Exhibit 15
FINGERHUT COMPANIES, INC.
CHANGE OF CONTROL AGREEMENT
THIS AGREEMENT dated as of May 1, 1998 is made between FINGERHUT
COMPANIES, INC., a Minnesota corporation having its principal place of
business in Minnetonka, Minnesota (the "Company"), and Xxxxxxx X. Xxxxxxx
(the "Executive"), a resident of Wilton, Connecticut.
ARTICLE I.
PURPOSES
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its stockholders to assure that
the Company will have the continued service of the Executive, despite the
possibility or occurrence of a change of control of the Company. The Board
believes it is imperative to reduce the distraction of the Executive that would
result from the personal uncertainties caused by a pending or threatened change
of control, to encourage the Executive's full attention and dedication to the
Company, and to provide the Executive with compensation and benefits
arrangements upon a change of control which ensure that the expectations of the
Executive will be satisfied and are competitive with those of similarly-situated
corporations. This Agreement is intended to accomplish these objectives.
ARTICLE II.
CERTAIN DEFINITIONS
When used in this Agreement, the terms specified below shall have the
following meanings:
2.1 "Accrued Obligations" -- see Section 5.3.
2.2 "Agreement Term" means the period commencing on the date of this
Agreement and ending on May 31, 2000 (the "Expiration Date"); provided, however,
that if a Change of Control or an Imminent Control Change Date occurs before the
Expiration Date, then (a) the Agreement Term shall automatically extend to a
date which is twelve (12) months after the date of the Change of Control or
Imminent Change of Control, as further extended under the terms of this sentence
should any Change of Control or Imminent Change of Control occur prior to the
expiration of the Agreement Term as from time to time so extended.
2.3 "Article" means an article of this Agreement.
2.4 "Beneficial owner" means such term as defined in Rule 13d-3 of the
SEC under the 1934 Act.
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2.5 "Cause" -- see Section 4.3(b).
2.6 "Change of Control" means, except as otherwise provided below, the
occurrence of any of the following:
a. any person (as such term is used in Rule 13d-5 of the SEC
under the 0000 Xxx) or group (as such term is defined in Section 13(d)
of the 1934 Act), other than a Subsidiary or any employee benefit plan
(or any related trust) of the Company or a Subsidiary, becomes the
beneficial owner of 25% or more of the common stock of the Company or
of Voting Securities representing 25% or more of the combined voting
power of all Voting Securities of the Company, except that no Change of
Control shall be deemed to have occurred solely by reason of any such
acquisition by a corporation with respect to which, after such
acquisition, more than 80% of both the common stock of such corporation
and the combined voting power of the Voting Securities of such
corporation are then beneficially owned, directly or indirectly, by the
persons who were the beneficial owners of the common stock and Voting
Securities of the Company immediately before such acquisition in
substantially the same proportion as their ownership, immediately
before such acquisition, of the common stock and Voting Securities of
the Company, as the case may be;
b. individuals who, as of the Effective Date, constitute the
Board (the "Incumbent Directors") cease for any reason to constitute at
least a majority of the Board; provided that any individual who becomes
a director after the Effective Date whose election, or nomination for
election by the Company's stockholders, was approved by a vote or
written consent of at least two-thirds of the directors then comprising
the Incumbent Directors shall be considered an Incumbent Director, but
excluding, for this purpose, any such individual whose initial
assumption of office is in connection with an actual or threatened
election contest relating to the election of the directors of the
Company (as such terms are used in Rule 14a-11 of the SEC under the
1934 Act); or
c. approval by the stockholders of the Company of any of
the following:
(1) a merger, reorganization or consolidation
("Merger") with respect to which the individuals and
entities who were the respective beneficial owners of the
stock and Voting Securities of the Company immediately
before such Merger do not, after such Merger, beneficially
own, directly or indirectly, more than 80% of, respectively,
the common stock and the combined voting power of the Voting
Securities of the corporation resulting from such Merger in
substantially the same proportion as their ownership
immediately before such Merger, or
(2) the sale or other disposition of all or
substantially all of the assets of the Company.
Despite clauses (a), (b) and (c) of this definition, a Change of Control shall
not occur with respect to the Executive if the Executive is, by written
agreement executed before such Change of Control, a participant on such
Executive's own behalf in a transaction in which the persons or
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entities (or their affiliates) with whom the Executive has the written agreement
Acquire the Company (as defined below) and, pursuant to the written agreement,
the Executive has an equity interest in the resulting entity or a right to
acquire such an equity interest. "Acquire the Company" means the acquisition of
beneficial ownership by purchase, merger, or otherwise, of either more than 50%
of the stock (such percentage to be computed in accordance with Rule
13d-3(d)(1)(i) of the SEC under the 0000 Xxx) or substantially all of the assets
of the Company or its successors.
2.7 "Code" means the Internal Revenue Code of 1986, as amended.
2.8 "Disability" -- see Section 4.1(b).
2.9 "Effective Date" means the first date on which a Change of Control
occurs during the Agreement Term. Despite anything in this Agreement to the
contrary, if the Company terminates the Executive's employment before the date
of a Change of Control, and if the Executive reasonably demonstrates that such
termination of employment (a) was at the request of a third party who had taken
steps reasonably calculated to effect the Change of Control or (b) otherwise
arose in connection with or anticipation of the Change of Control, then
"Effective Date" shall mean the date immediately before the date of such
termination of employment.
2.10 "Good Reason" -- see Section 4.4(b).
2.11 "Gross-up Payment" -- see Section 7.1.
2.12 "Imminent Control Change Date" means any date on which occurs (a)
a presentation to the Company's stockholders generally or any of the Company's
directors or executive officers of a proposal or offer for a Change of Control,
or (b) the public announcement (whether by advertisement, press release, press
interview, public statement, SEC filing or otherwise) of a proposal or offer for
a Change of Control, or (c) such proposal or offer remains effective and
unrevoked.
2.13 "IRS" means the Internal Revenue Service.
2.14 "1934 Act" means the Securities Exchange Act of 1934.
2.15 "Notice of Termination" means a written notice given in accordance
with Section 11.7 which sets forth (a) the specific termination provision in
this Agreement relied upon by the party giving such notice, (b) in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under such termination provision and (c) if the
Termination Date is other than the date of receipt of such Notice of
Termination, the Termination Date.
2.16 "Plans" means plans, programs, policies or practices of the
Company.
2.17 "Policies" means policies, practices or procedures of the Company.
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2.18 "Post-Change Period" means the period commencing on the Effective
Date and ending on the second anniversary of such date.
2.19 "SEC" means the Securities and Exchange Commission.
2.20 "Section" means, unless the context otherwise requires, a section
of this Agreement.
2.21 "Subsidiary" means a corporation as defined in Section 424(f) of
the Code with the Company being treated as the employer corporation for purposes
of this definition.
2.22 "Termination Date" means the date of receipt of the Notice of
Termination or any later date specified in such notice (which date shall be not
more than 15 days after the giving of such notice), as the case may be;
provided, however, that (a) if the Company terminates the Executive's employment
other than for Cause or Disability, then the Termination Date shall be the date
of receipt of such Notice of Termination and (b) if the Executive's employment
is terminated by reason of death or Disability, then the Termination Date shall
be the date of death of the Executive or the Disability Effective Date, as the
case may be.
2.23 "Termination Performance Period" -- see Section 3.2(b)(2)(B).
2.24 "Voting Securities" of a corporation means securities of such
corporation that are entitled to vote generally in the election of directors of
such corporation.
ARTICLE III.
POST-CHANGE PERIOD PROTECTIONS
3.1 Position and Duties.
a. During the Post-Change Period, (1) the Executive's
position (including offices, titles, reporting requirements and
responsibilities), authority and duties shall be at least commensurate
in all material respects with the most significant of those held,
exercised and assigned at any time during the 90-day period immediately
before the Effective Date and (2) the Executive's services shall be
performed at the location where the Executive was employed immediately
before the Effective Date or any other location less than 40 miles from
such former location.
b. During the Post-Change Period (other than any periods of
vacation, sick leave or disability to which the Executive is entitled),
the Executive agrees to devote the Executive's full attention and time
to the business and affairs of the Company and, to the extent necessary
to discharge the duties assigned to the Executive in accordance with
this Agreement, to use the Executive's best efforts to perform
faithfully and efficiently such duties. During the Post-Change Period,
the Executive may (1) serve on corporate, civic or charitable boards or
committees, (2) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (3) manage personal investments, so
long as such activities are consistent with the Policies of the Company
at the Effective Date and do not
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significantly interfere with the performance of the Executive's duties
under this Agreement. To the extent that any such activities have been
conducted by the Executive before the Effective Date and were
consistent with the Policies of the Company at the Effective Date, the
continued conduct of such activities (or activities similar in nature
and scope) after the Effective Date shall not be deemed to interfere
with the performance of the Executive's duties under this Agreement.
3.2 Compensation.
a. Base Salary. During the Post-Change Period, the Company
shall pay or cause to be paid to the Executive an annual base salary in
cash ("Guaranteed Base Salary"), which shall be paid in a manner
consistent with the Company's payroll practices in effect immediately
before the Effective Date at a rate at least equal to 12 times the
highest monthly base salary paid or payable to the Executive by the
Company in respect of the 12-month period immediately before the
Effective Date. During the Post-Change Period, the Guaranteed Base
Salary shall be reviewed at least annually and shall be increased at
any time and from time to time as shall be substantially consistent
with increases in base salary awarded to other peer executives of the
Company. Any increase in Guaranteed Base Salary shall not limit or
reduce any other obligation of the Company to the Executive under this
Agreement. After any such increase, the Guaranteed Base Salary shall
not be reduced and the term "Guaranteed Base Salary" shall thereafter
refer to the increased amount.
b. Target Bonus.
(1) In addition to Guaranteed Base Salary, the
Company shall pay or cause to be paid to the Executive a
bonus (the "Guaranteed Bonus") for each Performance Period
which ends during the Post-Change Period. "Performance
Period" means each period of time designated in accordance
with any bonus arrangement ("Bonus Plan") which is based
upon performance and approved by the Board or any committee
of the Board. The Guaranteed Bonus shall be at least equal
to the product of
(A) the greatest of (i) the On Plan Percentage (as
defined below), or (ii) the Actual Bonus Percentage
(as defined below), multiplied by
(B) the Guaranteed Annual Salary.
(2) For purposes of this Section 3.2(b):
(A) "On Plan Percentage" means the percentage of
Guaranteed Base Salary to which the Executive would
have been entitled under any Bonus Plan for the
Performance Period for which the Guaranteed Bonus
is awarded ("Current Performance Period") as if the
performance achieved 100% of performance goals
established pursuant to such Bonus Plan.
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(B) "Actual Bonus Percentage" means the percentage
of the rate of Guaranteed Base Salary for the
Current Performance Period which the Executive
would accrue as a bonus under any Bonus Plan if the
performance during the Current Performance Period
were measured by the actual performance during the
Current Performance Period; provided, however, that
for purposes of calculating the Guaranteed Bonus,
"Actual Bonus Percentage" means the percentage of
the rate of Guaranteed Base Salary for the
Performance Period during which the Termination
Date occurred (the "Termination Performance
Period") which the Executive would accrue as a
bonus under any Bonus Plan if the performance
during such Termination Performance Period were
measured by the actual performance during the
Termination Performance Period before the
Termination Date projected to the last day of such
Performance Period.
c. Incentive, Savings and Retirement Plans. In addition to
Guaranteed Base Salary and Guaranteed Bonus payable as provided in this
Section, the Executive shall be entitled to participate during the
Post-Change Period in all incentive (including long-term incentives),
savings and retirement Plans applicable to other peer executives of the
Company, but in no event shall such Plans provide the Executive with
incentive (including long-term incentives), savings and retirement
benefits which, in any case, are less favorable, in the aggregate, than
the most favorable of those provided by the Company for the Executive
under such Plans as in effect at any time during the 90-day period
immediately before the Effective Date.
d. Welfare Benefit Plans. During the Post-Change Period, the
Executive and the Executive's family shall be eligible to participate
in, and receive all benefits under, welfare benefit Plans provided by
the Company (including, without limitation, medical, prescription,
dental, disability, salary continuance, individual life, group life,
dependent life, accidental death and travel accident insurance Plans)
and applicable to other peer executives of the Company and their
families, but in no event shall such Plans provide benefits which in
any case are less favorable, in the aggregate, than the most favorable
of those provided to the Executive under such Plans as in effect at any
time during the 90-day period immediately before the Effective Date.
e. Fringe Benefits. During the Post-Change Period, the
Executive shall be entitled to fringe benefits in accordance with the
most favorable Plans applicable to peer executives of the Company, but
in no event shall such Plans provide fringe benefits which in any case
are less favorable, in the aggregate, than the most favorable of those
provided by the Company to peer executives under such Plans in effect
at any time during the 90-day period immediately before the Effective
Date.
f. Expenses. During the Post-Change Period, the Executive
shall be entitled to prompt reimbursement of all reasonable
employment-related expenses incurred by the Executive upon the
Company's receipt of accountings in accordance with the most favorable
Policies applicable to peer executives of the Company, but in no event
shall such Policies be less favorable, in the aggregate, than the most
favorable of those
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provided by the Company for the Executive under such Policies in effect
at any time during the 90-day period immediately before the Effective
Date.
g. Office and Support Staff. During the Post-Change Period,
the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to exclusive personal
secretarial and other assistance in accordance with the most favorable
Policies applicable to peer executives of the Company, but in no event
shall such Policies be less favorable, in the aggregate, than the most
favorable of those provided by the Company for the Executive under such
Policies in effect at any time during the 90-day period immediately
before the Effective Date.
h. Vacation. During the Post-Change Period, the Executive
shall be entitled to paid vacation in accordance with the most
favorable Policies applicable to peer executives of the Company, but in
no event shall such Policies be less favorable, in the aggregate, than
the most favorable of those provided by the Company for the Executive
under such Policies in effect at any time during the 90-day period
immediately before the Effective Date.
3.3 Stock Options and Restricted Stock.
a. Stock Options. In addition to the other benefits provided
in this Section, on the Effective Date, the Executive shall become
fully vested in any and all outstanding stock options granted to
Executive for shares of common stock of the Company or to the extent
that such options are not vested, shall receive a lump-sum cash payment
equal to the spread of all non-vested, forfeited options as of the date
such options are forfeited.
b. Restricted Stock. On the Effective Date, the Executive
shall become fully vested in any and all undistributed shares of
Restricted Stock granted pursuant to the employment agreement between
the Company and the Executive dated on or about May 1, 1998.
ARTICLE IV.
TERMINATION OF EMPLOYMENT
4.1 Disability.
a. During the Post-Change Period, the Company may terminate
the Executive's employment upon the Executive's Disability (as defined
in Section 4.1(b))) by giving the Executive or his legal
representative, as applicable, (1) written notice in accordance with
Section 11.7 of the Company's intention to terminate the Executive's
employment pursuant to this Section and (2) a certification of the
Executive's Disability by a physician selected by the Company or its
insurers and reasonably acceptable to the Executive or the Executive's
legal representative. The Executive's employment shall terminate
effective on the 30th day (the "Disability Effective Date") after the
Executive's receipt of such notice unless, before the Disability
Effective Date, the Executive shall have resumed the full-time
performance of the Executive's duties.
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b. "Disability" means any medically determinable physical or
mental impairment that has lasted for a continuous period of not less
than six months and can be expected to be permanent or of indefinite
duration, and that renders the Executive unable to perform the duties
required under this Agreement.
4.2 Death. The Executive's employment shall terminate automatically
upon the Executive's death during the Post-Change Period.
4.3 Cause.
a. During the Post-Change Period, the Company may terminate
the Executive's employment for Cause.
b. "Cause" means any of the following: commission by the
Executive of any felony; or willful breach of duty by the Executive in
the course of the Executive's employment; except that Cause shall not
mean:
(1) bad judgment or negligence;
(2) any act or omission believed by the Executive
in good faith to have been in or not opposed to the interest of the
Company (without intent of the Executive to gain, directly or
indirectly, a profit to which the Executive was not legally entitled);
(3) any act or omission with respect to which a
determination could properly have been made by the Board that the
Executive met the applicable standard of conduct for indemnification or
reimbursement under the Company's by-laws, any applicable
indemnification agreement, or applicable law, in each case in effect at
the time of such act or omission; or
(4) any act or omission with respect to which
notice of termination of employment of the Executive is given more than
12 months after the earliest date on which any member of the Board, not
a party to the act or omission, knew or should have known of such act
or omission.
c. Any termination of the Executive's employment by the
Company for Cause shall be communicated to the Executive by Notice of
Termination.
4.4 Good Reason.
a. During the Post-Change Period, the Executive may
terminate his or her employment for Good Reason.
b. "Good Reason" means any of the following:
(1) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position
(including offices, titles, reporting requirements or
responsibilities), authority or duties as contemplated by
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Section 3.1(a)(1), or any other action by the Company which
results in a diminution or other material adverse change in
such position, authority or duties;
(2) any failure by the Company to comply with any
of the provisions of Article III;
(3) the Company's requiring the Executive to be
based at any office or location other than the location
described in Section 3.1(a)(2);
(4) any other material adverse change to the terms
and conditions of the Executive's employment;
(5) any purported termination by the Company of the
Executive's employment other than as expressly permitted by
this Agreement (any such purported termination shall not be
effective for any other purpose under this Agreement); or
(6) a termination of employment by the Executive
for any reason during the 30-day period immediately
following the first anniversary of the Effective Date.
Any reasonable determination of "Good Reason" made in good
faith by the Executive shall be conclusive.
c. Any termination of employment by the Executive for Good
Reason shall be communicated to the Company by Notice of Termination. A
passage of time prior to delivery of Notice of Termination or a failure
by the Executive to include in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason shall not
waive any right of the Executive under this Agreement or preclude the
Executive from asserting such fact or circumstance in enforcing rights
under this Agreement.
ARTICLE V.
OBLIGATIONS OF THE COMPANY UPON TERMINATION
5.1 If by the Executive for Good Reason or by the Company Other Than
for Cause or Disability. If, during the Post-Change Period, the Company shall
terminate Executive's employment other than for Cause or Disability, or if the
Executive shall terminate employment for Good Reason, the Company shall
immediately pay the Executive, in addition to all vested rights arising from the
Executive's employment as specified in Article III, a cash amount equal to the
sum of the following amounts:
a. to the extent not previously paid, the Guaranteed Base
Salary and any accrued vacation pay through the Termination Date;
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b. the difference between (1) the product of (A) the
Guaranteed Bonus, multiplied by (B) a fraction, the numerator of which
is the number of days in the Termination Performance Period which
elapsed before the Termination Date, and the denominator of which is
the total number of days in the Termination Performance Period, and (2)
the amount of any Guaranteed Bonus paid to the Executive with respect
to the Termination Performance Period;
c. all amounts previously deferred by or an accrual to the
benefit of the Executive under any nonqualified deferred compensation
or pension plan, together with any accrued earnings thereon, and not
yet paid by the Company;
d. an amount equal to the product of (1) three (3.0)
multiplied by (2) the sum of (A) Guaranteed Base Salary and (B) the
highest Guaranteed Bonus paid (or payable regardless of whether earned)
to the Executive in the two prior years provided that if within sixty
60 days after Executive commences employment with the Company, the
Company enters into a merger or similar agreement with that company or
any affiliate thereof which has been in merger or similar negotiations
with the Company within thirty (30) days prior to the date of this
Agreement, which later results in a transaction between the Company and
that company or any affiliate thereof, in lieu of the benefit provided
in this 5.1(d), Executive shall receive an amount equal to the product
of one (1.0) multiplied by the sum of (A) $450,000 (annual base salary)
and (B) the maximum annual bonus payable to Executive with respect to
his first year of employment;
e. an amount equal to the sum of the value of the unvested
portion of the Executive's accounts or accrued benefits under any
qualified plan maintained by the Company as of the Termination Date;
f. an amount equal to the value (determined using actuarial
assumptions consistent with those used by the Company for financial
reporting purposes) of the Executive's accrued benefits under (1) the
Fingerhut Corporation Pension Excess Plan and (2) the Fingerhut
Companies, Inc. Nonqualified Supplemental Executive Retirement Plan (or
any such successor or similar plans as may be in effect as of the
Termination Date) (the "Excess/Supplemental Plans" calculated as though
the Executive (A) continued to accrue benefits under the
Excess/Supplemental Plans for a period of three years after the
Termination Date, and (B) received compensation during each year of
such three-year period equal to the sum of the Guaranteed Base Salary
and the highest Guaranteed Bonus paid (or payable) to the Executive in
the two years preceding the Termination Date; and
g. an amount equal to the payment to which the Executive
would be entitled under the Fingerhut Corporation Profit Sharing Excess
Plan (or any such successor or similar plan as may be in effect as of
the Termination Date) for the plan year in which the Termination Date
occurs as if the Executive were eligible to share in the Company's
contribution to the Fingerhut Corporation Profit Sharing Plan for such
plan years; and
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h. pay on behalf of Executive all fees and costs charged by
the outplacement firm selected by the Executive to provide outplacement
services or at the election of the Executive, cash equal to the fees
and expenses such outplacement firm would charge.
Until the third anniversary of the Termination Date or such later date as any
Plan of the Company may specify, the Company shall continue to provide to the
Executive and the Executive's family welfare benefits (including, without
limitation, medical, prescription, dental, disability, salary continuance,
individual life, group life, accidental death and travel accident insurance
plans and programs) which are at least as favorable as the most favorable Plans
of the Company applicable to other peer executives and their families as of the
Termination Date, but which are in no event less favorable than the most
favorable Plans of the Company applicable to other peer executives and their
families during the 90-day period immediately before the Effective Date. The
cost of such welfare benefits shall not exceed the cost of such benefits to the
Executive immediately before the Termination Date or, if less, the Effective
Date. Notwithstanding the foregoing, if the Executive is covered under any
medical, life, or disability insurance plan(s) provided by a subsequent
employer, then the amount of coverage required to be provided by the Employer
hereunder shall be reduced by the amount of coverage provided by the subsequent
employer's medical, life, or disability insurance plan(s). The Executive's
rights under this Section shall be in addition to, and not in lieu of, any
post-termination continuation coverage or conversion rights the Executive may
have pursuant to applicable law, including without limitation continuation
coverage required by Section 4980 of the Code.
5.2 If by the Company for Cause. If the Company terminates the
Executive's employment for Cause during the Post-Change Period, this Agreement
shall terminate without further obligation by the Company to the Executive,
other than the obligation immediately to pay the Executive in cash the
Executive's Guaranteed Base Salary through the Termination Date, plus the amount
of any compensation previously deferred by the Executive, plus any accrued
vacation pay, in each case to the extent not previously paid.
5.3 If by the Executive Other Than for Good Reason. If the Executive
terminates employment during the Post-Change Period other than for Good Reason,
Disability or death, this Agreement shall terminate without further obligations
by the Company, other than the obligation immediately to pay the Executive in
cash all amounts specified in clauses (a), (b) and (c) of the first sentence of
Section 5.1 (such amounts collectively, the "Accrued Obligations").
5.4 If by the Company for Disability. If the Company terminates the
Executive's employment by reason of the Executive's Disability during the
Post-Change Period, this Agreement shall terminate without further obligations
to the Executive, other than
(a) the Company's obligation immediately to pay the
Executive in cash all Accrued Obligations, and
(b) the Executive's right after the Disability Effective
Date to receive disability and other benefits at least equal to the
greater of (1) those provided under the most favorable disability Plans
applicable to disabled peer executives of the Company in effect
immediately before the Termination Date or (2) those provided under the
most
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favorable disability Plans of the Company in effect at any time
during the 90-day period immediately before the Effective Date.
5.5 If upon Death. If the Executive's employment is terminated by
reason of the Executive's death during the Post-Change Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than the obligation immediately to
pay the Executive's estate or beneficiary in cash all Accrued Obligations.
Despite anything in this Agreement to the contrary, the Executive's family shall
be entitled to receive benefits at least equal to the most favorable benefits
provided by the Company to the surviving families of peer executives of the
Company under such Plans, but in no event shall such Plans provide benefits
which in each case are less favorable, in the aggregate, than the most favorable
of those provided by the Company to the Executive under such Plans in effect at
any time during the 90-day period immediately before the Effective Date.
ARTICLE VI.
NON-EXCLUSIVITY OF RIGHTS
6.1 Waiver of Other Severance Rights. To the extent that payments are
made to the Executive pursuant to Section 5.1, the Executive hereby waives the
right to receive severance payments under any other Plan or agreement of the
Company.
6.2 Other Rights. Except as provided in Section 6.1, this Agreement
shall not prevent or limit the Executive's continuing or future participation in
any benefit, bonus, incentive or other Plans, provided by the Company or any of
its Subsidiaries and for which the Executive may qualify, nor shall this
Agreement limit or otherwise affect such rights as the Executive may have under
any other agreements with the Company or any of its Subsidiaries. Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any Plan of the Company or any of its Subsidiaries and any other payment
or benefit required by law at or after the Termination Date shall be payable in
accordance with such Plan or applicable law except as expressly modified by this
Agreement.
ARTICLE VII.
CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY
7.1 Gross-up for Certain Taxes. If it is determined (by the reasonable
computation of the Company's independent auditors, which determinations shall be
certified to by such auditors and set forth in a written certificate
("Certificate") delivered to the Executive) that any benefit received or deemed
received by the Executive from the Company pursuant to this Agreement or
otherwise (collectively, the "Payments") is or will become subject to any excise
tax under Section 4999 of the Code or any similar tax payable under any United
States federal, state, local or other law (such excise tax and all such similar
taxes collectively, "Excise Taxes"), then the Company shall, immediately after
such determination, pay the Executive an amount (the "Gross-up Payment") equal
to the product of
(a) the amount of such Excise Taxes
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multiplied by
(b) the Gross-up Multiple (as defined in Section 7.4).
The Gross-up Payment is intended to compensate the Executive for the Excise
Taxes and any federal, state, local or other income or excise taxes or other
taxes payable by the Executive with respect to the Gross-up Payment.
The Executive or the Company may at any time request the preparation
and delivery to the Executive of a Certificate. The Company shall, in addition
to complying with Section 7.2, cause all determinations and certifications under
the Article to be made as soon as reasonably possible and in adequate time to
permit the Executive to prepare and file the Executive's individual tax returns
on a timely basis.
7.2 Determination by the Executive.
a. If the Company shall fail to deliver a Certificate to the
Executive (and to pay to the Executive the amount of the Gross-up
Payment, if any) within 14 days after receipt from the Executive of a
written request for a Certificate, or if at any time following receipt
of a Certificate the Executive disputes the amount of the Gross-up
Payment set forth therein, the Executive may elect to demand the
payment of the amount which the Executive, in accordance with an
opinion of counsel to the Executive ("Executive Counsel Opinion"),
determines to be the Gross-up Payment. Any such demand by the Executive
shall be made by delivery to the Company of a written notice which
specifies the Gross-up Payment determined by the Executive and an
Executive Counsel Opinion regarding such Gross-up Payment (such written
notice and opinion collectively, the "Executive's Determination").
Within 14 days after delivery of the Executive's Determination to the
Company, the Company shall either (1) pay the Executive the Gross-up
Payment set forth in the Executive's Determination (less the portion of
such amount, if any, previously paid to the Executive by the Company)
or (2) deliver to the Executive a Certificate specifying the Gross-up
Payment determined by the Company's independent auditors, together with
an opinion of the Company's counsel ("Company Counsel Opinion"), and
pay the Executive the Gross-up Payment specified in such Certificate.
If for any reason the Company fails to comply with clause (2) of the
preceding sentence, the Gross-up Payment specified in the Executive's
Determination shall be controlling for all purposes.
b. If the Executive does not make a request for, and the
Company does not deliver to the Executive, a Certificate, the Company
shall, for purposes of Section 7.3, be deemed to have determined that
no Gross-up Payment is due.
7.3 Additional Gross-up Amounts. If, despite the initial conclusion of
the Company and/or the Executive that certain Payments are neither subject to
Excise Taxes nor to be counted in determining whether other Payments are subject
to Excise Taxes (any such item, a "Non-Parachute Item"), it is later determined
(pursuant to the subsequently-enacted provisions of the Code, final regulations
or published rulings of the IRS, final judgment of a court of competent
jurisdiction or the Company's independent auditors that any of the Non-Parachute
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Items are subject to Excise Taxes, or are to be counted in determining whether
any Payments are subject to Excise Taxes, with the result that the amount of
Excise Taxes payable by the Executive is greater than the amount determined by
the Company or the Executive pursuant to Section 7.1 or 7.2, as applicable, then
the Company shall pay the Executive an amount (which shall also be deemed a
Gross-up Payment) equal to the product of
(a) the sum of (1) such additional Excise Taxes and (2) any
interest, fines, penalties, expenses or other costs incurred by the
Executive as a result of having taken a position in accordance with a
determination made pursuant to Section 7.1
multiplied by
(b) the Gross-up Multiple.
7.4 Gross-up Multiple. The Gross-up Multiple shall equal a fraction,
the numerator of which is one (1.0), and the denominator of which is one (1.0)
minus the sum, expressed as a decimal fraction, of the rates of all federal,
state, local and other income and other taxes and any Excise Taxes applicable to
the Gross-up Payment; provided that, if such sum exceeds 0.8, it shall be deemed
equal to 0.8 for purposes of this computation. (If different rates of tax are
applicable to various portions of a Gross-up Payment, the weighted average of
such rates shall be used.)
7.5 Opinion of Counsel. "Executive Counsel Opinion" means a legal
opinion of nationally recognized executive compensation counsel that there is a
reasonable basis to support a conclusion that the Gross-up Payment determined by
the Executive has been calculated in accord with this Article and applicable
law. "Company Counsel Opinion" means a legal opinion of nationally recognized
executive compensation counsel that (a) there is a reasonable basis to support a
conclusion that the Gross-up Payment set forth of the Certificate of Company's
independent auditors has been calculated in accord with this Article and
applicable law, and (b) there is no reasonable basis for the calculation of the
Gross-up Payment determined by the Executive.
7.6 Amount Increased or Contested. The Executive shall notify the
Company in writing of any claim by the IRS or other taxing authority that, if
successful, would require the payment by the Company of a Gross-up Payment. Such
notice shall include the nature of such claim and the date on which such claim
is due to be paid. The Executive shall give such notice as soon as practicable,
but no later than 10 business days, after the Executive first obtains actual
knowledge of such claim; provided, however, that any failure to give or delay in
giving such notice shall affect the Company's obligations under this Article
only if and to the extent that such failure results in actual prejudice to the
Company. The Executive shall not pay such claim less than 30 days after the
Executive gives such notice to the Company (or, if sooner, the date on which
payment of such claim is due). If the Company notifies the Executive in writing
before the expiration of such period that it desires to contest such claim, the
Executive shall:
a. give the Company any information that it reasonably
requests relating to such claim,
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b. take such action in connection with contesting such claim
as the Company reasonably requests in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
c. cooperate with the Company in good faith to contest such
claim, and
d. permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax, including related interest
and penalties, imposed as a result of such representation and payment of costs
and expenses. Without limiting the foregoing, the Company shall control all
proceedings in connection with such contest and, at its sole option, may pursue
or forego 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 the Executive to pay the tax claimed and xxx for a
refund or contest the claim in any permissible manner. The Executive 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 the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and xxx for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify the Executive, on an after-tax basis, for any Excise Tax or income
tax, including related interest or penalties, imposed with respect to such
advance; and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with respect
to which such contested amount is claimed to be due is limited solely to such
contested amount. The Company's control of the contest shall be limited to
issues with respect to which a Gross-up Payment would be payable. The Executive
shall be entitled to settle or contest, as the case may be, any other issue
raised by the IRS or other taxing authority.
7.7 Refunds. If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7.6, the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 7.6) promptly pay
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 7.6, a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such determination before the expiration of 30
days after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-up Payment required to be paid.
Any contest of a denial of refund shall be controlled by Section 7.6.
ARTICLE VIII.
EXPENSES AND INTEREST
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8.1 Legal Fees and Other Expenses.
a. If the Executive incurs legal fees or other expenses in a
good faith effort to obtain benefits under this Agreement (including,
without limitation, the fees and other expenses of the Executive's
legal counsel in connection with the delivery of the Opinion referred
to in Section 7.5), regardless of whether the Executive ultimately
prevails, the Company shall reimburse the Executive on a current basis
for such fees and expenses to the extent not reimbursed under the
Company's officers and directors liability insurance policy, if any.
The existence of any controlling case or regulatory law which is
directly inconsistent with the position taken by the Executive shall be
evidence that the Executive did not act in good faith.
b. Reimbursement of legal fees and expenses shall be made
monthly upon the written submission of a request for reimbursement
together with evidence that such fees and expenses are due and payable
or were paid by the Executive. If the Company shall have reimbursed the
Executive for legal fees and expenses and it is later determined that
the Executive was not acting in good faith, all amounts paid on behalf
of, or reimbursed to, the Executive shall be promptly refunded to the
Company.
8.2 Interest. If the Company does not pay any amount due to the
Executive under this Agreement within three days after such amount became due
and owing, interest shall accrue on such amount from the date it became due and
owing until the date of payment at a annual rate equal to two percent (2.0%)
above the base commercial lending rate announced by Xxxxxx Trust and Savings
Bank in effect from time to time during the period of such nonpayment.
ARTICLE IX.
NO SET-OFF OR MITIGATION
9.1 No Set-off by Company. The Executive's right to receive when due
the payments and other benefits provided for under this Agreement is absolute,
unconditional and subject to no set-off, counterclaim or legal or equitable
defense. Time is of the essence in the performance by the Company of its
obligations under this Agreement. Any claim which the Company may have against
the Executive, whether for a breach of this Agreement or otherwise, shall be
brought in a separate action or proceeding and not as part of any action or
proceeding brought by the Executive to enforce any rights against the Company
under this Agreement.
9.2 No Mitigation. The Executive shall not have any duty to mitigate
the amounts payable by the Company under this Agreement by seeking new
employment following termination. Except as specifically otherwise provided in
this Agreement, all amounts payable pursuant to this Agreement shall be paid
without reduction regardless of any amounts of salary, compensation or other
amounts which may be paid or payable to the Executive as the result of the
Executive's employment by another employer.
ARTICLE X.
CONFIDENTIALITY AND NONCOMPETITION
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10.1 Confidentiality. Executive acknowledges that it is the policy of
the Company and its subsidiaries to maintain as secret and confidential all
valuable and unique information and techniques acquired, developed or used by
the Company and its subsidiaries relating to their business, operations,
employees and customers, which gives the Company and its subsidiaries a
competitive advantage in the retail catalogue industry and other businesses in
which the Company and its subsidiaries are engaged ("Confidential Information").
Executive recognizes that all such Confidential Information is the sole and
exclusive property of the Company and its subsidiaries, and that disclosure of
Confidential Information would cause damage to the Company and its subsidiaries.
Executive agrees that, except as required by the duties of his employment with
the Company and/or its subsidiaries and except in connection with enforcing the
Executive's rights under this Agreement or if compelled by a court or
governmental agency, he will not, without the consent of the Company,
disseminate or otherwise disclose any Confidential Information obtained during
his employment with the Company and/or its subsidiaries for so long as such
information is valuable and unique.
10.2 Noncompetition/Nonsolicitation.
a. Executive agrees that, during the period of his
employment with the Company and/or its subsidiaries and, if Executive's
employment is terminated for any reason, thereafter for a period of one
(1) year, Executive will not at any time directly or indirectly, in any
capacity, engage or participate in, or become employed by or render
advisory or consulting or other services in connection with any
Prohibited Business as defined in Section 10.2(d).
b. Executive agrees that, during the period of his
employment with the Company and/or its subsidiaries and, if Executive's
employment is terminated for any reason, thereafter for a period of one
(1) year, Executive shall not make any financial investment, whether in
the form of equity or debt, or own any interest, directly or
indirectly, in any Prohibited Business. Nothing in this Section 10.2(b)
shall, however, restrict Executive from making any investment in any
company whose stock is listed on a national securities exchange or
actively traded in the over-the-counter market; provided that (1) such
investment does not give Executive the right or ability to control or
influence the policy decisions of any Prohibited Business, and (2) such
investment does not create a conflict of interest between Executive's
duties hereunder and Executive's interest in such investment.
c. Executive agrees that, during the period of his
employment with the Company and/or its subsidiaries and, if Executive's
employment is terminated for any reason, thereafter for a period of one
(1) year, Executive shall not (1) employ any employee of the Company
and/or its subsidiaries or (2) interfere with the Company's or any of
its subsidiaries' relationship with, or endeavor to entice away from
the Company and/or its subsidiaries any person, firm, corporation, or
other business organization who or which at any time (whether before or
after the date of Executive's termination of employment), was an
employee, customer, vendor or supplier of, or maintained a business
relationship with, any business of the Company and/or its subsidiaries
which
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was conducted at any time during the period commencing one year prior
to the termination of employment.
d. For the purpose of this Section 10.2, "Prohibited
Business" shall be defined as any retail catalogue business or any
other type of business, entity and any branch, office or operation
thereof, which is a direct and material competitor of the Company
wherever the Company does business, in the United States or abroad.
10.3 Remedy. Executive and the Company specifically agree that, in the
event that Executive shall breach his obligations under this Article X, the
Company and its subsidiaries will suffer irreparable injury and no adequate
remedy for such breach, and shall be entitled to injunctive relief therefor, and
in particular, without limiting the generality of the foregoing, the Company
shall not be precluded from pursuing any and all remedies it may have at law or
in equity for breach of such obligations; provided, however, that such breach
shall not in any manner or degree whatsoever limit, reduce or otherwise affect
the obligations of the Company under this Agreement, and in no event shall an
asserted breach of the Executive's obligations under this Article X constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
ARTICLE XI.
MISCELLANEOUS
11.1 No Assignability. This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
11.2 Successors. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns. The Company will
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business or
assets of the Company 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. Any successor to the business
and/or assets of the Company which assumes or agrees to perform this Agreement
by operation of law, contract, or otherwise shall be jointly and severally
liable with the Company under this Agreement as if such successor were the
Company.
11.3 Payments to Beneficiary. If the Executive dies before receiving
amounts to which the Executive is entitled under this Agreement, such amounts
shall be paid in a lump sum to the beneficiary designated in writing by the
Executive, or if none is so designated, to the Executive's estate.
11.4 Non-alienation of Benefits. Benefits payable under this Agreement
shall not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, charge, garnishment, execution or levy of any
kind, either voluntary or
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involuntary, before actually being received by the Executive, and any such
attempt to dispose of any right to benefits payable under this Agreement shall
be void.
11.5 Severability. If any one or more articles, sections or other
portions of this Agreement are declared by any court or governmental authority
to be unlawful or invalid, such unlawfulness or invalidity shall not serve to
invalidate any article, section or other portion not so declared to be unlawful
or invalid. Any article, section or other portion so declared to be unlawful or
invalid shall be construed so as to effectuate the terms of such article,
section or other portion to the fullest extent possible while remaining lawful
and valid.
11.6 Amendments. Except as provided in Section 2.2 hereof, this
Agreement shall not be altered, amended or modified except by written instrument
executed by the Company and Executive.
11.7 Notices. All notices and other communications under this Agreement
shall be in writing and delivered by hand or by first class registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Xxxxxxx X. Xxxxxxx
address to be provided to Company by Executive in writing
upon his relocation.
If to the Company:
Fingerhut Companies, Inc.
0000 Xxxxx Xxxx
Xxxxxxxxxx, XX 00000
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing. Notice and communications shall be effective when actually received by
the addressee.
11.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together constitute one and the same instrument.
11.9 Governing Law. This Agreement shall be interpreted and construed
in accordance with the laws of the State of Minnesota, without regard to its
choice of law principles.
11.10 Captions. The captions of this Agreement are not a part of the
provisions hereof and shall have no force or effect.
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11.11 Tax Withholding. The Company may withhold from any amounts
payable under this Agreement any federal, state or local taxes that are required
to be withheld pursuant to any applicable law or regulation.
11.12 No Waiver. The Executive's failure to insist upon strict
compliance with any provision of this Agreement shall not be deemed a waiver of
such provision or any other provision of this Agreement. A waiver of any
provision of this Agreement shall not be deemed a waiver of any other provision,
and any waiver of any default in any such provision shall not be deemed a waiver
of any later default thereof or of any other provision.
11.13 Entire Agreement. This Agreement contains the entire
understanding of the Company and the Executive with respect to its subject
matter. The parties have also entered into an employment agreement which sets
forth certain terms and conditions of Executive's employment with the Company
and to the extent any of the terms of such employment agreement conflict with
any provision herein, the provision most favorable to the Executive shall
control.
IN WITNESS WHEREOF, the Executive and the Company have
executed this Agreement as of the date first above written.
/s/ Xxxxxxx X. Xxxxxxx
----------------------------------
Xxxxxxx X. Xxxxxxx
FINGERHUT COMPANIES, INC.
By: /s/ Xxxxxxx Xxxxxxx
-------------------------------
Title: SVP
-------------------------------
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