Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is effective as of June 1, 2006 between X. X. Xxxxx Arts &
Crafts, Inc., a Pennsylvania corporation (the "Company"), and Xxxx Xxxxxx
("Executive"). This Agreement replaces and supersedes any and all prior
discussions, offers, communications or agreements of any sort whatsoever,
existing between the Company and Executive, of whatsoever nature.
NOW THEREFORE,
In consideration of the mutual covenants contained herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment.
(a) The Company shall employ Executive, and Executive hereby accepts
employment with the Company, upon the terms and conditions set forth in this
Agreement for the period beginning on the effective date and ending as provided
in paragraph 4 hereof (the "Employment Term").
(b) The Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined in Appendix I to this Agreement) of the Company. The Board believes it
is imperative to diminish the inevitable distraction of the Executive by virtue
of the personal uncertainties and risks created by a pending or threatened
Change of Control and to encourage the Executive's full attention and dedication
to the Company currently and in the event of any threatened or pending Change of
Control, and to provide the Executive with compensation and benefits
arrangements upon a Change of Control which ensure that the compensation and
benefits expectations of the Executive will be satisfied and which are
competitive with those of other corporations. Therefore, in order to accomplish
these objectives if a Change of Control occurs, paragraphs 1 through 4 of this
Agreement (except paragraph 3(i) which shall continue) shall be superseded by
Appendix I.
2. Position and Duties.
(a) During the Employment Term, Executive shall serve as the Chief
Executive Officer ("CEO") of the Company and be nominated to serve as a member
of the Board. Executive shall report directly to the Board and shall have such
duties and responsibilities as is customary for chief executive officers for
companies of like size and type. Executive shall be appointed initially as a
member of the Board, and shall be nominated to serve as a member of the Board
during the Employment Term or any extension term.
(b) Executive shall report to the Board, and Executive shall devote
Executive's best efforts and Executive's full business time and attention
(except for permitted
vacation periods and reasonable periods of illness or other incapacity) to the
business and affairs of the Company and its Subsidiaries (as defined below);
provided that Executive shall, with the prior written approval of the Board, be
allowed to serve as (i) a director or officer of any non-profit organization
including trade, civic, educational or charitable organizations, or (ii) a
director of any corporation which is not competing with the Company or any of
its Subsidiaries so long as such duties do not materially interfere with the
performance of Executive's duties or responsibilities under this Agreement.
Executive shall perform Executive's duties and responsibilities under this
Agreement to the best of Executive's abilities in a diligent, trustworthy,
businesslike and efficient manner.
(c) Executive shall be based at or in the vicinity of the Company's
headquarters, but may be required to travel as necessary to perform Executive's
duties and responsibilities under this Agreement.
(d) For purposes of this Agreement, "Subsidiaries" shall mean any
entity of which the securities having a majority of the voting power in electing
directors or managers are, at the time of determination, owned by the Company,
directly or through one of more Subsidiaries.
3. Base Salary, Bonus, Options and Benefits.
Subject to the provisions of paragraph 4, which shall control,
Executive shall be entitled to the following compensation and benefits:
(a) Initially, Executive's base salary as CEO shall be $550,000 per
fiscal year (utilizing a fiscal year starting on June 1) annum (the "Base
Salary"), which salary shall be payable in regular installments in accordance
with the Company's general payroll practices. Executive's Base Salary shall be
reviewed at least annually by the Compensation Committee of the Board and shall
be subject to increase, as it shall determine based on among other things,
market practice and performance.
(b) On June 1, 2006, Executive shall receive a cash sign-on lump sum
retention bonus of $280,000 (the "Retention Bonus"). Each month (or any portion
of such month) that Executive remains employed by Company, Executive will earn
one-twenty fourth of the Retention Bonus. If Executive's employment is
terminated by the Company for Cause (as defined below) or by Executive without
Good Reason (as defined below), Executive shall repay the unearned portion of
the Retention Bonus to Company.
(c) In 2007 and no later than March 31, 2007, Executive shall receive
a guaranteed cash bonus of $320,000.
(d) After December 31, 2006 and during each calendar year of the
Company in which Executive continues to be employed by the Company pursuant to
this Agreement, Executive shall be entitled to participate in the Company's
annual bonus plan (the "Bonus Plan") as administered by the Compensation
Committee of the Board of Directors. The Bonus Plan will provide for bonus
amounts ranging from a target of 100% to a maximum of 200% of the "Bonus Base
Salary" (as defined below) upon achievement of certain Company operating plan
targets. Executive shall be the architect of such operating plan targets in
concert with and subject to
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approval by the Board. If the Board or the Compensation Committee modifies such
Bonus Plan during the Employment Term or any extension term, Executive shall
continue to participate at a level no lower than the highest level established
for any officer of the Company. At the discretion of the Board or the
Compensation Committee, Executive may be offered from time to time the
opportunity to participate in other bonus plans of the Company in lieu of the
Bonus Plan and, if Executive chooses to participate in such plan or plans, the
provisions of this paragraph 3(d) shall be tolled during the period of such
participation. For purposes of this paragraph 3(d) "Bonus Base Salary" means the
sum of the monthly Base Salary paid to Executive in each of the twelve months of
the same calendar year to which the Bonus Plan relates.
(e) Executive shall be entitled to paid vacation in accordance with
the Company's general payroll practices for officers of the Company.
(f) The Company shall reimburse Executive for all reasonable expenses
incurred by Executive in the course of performing Executive's duties under this
Agreement which are consistent with the Company's policies in effect from time
to time with respect to travel, entertainment and other business expenses,
subject to the Company's requirements with respect to reporting and
documentation of such expenses.
(g) Executive will be entitled to all benefits as are, from time to
time, maintained for officers of the Company, including without limitation:
medical and other insurance plans (collectively, "Insurance Benefits"), and
retirement benefits.
(h) Upon execution of this Agreement, Executive shall receive
relocation benefits as provided under the Company's relocation policy, and in
addition:
(1) For up to six months, Company shall pay for temporary housing
for Executive and spouse in the vicinity of the Company's headquarters and for
storage of household goods;
(2) Company shall reimburse Executive for standard out-of-pocket
relocation and moving expenses, subject to the Company's requirements with
respect to reporting and documentation of such expenses; and
(3) For house hunting and relocation investigation for up to six
months, Company shall pay for monthly round trip travel for each of Executive
and his spouse.
(i) Pursuant and subject to the terms and conditions of the Company's
2002 Stock Option Plan or any successor plan:
(1) On June 1, 2006, Executive shall be granted a non-qualified
option to purchase 160,000 shares of common stock of the Company (the "Initial
Option").
(2) For each calendar year, after December 31, 2006, that
Executive continues to be employed by Company on July 31 of such calendar year
pursuant to this Agreement, Executive shall be granted a non-qualified option to
purchase 100,000 shares of common stock of the Company (each an "Annual Option")
on the day of each such calendar year that the Board otherwise grants options to
management of the Company.
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The grant of the Initial Option and each Annual Option shall be evidenced by a
Stock Option Agreement substantially in the form attached hereto as Exhibit A
hereto.
4. Term.
(a) The Employment Term shall end on the thirty-sixth (36th) month
anniversary of the effective date of this Agreement; provided that (i) the
Employment Term shall be extended for successive periods of one (1) year each
(each of which is referred to as an "extension term" of the Employment Term) in
the event that written notice of termination hereof is not given by one party
hereof to the other at least six months prior to the end of the Employment Term
or the then applicable extension term, as the case may be; provided further
that, and notwithstanding anything to the contrary in this Agreement, (ii) the
Employment Term or the then applicable extension term shall terminate prior to
such date (A) upon Executive's death or permanent disability or incapacity (as
determined by the Board in its good faith judgment), (B) upon the mutual
agreement of the Company and Executive, (C) by the Company's termination of this
Agreement for Cause (as defined below) or without Cause or (D) by Executive's
termination of this Agreement for Good Reason (as defined below) or without Good
Reason.
(b) If the Employment Term or any extension term is terminated by the
Company without Cause or is terminated by the Executive for Good Reason,
Executive (and Executive's family with respect to clause (iii) of this paragraph
4 (b) shall be entitled to receive (i) (x) if termination occurs during the
first twenty-four months of the Employment Term, Executive's Base Salary from
the date of termination for the remaining months of the Employment Term as if
the termination had not occurred (the "Deemed Remaining Months") plus
Executive's Pro Rata Bonus (as defined in paragraph (h) below) and (y) if
termination occurs during the last twelve months of the Employment Term or any
extension term, Executive's Base Salary through the twelfth month anniversary of
such termination and Executive's Pro Rata Bonus, if and only if for both clauses
(x) and (y), Executive has not breached the provisions of paragraphs 5, 6 and 7
hereof, (ii) vested and earned (in accordance with the Company's applicable plan
or program) but unpaid amounts under incentive plans and other employer programs
(other than deferred compensation plans the payments under which shall be
determined in the plan of reference) of the Company in which Executive is then
participating (other than the Pro Rata Bonus), (iii) Insurance Benefits through
the Deemed Remaining Months if termination occurs during the first twenty-four
months of the Employment Term, or Insurance Benefits through the twelfth month
anniversary of such termination if termination occurs during the last twelve
months of the Employment Term, pursuant to the Company's insurance programs as
in effect from time to time, to the extent Executive participated immediately
prior to the date of such termination; provided that any such continuation of
health insurance benefits will run concurrently with and satisfy the
continuation coverage requirements of the Consolidated Omnibus Reconciliation
Act of 1985 ("COBRA"), and (iv) the Retention Bonus shall be deemed completely
earned. The amounts payable pursuant to paragraph 4(b)(i) and (ii) shall be
payable in equal installments on the first day of each month, in the case of
paragraph 4(b)(i)(x), during the Deemed Remaining Months and in the case of
paragraph 4(b)(i)(y), during the said twelve month period. No payment of any sum
nor the receipt of any benefit shall be due to Executive under this paragraph 4
(b) unless and until Executive shall have executed and delivered to the Company
a release of any and all claims
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against the Company and its Subsidiaries (and their respective present and
former officers, directors, employees and agents - collectively the "Released
Parties") and a covenant not to xxx the Released Parties, all in form and
substance as provided by counsel to the Company (the "Release") and any waiting
period or revocation period provided by law for the effectiveness of such
Release shall have expired without Executive's having revoked such Release. In
the event Executive shall decline or fail for any reason to execute and deliver
such Release, the Executive shall be entitled to receive only those amounts
provided pursuant to paragraph 4(c) provided for an Executive whose employment
is terminated by the Company for Cause or by Executive without Good Reason.
(c) If the Employment Term or any extension term is terminated by the
Company for Cause or by the Executive without Good Reason, Executive shall be
entitled to receive (i) Executive's Base Salary through the date of such
termination and (ii) vested and earned (in accordance with the Company's
applicable plan or program) but unpaid amounts under health plans of the Company
which Executive participates; provided, however, that Executive shall not be
entitled to payment of a Pro Rata Bonus.
(d) If the Employment Term or any extension term is terminated upon
Executive's death or permanent disability or incapacity (as determined by the
Board in its good faith judgment) the Retention Bonus shall be deemed completely
earned and, Executive, or Executive's estate if applicable, shall be entitled to
receive the sum of (i) Executive's Base Salary through the date of such
termination and Executive's Pro Rata Bonus (as defined in paragraph (h) below)
and (ii) vested and earned (in accordance with the Company's applicable plan or
program) but unpaid amounts under incentive plans, health and welfare plans, and
other employer programs (other than deferred compensation as determined in such
plans) of the Company which Executive participates. The amounts payable pursuant
to this paragraph 4(d) shall be payable, in any manner consistent with the
Company's normal payment policies.
(e) Except as otherwise provided herein, fringe benefits and bonuses
(if any) which accrue or become payable after the termination of the Employment
Term or any extension term shall cease upon such termination.
(f) For purposes of this Agreement, "Cause" shall mean:
(i) the failure of the Executive to perform substantially the
Executive's duties with the Company or one of its affiliates (other than any
such failure resulting from incapacity due to physical or mental illness), after
a written demand for substantial performance is delivered to the Executive by
the Chairman of the Board, the Board or Committee thereof which specifically
identifies the manner in which the Chairman, the Board or the Committee believe
that the Executive has not substantially performed the Executive's duties;
provided however, that Executive shall have one opportunity to cure the failure
so identified for sixty days from the written demand, or
(ii) the engaging by the Executive in illegal conduct or gross
misconduct in violation of the Company's Code of Business Ethics and Conflict of
Interest Policy.
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Any act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or based upon the advice of counsel for the Company
shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the Company's Board of Directors, finding that, in the good
faith opinion of the Board, the Executive is guilty of the conduct described in
subparagraph (i) or (ii) above, and specifying the particulars thereof in
detail.
(g) For purposes of this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent
with the Executive's position, authority, duties or responsibilities as
contemplated by paragraph 2 of this Agreement, or any other action by the
Company which results in a material diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the
provisions of paragraph 3 of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at any
location other than as provided in paragraph 2(c) hereof; or
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement.
(h) For purposes of this Agreement, "Pro Rata Bonus" shall mean (i)
after December 31, 2006, the pro rata portion (calculated as if the "target"
amount under such plan has been reached) under any current annual bonus plan
from January 1 of the year of termination through the date of termination and
(ii) on or before December 31, 2006, the product of (x) $320,000 multiplied by
(y) the quotient resulting from the number of days from June 1, 2006 through the
date of termination divided by 210; provided however, that the quotient shall
not exceed the whole number one.
5. Confidential Information.
Executive acknowledges that the information, observations and data
obtained by Executive while employed by the Company concerning the business or
affairs of the Company or any Subsidiary ("Confidential Information") are the
property of the Company or such Subsidiary. Therefore, Executive agrees that
Executive shall not disclose to any unauthorized person or use for Executive's
own purposes any Confidential Information without the prior written consent of
the Board, unless and to the extent that the aforementioned matters become
generally known to and available for use by the public other than as a result of
Executive's acts or omissions not within the ordinary course of business of the
Company. Executive shall deliver to the Company at the termination of the
Employment Term or any extension term, or at any
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other time the Company may request, all memoranda, notes, plans, records,
reports, computer tapes, printouts and software and other documents and data
(and copies thereof) in any form or medium relating to the Confidential
Information, Work Product (as defined below) or the business of the Company or
any Subsidiary that Executive may then possess or have under Executive's
control.
6. Inventions and Patents.
Executive acknowledges that all inventions, innovations, improvements,
developments, methods, designs, analyses, drawings, reports and all similar or
related information (whether or not patentable) that relate to the Company's or
any of its Subsidiaries' actual or anticipated business, research and
development or existing or future products or services and that are conceived,
developed or made by Executive while employed by the Company ("Work Product")
belong to the Company or such Subsidiary. Executive shall promptly disclose such
Work Product to the Chairman of the Board and perform all actions reasonably
requested by the Board (whether during or after the Employment Term or any
extension term) to establish and confirm such ownership (including, without
limitation, assignments, consents, powers of attorney and other instruments).
7. Non-Compete, Non-Solicitation.
(a) In further consideration of the compensation to be paid to
Executive hereunder, Executive acknowledges that in the course of Executive's
employment with the Company Executive shall become familiar with the Company's
trade secrets and with other Confidential Information concerning the Company and
its Subsidiaries and that Executive's services shall be of special, unique and
extraordinary value to the Company and its Subsidiaries. Therefore, Executive
agrees that, during the Employment Term or any extension term and for a period
of twelve (12) months thereafter or if Executive is entitled to receive payments
pursuant to paragraph 4(b)(i)(x), the "Deemed Remaining Months" (as defined in
paragraph 4(b)(i)(x)) (as applicable, the "Noncompete Period"), Executive shall
not directly or indirectly own any interest in, manage, control, participate in,
consult with, render services for, or in any manner engage in any business
competing with the businesses of the Company or its Subsidiaries, as such
businesses exist or are in process on the date of the termination of Executive's
employment, within any geographical area in which the Company or its
Subsidiaries engage or actively plan to engage in such businesses. Nothing
herein shall prohibit Executive from being a passive owner of not more than 2%
of the outstanding stock of any class of a corporation which is publicly traded,
so long as Executive has no direct or indirect active participation in the
business of such corporation.
(b) During the Noncompete Period, Executive shall not directly or
indirectly through another person or entity (i) induce or attempt to induce any
employee of the Company or any Subsidiary to leave the employ of the Company or
such Subsidiary, or in any way interfere with the relationship between the
Company or any Subsidiary and any employee thereof, (ii) hire an employee of the
Company or any Subsidiary, or (iii) induce or attempt to induce any customer,
supplier, licensee, licensor, franchisee or other business relation of the
Company or any Subsidiary to cease doing business with the Company or such
Subsidiary, or in any way interfere with the relationship between any such
customer, supplier, licensee, licensor,
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franchisee, or business relation and the Company or any Subsidiary (including,
without limitation, making any negative statements or communications about the
Company or its Subsidiaries).
(c) The provisions of this paragraph 7 will be enforced to the fullest
extent permitted by the law in the state in which Executive resides or is
employed at the time of the enforcement of the provision. If, at the time of
enforcement of this paragraph 7, a court shall hold that the duration, scope or
area restrictions stated herein are unreasonable under circumstances then
existing, the parties agree that the maximum duration, scope or area reasonable
under such circumstances shall be substituted for the stated duration, scope or
area and that the court shall be allowed to revise the restrictions contained
herein to cover the maximum period, scope and area permitted by law. Executive
agrees that the restrictions contained in this paragraph 7 are reasonable.
(d) In the event of the breach or a threatened breach by Executive of
any of the provisions of this paragraph 7, the Company, in addition and
supplementary to other rights and remedies existing in its favor, may apply to
any court of law or equity of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or prevent any violations
of the provisions hereof (without posting a bond or other security). In
addition, in the event of an alleged breach or violation by Executive of this
paragraph 7, the Noncompete Period shall be tolled until such breach or
violation has been duly cured.
8. Executive's Representations.
(a) Executive hereby represents and warrants to the Company that (i)
the execution, delivery and performance of this Agreement by Executive do not
and shall not conflict with, breach, violate or cause a default under any
contract, agreement, instrument, order, judgment or decree to which Executive is
a party or by which Executive is bound, (ii) other than the Employment Agreement
between Executive and Office Depot, Inc. dated March 22, 2004 as modified by the
Release Agreement and Covenant Not to Xxx between Executive and Office Depot,
Inc. dated January 13, 2006 (collectively, the "Restriction Agreements"),
Executive is not a party to or bound by any employment agreement, noncompete
agreement or confidentiality agreement with any other person or entity and (iii)
upon the execution and delivery of this Agreement by the Company, this Agreement
shall be the valid and binding obligation of Executive, enforceable in
accordance with its terms. Executive hereby acknowledges and represents that
Executive has had an opportunity to consult with independent legal counsel
regarding Executive's rights and obligations under this Agreement and that
Executive fully understands the terms and conditions contained herein.
(b) Executive and Company hereby acknowledge that Executive is subject
to the Restriction Agreements. Company agrees that it will hold Executive
harmless and defend against and indemnify Executive from all expenses, including
legal fees, suffered as a result of any action taken or filed by Office Depot,
Inc. alleging or based on any assertion that Executive has breached any
non-compete, non-solicitation or confidentiality restriction contained in the
Restriction Agreements in connection with Executive performing his duties and
responsibilities under this Agreement, provided that Executive, knowingly, has
not breached any non-compete, non-solicitation or confidentiality restriction of
the Restriction Agreements. Upon an
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undertaking by Executive to repay all expenses and fees advanced by Company if
it shall ultimately be determined that Executive, knowingly, breached any
non-compete, non-solicitation or confidentiality restriction of the Restriction
Agreements, Company will not refuse or fail to pay any expense or fee, or refuse
or fail to take any action in defense of Executive or seek reimbursement of any
expenses on the basis of any allegation or assertion that Executive breached
said restrictions of the Restriction Agreements, but shall advance and pay all
such expenses and fees, until all allegations, claims and assertions concerning
the non-compete, non-solicitation or confidentiality restrictions by Office
Depot, Inc. are finally resolved.
9. Survival.
Paragraphs 5, 6 and 7 and paragraphs 9 through 16 shall survive and
continue in full force in accordance with their terms notwithstanding any
termination of the Employment Term or any extension term.
10. Notices.
Any notice provided for in this Agreement shall be in writing and
shall be either personally delivered, or mailed by certified first class mail,
return receipt requested, to the recipient at the address below indicated:
Notices to Executive:
Xxxx Xxxxxx
At 0000 X. Xxxxx Xxxx., Ocean Dunes Xxxx 0-X, Xxxxxxxx Xxxxx,
Xxxxxxx, 00000, initially, and subsequently thereafter, at his
most recent address as reflected in the employment records of
the Company.
Notices to the Company:
000 X. X. Xxxxx Xxxxx
Xxxxxx, XX 00000
Attention: Chairman of the Board
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or mailed.
11. Severability.
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
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12. Complete Agreement.
This Agreement, the Exhibit and the Appendix hereto and those
documents expressly referred to herein and therein, embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
13. No Strict Construction.
The language used in this Agreement shall be deemed to be the language
chosen by the parties hereto to express their mutual intent, and no rule of
strict construction shall be applied against any party.
14. Counterparts.
This Agreement may be executed in separate counterparts, each of which
is deemed to be an original and all of which taken together constitute one and
the same agreement.
15. Successors and Assigns.
This Agreement is intended to bind and inure to the benefit of and be
enforceable by Executive, the Company and their respective heirs, successors and
assigns, except that Executive may not assign Executive's rights or delegate
Executive's obligations hereunder without the prior written consent of the
Company.
16. Choice of Law.
All issues and questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the exhibits and appendix
hereto shall be governed by, and construed in accordance with, the laws of the
State of New Jersey, without giving effect to any choice of law or conflict of
law rules or provisions (whether of the State of New Jersey or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of New Jersey.
17. Amendment and Waiver.
The provisions of this Agreement may be amended or waived only with
the prior written consent of the Company and Executive, and no course of conduct
or failure or delay in enforcing the provisions of this Agreement shall affect
the validity, binding effect or enforceability of this Agreement.
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18. Confidentiality of this Agreement.
The parties agree that the terms of this Agreement are confidential
until this Agreement is filed by the Company with the Securities and Exchange
Commission.
19. Arbitration Provisions.
Except as to the right of the Company to resort to any court of
competent jurisdiction to obtain injunctive relief or specific enforcement of
the Executive's obligations of confidentiality, non-solicitation and
non-competition under this Employment Agreement (or otherwise), any dispute or
controversy between the Company and Executive arising out of or relating to
Executive's employment or termination of employment, this Agreement or the
breach of this Agreement, including but not limited to disputes involving
discrimination arising under common law, and/or federal, state and local laws,
shall be settled by arbitration administered by the American Arbitration
Association ("AAA") in accordance with its National Rules for the Resolution of
Employment Disputes then in effect, and judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. Any
arbitration shall be held before a single arbitrator who shall be selected by
the mutual agreement of the Company and Executive, unless the parties are unable
to agree to an arbitrator, in which case the arbitrator will be selected under
the procedures of the AAA. The arbitrator shall have the authority to award any
remedy or relief that a court of competent jurisdiction could order or grant,
including, without limitation, the issuance of an injunction. Executive agrees
to abide by and accept the final decision of the arbitrator as to the ultimate
resolution of any and all covered disputes and understands that arbitration
replaces any right to trial by a judge or jury. However, either party may,
without inconsistency with this arbitration provision, apply to any court
otherwise having jurisdiction over such dispute or controversy and seek interim
provisional, injunctive or other equitable relief until the arbitration award is
rendered or the controversy is otherwise resolved. Except as necessary in court
proceedings to enforce this arbitration provision or an award rendered
hereunder, or to obtain interim relief, or as may otherwise be required by law,
neither a party nor an arbitrator may disclose the existence, content or results
of any arbitration hereunder without the prior written consent of the Company
and Executive. The Company and Executive acknowledge that this Agreement
evidences a transaction involving interstate commerce. Notwithstanding any
choice of law provision included in this Agreement, the United States Federal
Arbitration Act shall govern the interpretation and enforcement of this
arbitration provision. The arbitration proceeding shall be conducted in Camden
County, New Jersey unless the parties mutually agree to another location. The
Company shall pay the costs of any arbitrator appointed hereunder.
20. Withholding.
The Company may withhold any amounts payable under this Agreement for
such Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
21. Section 409A.
In the event that an amount becomes payable to the Executive after his
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termination of employment, the Company shall determine whether such payment is
subject to the requirements of Section 409A (a) (2)(A)(i) and Section 409A
(a)(2)(B)(i) of the Internal Revenue Code of 1986, as amended (hereinafter
referred to as the "Specified Employee Rule"). The Company shall make such
determination and provide written notice thereof to the Executive prior to the
earlier of the date that any such amounts would be paid to the Executive without
regard to Code Section 409A or within 30 days after his termination of
employment. Upon the request of the Executive, the Company agrees to promptly
provide to him such information that the Executive may reasonably request with
regard to its determination. In the event that the Company determines that an
amount payable to the Executive after his termination of employment is subject
to the Specified Employee Rule, then no distribution of such amount shall be
made to the Executive on account of his separation from service before the date
which is six (6) months after the date of his separation from service (or if
earlier, the date of death of the Executive). The aggregate amount that would
have been payable to the Executive but for the restrictions imposed by Section
409A shall be paid to the Executive as soon as permitted by Section 409A.
* * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
X. X. XXXXX ARTS & CRAFTS, INC.
By: /s/ Xxxxxxx Xxxxxx
------------------------------------
Name: Xxxxxxx Xxxxxx
Its: Chairman of the Board of Directors
EXECUTIVE
/s/ Xxxx Xxxxxx
----------------------------------------
Name: Xxxx Xxxxxx
Date: 5/25/2006
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APPENDIX I
CHANGE OF CONTROL PROVISIONS
TO EMPLOYMENT AGREEMENT OF XXXX XXXXXX
The Board of Directors of the Company (the "Board") has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined in this
Appendix I) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal uncertainties
and risks created by a pending or threatened Change of Control and to encourage
the Executive's full attention and dedication to the Company currently and in
the event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives if a Change of Control
occurs, paragraphs 1 through 4 of the Agreement (except paragraph 3(i) which
shall continue) shall be superseded by this Appendix I.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date.
For the purpose of this Appendix I, the "Effective Date" shall mean
the date on which a Change of Control (as defined in Section 2) occurs. Anything
in the Agreement to the contrary notwithstanding, if a Change of Control occurs
and if the Executive's employment with the Company is terminated prior to the
date on which the Change of Control occurs, and if it is reasonably demonstrated
by the Executive that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect a Change of
Control or (ii) otherwise arose in connection with or anticipation of a Change
of Control, then for all purposes of the Agreement and this Appendix I, the
"Effective Date" shall mean the date immediately prior to the date of such
termination of employment.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50%
of either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the
Company or any corporation controlled by the Company, or (iv) any acquisition by
any corporation pursuant to a transaction which complies with clauses (i), (ii)
and (iii) of subsection (c) of this Section 2; or
(b) 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 for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then-outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, more than 50% of, respectively, the then-outstanding shares of
common stock of the corporation resulting from such Business Combination, or the
combined voting power of the then-outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Term. The Company hereby agrees to continue the Executive in
its employ, and the Executive hereby agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the second anniversary of such
date (the "Employment Term"). Such period may be extended in writing by the
mutual agreement of the Company and Executive at any time prior to such second
anniversary.
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4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Term, (A) the Executive's position,
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned to him at any time during the 120-day period immediately preceding the
Effective Date and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding the Effective
Date or any office or location less than 35 miles from such location.
(ii) During the Employment Term, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote Executive's best efforts and Executive's full business time and
attention to the business and affairs of the Company and its Subsidiaries.
During the Employment Term it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or committees,
(B) deliver lectures, fulfill speaking engagements or teach at educational
institutions, and (C) manage personal investments, so long as such activities do
not significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement. It is expressly understood and agreed that to the extent that any
such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Term, the Executive shall
receive an annual base salary, including any applicable car allowance ("Annual
Base Salary"), which shall be paid at a monthly rate, at least equal to twelve
times the highest monthly base salary paid or payable, including any base salary
which has been earned but deferred, to the Executive by the Company and its
affiliated companies in respect of the twelve-month period immediately preceding
the month in which the Effective Date occurs. During the Employment Term, the
Annual Base Salary shall be reviewed no more than 12 months after the last
salary increase awarded to the Executive prior to the Effective Date and
thereafter at least annually. Any increase in Annual Base Salary shall not serve
to limit or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased. As used in this Appendix I, the term "affiliated
companies" shall include any company controlled by, controlling or under common
control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each calendar year ending during the Employment
Term, an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's bonus under the Company's annual bonus plans or any comparable bonus
under any predecessor or successor plan or plans, for the last full calendar
year prior to the Effective Date (annualized in the event that the Executive was
not employed by the Company for the whole of such calendar year). Each such
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Annual Bonus shall be paid no later than March 15th of the calendar year next
following the calendar year for which the Annual Bonus is awarded.
(iii) Incentive, Savings and Retirement Plans. During the
Employment Term, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to executive officers of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other executive officers of the Company and its affiliated
companies.
(iv) Benefit Plans. During the Employment Term, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under benefit plans, practices,
policies and programs provided by the Company and its affiliated companies
(including, without limitation, prescription, dental, medical, life, accidental
death and travel accident insurance plans and programs) to the extent applicable
generally to other executive officers of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable, in the aggregate,
than the most favorable of such plans, practices, policies and programs in
effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, those
provided generally at any time after the Effective Date to other peer executives
of the Company and its affiliated companies.
(v) Expenses. During the Employment Term, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vi) Fringe Benefits. During the Employment Term, the Executive
shall be entitled to fringe benefits, and, if applicable, use of an automobile
and payment of related expenses, in accordance with the most favorable plans,
practices, programs and policies of the Company and its affiliated companies in
effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other executive officers
of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Term, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other
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appointments, and to personal secretarial and other assistance, at least equal
to the most favorable of the foregoing provided to the Executive by the Company
and its affiliated companies at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as provided
generally at any time thereafter with respect to other executive officers of the
Company and its affiliated companies.
(viii) Vacation. During the Employment Term, the Executive shall
be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other executive officers
of the Company and its affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Term. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Term (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
the Agreement of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate effective on
the 30th day after receipt of such notice by the Executive (the "Disability
Effective Date"), provided that, within the 30 days after such receipt, the
Executive shall not have returned to full-time performance of the Executive's
duties. For purposes of this Agreement, "Disability" shall mean the absence of
the Executive from the Executive's duties with the Company on a full-time basis
for 90 consecutive days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to the Executive or the Executive's
legal representative.
(b) Cause. The Company may terminate the Executive's employment during
the Employment Term for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the failure of the Executive to perform substantially the
Executive's duties with the Company or one of its affiliates (other than any
such failure resulting from incapacity due to physical or mental illness), after
a written demand for substantial performance is delivered to the Executive by
the Chairman of the Board, the Board or Committee thereof which specifically
identifies the manner in which the Chairman of the Board or the Committee
believes that the Executive has not substantially performed the Executive's
duties; provided however, that Executive shall have one opportunity to cure the
failure so identified for sixty days from the written demand, or
(ii) the engaging by the Executive in illegal conduct or gross
misconduct in violation of the Company's Code of Ethics and Conflict of Interest
Policy.
Any act, or failure to act, based upon authority given pursuant to a resolution
duty adopted by the Board or based upon the advice of counsel for the Company
shall be conclusively presumed to
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be done, or omitted to be done, by the Executive in good faith and in the best
interests of the Company. The cessation of employment of the Executive shall not
be deemed to be for Cause unless and until there shall have been delivered to
the Executive a copy of a resolution duly adopted by the Company's Board of
Directors, finding that, in the good faith opinion of the Board, the Executive
is guilty of the conduct described in subsection 5 (b)(i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position, authority, duties or responsibilities
as contemplated by Section 4(a) of this Appendix I, or any other action by the
Company which results in a material diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Appendix I, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 4(a)(i)(B) of this Appendix
I;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Appendix I; or
(v) any failure by the Company to 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 the Company to assume
expressly and agree to perform the Agreement (including without limitation this
Appendix I) 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.
(d) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the notice of termination,
(ii) if the Executive's employment is terminated by the Company other than for
Cause or Disability, the date on which the Company notifies the Executive of
such termination and (iii) if the Executive's employment is terminated by reason
of death or Disability, the date of death of the Executive or the Disability
Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If, during
the Employment Term, the Company shall terminate the Executive's employment
other than for Cause, death or Disability or the Executive shall terminate
Executive's employment for Good Reason:
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(i) the Company shall pay to the Executive in a single lump sum
payment in cash within 30 days after the Date of Termination the aggregate of
the following amounts:
(A) the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid, (2) the
product of (x) two and (y) the product of (I) the target Annual Bonus paid or
payable, for the most recently completed calendar year during the Employment
Term and (II) a fraction, the numerator of which is the number of days in the
current calendar year through the Date of Termination, and the denominator of
which is 365, (3) any compensation previously deferred by the Executive and not
theretofore previously paid shall be paid in accordance with the terms of the
plan pursuant to which deferral was made and (4) the amount equal to the product
of (x) two and (y) the Executive's Annual Base Salary.
(ii) The Company shall provide all benefits as are, from time to
time, maintained for officers of the Company, including without limitation,
medical and other insurance plans to the Executive through the second
anniversary of the date of the termination of Executive's employment pursuant to
or, if not pursuant to, which are substantially equal to the Company's insurance
programs in effect and to the extent Executive participated immediately prior to
the date of such termination, provided that if the Consolidated Omnibus
Reconciliation Act of 1985 ("COBRA") applies to the provision of health
insurance benefits for any part of the period of benefit continuation provided
for by this paragraph, Executive will make all necessary elections and such
benefits will run concurrently with and satisfy the continuation coverage
requirements of this paragraph for the period to which COBRA applies.
(iii) all options to purchase common stock in the Company
previously granted to Executive and all options to purchase common stock in the
Company to which Executive would be entitled to be granted on the last day of
the calendar year if Date of Termination had not occurred in such year, shall
immediately be deemed granted, vested and become exercisable on the Date of
Termination.
No payment of any sum nor the receipt of any benefit shall be due to Executive
under this Section 6(a) unless and until Executive shall have executed and
delivered to the Company a release of any and all claims against the Company and
its Subsidiaries (and their respective present and former officers, directors,
employees and agents - collectively the "Released Parties") and a covenant not
to xxx the Released Parties, all in form and substance as provided by counsel to
the Company (the "Release") and any waiting period or revocation period provided
by law for the effectiveness of such Release shall have expired without
Executive's having revoked such Release. In the event Executive shall decline or
fail for any reason to execute and deliver such Release, the Executive shall be
entitled to receive only those amounts provided pursuant to Section 6(d)
provided for an Executive whose employment is terminated by the Company for
Cause or by Executive without Good Reason.
(b) Death. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Term, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, except that Executive, or Executive's estate if applicable, shall be
entitled to receive the sum of (i) Executive's Annual Base Salary through the
Date of Termination and (ii) Executive's Pro Rata Bonus (as defined
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below) and the timely payment or provision of any other amounts or benefits
required to be paid or provided or which the Executive is eligible to receive
under any plan, program, policy or practice or contract or agreement of the
Company and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits"). The amounts set forth in
Section 6(b)(i) and (ii) shall be paid to the Executive's estate, as applicable,
in a lump sum in cash within 30 days of the Date of Termination. With respect to
the provision of Other Benefits, the term Other Benefits as utilized in this
Section 6(b) shall include, without limitation, and the Executive's estate
and/or beneficiaries shall be entitled to receive, benefits at least equal to
the most favorable benefits provided by the Company and affiliated companies to
the estates and beneficiaries of other executive officers of the Company and
such affiliated companies under such plans, programs, practices and policies
relating to death benefits, if any, as in effect with respect to such other
executive officers and their beneficiaries at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other executive officers of the
Company and its affiliated companies and their beneficiaries. For purposes of
this Appendix I, "Pro Rata Bonus" shall mean (i) after December 31, 2006, the
pro rata portion (calculated as if the "target" amount under such plan has been
reached) under any current annual bonus plan from the beginning of the year of
termination through the date of termination and (ii) on or before December 31,
2006, the product of (x) $320,000 multiplied by (y) the quotient resulting from
the number of days from June 1, 2006 through the date of termination divided by
210; provided however, that the quotient shall not exceed the whole number one.
(c) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Term, this Agreement shall
terminate without further obligations to the Executive, except that Executive
shall be entitled to receive the sum of (i) Executive's Annual Base Salary
through the Disability Effective Date and (ii) Executive's Pro Rata Bonus (as
defined in Section 6(b)) and the timely payment or provision of Other Benefits.
The amounts set forth in Section 6(c)(i) and (ii) shall be paid to the Executive
in a lump sum in cash within 30 days of the Date of Termination. With respect to
the provision of Other Benefits, the term "Other Benefits" as utilized in this
Section 6(c) shall include, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by the Company and its
affiliated companies to disabled executives and/or their families in accordance
with such plans, programs, practices and policies relating to disability, if
any, as in effect generally with respect to other executive officers and their
families at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive and/or the Executive's
family, as in effect at any time thereafter generally with respect to other
executive officers of the Company and its affiliated companies and their
families.
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause or Executive voluntarily terminates employment
without Good Reason during the Employment Term, this Agreement shall terminate
without further obligations to the Executive other than for the Executive's
Annual Base Salary through the Date of Termination and timely payment or
provision of Other Benefits, in each case to the extent theretofore unpaid.
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7. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, after a Change of Control and as a result of a
termination of employment, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 7) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 7(c), all determinations
required to be made under this Section 7, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by
Pricewaterhouse Coopers LLC or such other certified public accounting firm as
may be designated by the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 7, shall be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 7(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day period following
the
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date on which it gives such notice to the Company (or such shorter period ending
on the date that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company 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 the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) 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 interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 7(c), the Company 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
the Executive to pay the tax claimed and xxx for a refund or to contest the
claim in any permissible manner, and 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 and hold
the Executive harmless, on an after-tax basis, from 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;
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. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive 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.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 7(c), 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(c)) promptly pay to the
Company the amount of such refund (together
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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(c), 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 denial of refund
prior to 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.
8. Nonexclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the date of termination of employment shall be payable in
accordance with such plan, policy, practice or program or contract or agreement
except as explicitly modified by this Agreement. The Company agrees to pay as
incurred, to the fullest extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest (regardless
of the outcome thereof) by the Company, the Executive 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 the
Executive about the amount of any payment pursuant to this Agreement).
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