be
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invalid or unenforceable in any respect, Employee and Employer agree that such
invalid and unenforceable part will be modified to permit the Agreement to be
enforced to the maximum extent permitted by the court, with the remaining
portions unaffected by the invalidity or unenforceability of any part of this
Agreement.
12. WAIVER. This Agreement may be modified, supplemented or
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amended, and any provision of this Agreement can be waived, only by written
instrument making specific reference to this Agreement signed by the party
against whom enforcement of any such modification, supplement, amendment or
waiver is sought.
13. COMPLETE AGREEMENT. This Agreement contains the entire agreement
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between Employer and Employee as to the subject matter hereof. This Agreement
shall not be subject to the terms and conditions of any agreement concerning
arbitration or dispute resolution between Employer and Employee.
EMPLOYEE ACKNOWLEDGES THAT HE/SHE HAS READ THE ENTIRE CONTENTS OF THIS
AGREEMENT AND THAT HE/SHE UNDERSTANDS ITS TERMS.
EMPLOYEE:
/s/ Xxxxxx X. Xxxxxx
Xxxxxx X. Xxxxxx
UNITOG COMPANY,
including its subsidiaries and affiliates
By: /s/ Xxxxxxxx X. Xxxx
Name: X. X. Xxxx
Title: President
