SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (this "Agreement") is made as of November 12, 2004
between KinderCare Learning Centers, Inc. (the "Company"), and Xxx X. Xxxxxxxxx
(the "Executive").
RECITALS
A. The Company considers it essential to the best interests of its
stockholders to xxxxxx the continuous employment of key management personnel. In
connection with this, the Company's Board of Directors (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility of a
change in control of the Company may exist and that such possibility, and the
uncertainty and questions that it may raise among management, could result in
the departure or distraction of management personnel to the detriment of the
Company and its stockholders.
B. The Executive possesses an intimate knowledge of the Company and the
Board believes that it is desirable that the Company be able to call on and rely
upon the counsel and advice of the Executive during a prospective change in
control of the Company.
C. In order to induce the Executive to remain in the Company's employ and
to enhance the Company's ability to call on and rely on the Executive's counsel
and advice in the event of a possible change in control of the Company, the
Board desires to have the Company enter into this Agreement with the Executive.
D. In consideration of the mutual promises and covenants made herein and
other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the parties agree as follows:
AGREEMENT
1. DEFINITIONS. Capitalized terms used in this Agreement shall have the meanings
assigned to them in the attached Appendix I or as otherwise defined herein.
2. OPERATION OF AGREEMENT.
(a) Approval by Board of Directors. This Agreement has been approved by the
Board and is effective as of the date set forth above.
(b) Effectiveness of Certain Provisions. The provisions of Paragraphs 3 and
4 of this Agreement shall not become effective unless and until (i) there is a
Change of Control Event and (ii) the Executive is employed by the Company at the
time of such Change of Control Event.
(c) No Restriction on the Company. Nothing in this Agreement restricts the
Company's right to terminate the Executive's employment with the Company at any
time before or after a Change of Control Event for any reason with or without
Cause and with or without notice or requires the Company to make any payments to
the Executive in connection with any termination of the Executive's employment
before a Change of Control Event.
(d) Term and Termination of Agreement. This Agreement shall terminate on
the first to occur of the following:
(i) Twenty-four (24) months after a Change of Control Event; or
(ii) The termination of the Executive's employment with the Company
prior to a Change of Control Event; or
(iii) The termination of the Executive's employment with the Company
following a Change of Control Event due to any of the following reasons: (a)
termination by the Company for Cause, (b) death of the Executive, or (c)
Permanent Disability of the Executive.
If no Change of Control Event has occurred on or before March 31, 2006,
this Agreement will terminate on April 1, 2006.
3. PAYMENTS AND BENEFITS UPON TERMINATION. Subject to Paragraph 2 and contingent
upon the Executive's execution of the Release of Claims in the form of Appendix
II and the expiration of the seven day revocation period provided by the Older
Workers Benefit Protection Act without revocation of the release by the
Executive, the Company shall make the following payments to the Executive
following a Termination and with respect to a Change of Control Event:
(a) Accrued Compensation. The Company shall pay to the Executive the
following amounts when they are due, but in no event later than ten days after
the date of Termination: (i) the Executive's unpaid salary and car allowance
through the date of the Termination at the rate in effect at the date of
Termination, (ii) any unpaid bonuses due the Executive under the Company's
Management Bonus Plan with respect to any prior year of such plan and (iii) a
bonus under the Company's Management Bonus Plan or bonus plan then in effect for
the plan year in which the Termination occurs, pro rated through the date of
Termination based on (x) the number of days on which the Executive was employed
by the Company during the plan year prior to the date of Termination, (y) with
respect to the Company performance portion, the estimated formula payout for the
plan year based on the actual results through the date of Termination compared
to the year-to-date budget and (z) the individual objective portion of such
bonus being the greater of the target amount for the year or the amount of the
individual objective portion of the Executive's bonus for the prior plan year.
In addition, the Company shall pay the Executive all other amounts to which the
Executive is entitled under any Company plan, agreement or policy, other than
the Company's severance pay plans, at the time such payments are due.
(b) Termination Payment. The Company shall pay the Executive within ten
days after the date of a Termination an amount equal to the product of x the sum
of (i) the Executive's annual base salary in effect immediately prior to the
date of Termination and targeted incentive bonus under the Company's Management
Bonus Plan for the plan year in which the Change of Control Event takes place
and (ii) 25% of the amount of such base salary as a benefits allowance,
multiplied by y 2.5. An example of the calculation of the Executive's
Termination Payment is set forth in the attached Appendix III.
(c) Plan Benefits. Upon a Termination, the Executive's active participation
in the KinderCare Savings and Investment Plan (the "Savings Plan") and
Nonqualified Deferred Compensation Plan (the "Deferred Compensation Plan")
(collectively, the "Plans") shall terminate in accordance with the provisions of
the applicable Plan and the Executive's benefits with respect to the Plans shall
be paid in accordance with the terms of the applicable Plan, provided, however,
that the Executive shall be fully vested in the Executive's accounts in each of
the Plans as of the date of the Termination. The Termination Payment made
pursuant to Paragraph 3(b) above shall not affect the calculation of benefits
under the Plans and therefore shall not in any way increase or reduce the amount
payable to the Executive under the Plans. To the extent that the Executive's
account under the Savings Plan cannot be fully vested without adversely
affecting the qualified status of the Savings Plan under the Internal Revenue
Code of 1986, as amended (the "Code"), the Company shall pay the Executive an
additional benefit under the Deferred Compensation Plan at the time the
Executive's Deferred Compensation Plan benefits are payable in an amount equal
to the unvested portion of the Executive's account in the Savings Plan.
(d) INTENTIONALLY OMITTED.
(e) Taxes With Respect To Payments. In connection with a Change of Control
Event, the Company's accountants, Deloitte & Touche LLP, shall promptly
determine whether any payments, distributions or benefits (or the acceleration
of the right to receive any payments, distributions or benefits) received or to
be received by the Executive from the Company or any affiliate of the Company
under this Agreement or under any other agreement, plan or otherwise
("Payments") are subject to the excise tax imposed by Section 4999 of the Code
(the "Excise Tax"). Deloitte & Touche LLP shall make this determination without
applying the exemption for small business corporations contained in Section
280G(b)(5) of the Code unless Deloitte & Touche LLP delivers a written opinion
reasonably satisfactory to the Executive that the exemption does apply. If
Deloitte & Touche LLP determines that Payments are subject to the Excise Tax,
then the Company shall pay to the Executive an additional payment (the "Excise
Tax Gross-Up Payment") at the time such Payments are made to the Executive. The
amount of the Excise Tax Gross-Up Payment shall be the amount as determined by
Deloitte & Touche LLP necessary to put the Executive in the same after-tax
financial position that the Executive would have occupied if the Payments were
not subject to the Excise Tax, assuming for this purpose that the Executive is
subject to federal and state income tax at the highest marginal rates applicable
to individuals in the state in which the Executive resides in the year in which
any Excise Tax Gross-Up Payment is made. If, after Payments and any related
Excise Tax Gross-Up Payment are made to an Executive, there is a determination,
within the meaning of Section 1313 of the Code, that Excise Tax is owed by the
Executive in an amount greater than the amount originally determined by Deloitte
& Touche LLP, then the Company shall pay an additional Excise Tax Gross-Up
Payment to the Executive with respect to the additional Excise Tax. Any Excise
Tax Gross-Up Payment required pursuant to this Agreement shall be paid to the
Executive less applicable withholding. The Executive shall promptly inform the
Company of, and shall permit participation by the Company in, any investigation,
audit or other proceeding by or with the Internal Revenue Service or any other
taxing authority with respect to Excise Tax, and shall not consent to a
settlement or final determination with respect to Excise Tax without the prior
written consent of the Company, which shall not be withheld unreasonably.
(f) No Mitigation. All payments and benefits to which the Executive is
entitled under this Agreement shall be made and provided without offset,
deduction or mitigation on account of income the Executive may receive from
other employment, and the Executive shall have no duty to mitigate by seeking
other employment or by becoming self-employed.
(g) Death of the Executive. In the event of the Executive's death
subsequent to a Termination, all payments and benefits required by this
Agreement shall be paid to the Executive's designated beneficiary or
beneficiaries or, if the Executive has not designated a beneficiary or
beneficiaries, to the Executive's estate.
(h) Exclusive Remedy. In the event the Executive accepts the payments and
benefits called for pursuant to this Agreement, such payments and benefits shall
be the sole and exclusive remedy for any alleged injury or other damages arising
out of the cessation of the employment relationship between the Executive and
the Company. Except as expressly set forth herein, the Executive shall be
entitled to no other compensation, benefits, or other payments from the Company
as a result of the termination of the Executive's employment.
4. OUTPLACEMENT SERVICES. Outplacement services will be provided at the expense
of the Company under a preferred client contract with Drake, Beam, Morin, Inc.
of Portland, Oregon. These services will consist of the Senior Executive Program
provided by such firm at an approximate cost of $12,000 per person and will be
available for six (6) months following the date of Termination.
5. CONFLICT IN BENEFITS. This Agreement shall supersede all prior arrangements
and understandings between the Executive and the Company with respect to any
compensation or benefits payable to the Executive upon a Termination or in
connection with a Change of Control Event. Notwithstanding the forgoing, this
Agreement shall not supersede or affect any rights the Executive may have under
the following plans and agreements:
(a) Management Bonus Plan,
(b) Nonqualified Option Agreement and 1997 Stock Purchase and Option Plan
for Key Employees of the Company and Subsidiaries,
(c) Management Stockholder's Agreement,
(d) Savings Plan, and
(e) Deferred Compensation Plan.
6. MISCELLANEOUS.
(a) Legal Expenses. The Company shall pay all costs and expenses, including
attorney's fees and disbursements, of the Company and, at least monthly, the
Executive, in connection with any proceeding whether instituted by the Company
or the Executive relating to the interpretation or enforcement of any provision
of this Agreement (including in any action seeking to obtain or enforce any
right or benefit provided by this Agreement or in connection with any tax audit
or proceeding relating to the application of Section 4999 of the Code to any
payment or benefit provided by the Company or any appellate proceeding). The
Company also agrees to pay prejudgment interest on any money judgment obtained
by the Executive as a result of such proceeding, from the date that payment
should have been made to the Executive under this Agreement at the prime rate as
announced from time to time by Bank of America.
(b) Notices. Any notice or other communication provided for in this
Agreement or contemplated hereby shall be sufficiently given if given in writing
and personally delivered or delivered by certified mail, return receipt
requested, and addressed, in the case of the Company, to the Company at:
KinderCare Learning Centers, Inc.
000 XX Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx, XX 00000
Attn: General Counsel
and, in the case of the Executive, to the Executive at:
Xxx X. Xxxxxxxxx
0000 XX Xxxxxxx
Xxxxxxxx, XX 00000
Either party may designate a different address by giving written notice of
change of address in the manner provided above.
(c) Waiver. No waiver or modification in whole or in part of this
Agreement, or any term or condition hereof, shall be effective against any party
unless in writing and duly signed by the party sought to be bound and expressing
the intent of the parties to waive or modify this Agreement. Any waiver of any
breach of any provision hereof or any right or power by any party on one
occasion shall not be construed as a waiver of, or a bar to, the exercise of
such right or power on any other occasion or as a waiver of any subsequent
breach.
(d) Binding Effect; Successors. This Agreement shall be binding upon, inure
to the benefit of and be enforceable by the Company and the Executive and their
respective heirs, legal representatives, successors and assigns. For purposes of
the foregoing, the successors to the Company shall include, without limitation,
successors (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the assets of the Company (a "Company
Successor"). If the Company shall be merged into or consolidated with another
entity, the provisions of this Agreement shall be binding upon and inure to the
benefit of the entity surviving such merger or resulting from such
consolidation. The provisions of this Paragraph 7(d) shall continue to apply to
each subsequent employer of the Executive hereunder in the event of any
subsequent merger, consolidation or transfer of assets of such subsequent
employer.
(e) Severability. Any provision of this Agreement which is unenforceable or
invalid in any respect in any jurisdiction shall be ineffective in such
jurisdiction to the extent that it is unenforceable or invalid without affecting
the remaining provisions hereof, which shall continue in full force and effect.
The unenforceability or invalidity of a provision of this Agreement in one
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
(f) Controlling Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Oregon applicable to contracts made and
to be performed therein.
(g) No Employment Right Created. Nothing in this Agreement shall confer on
the Executive any right to continue in the employ of the Company or shall
interfere with or restrict in any way the rights of the Company, which are
hereby expressly reserved, to discharge the Executive at any time for any reason
whatsoever, with or without Cause, except as may be otherwise provided in any
written employment agreement between the Executive and the Company. This
Agreement shall not constitute an agreement for employment.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the day and year first above written.
COMPANY: Executive:
KinderCare Learning Centers, Inc.
By: /s/ XXXXXX XXXXXXXXXX /s/ XXX X. XXXXXXXXX
------------------------------ ------------------------------------------
Title: Senior Vice President, Xxx X. Xxxxxxxxx
Human Resources & Education
APPENDIX I
Definitions. As used in this Agreement, and unless the context requires a
different meaning, the following terms have the meanings indicated.
(i) "Cause" means (i) the Executive's willful and continued failure to
perform Executive's duties with respect to the Company or its subsidiaries which
continues beyond ten days after a written demand for substantial performance is
delivered to the Executive by the Company and which could reasonably result in
demonstrable and substantial injury to the Company or (ii) misconduct by
Executive (x) involving dishonesty or breach of trust in connection with
Executive's employment, (y) which would be a reasonable basis for an indictment
of Executive for a felony or for a misdemeanor involving moral turpitude, or (z)
which results in demonstrable and substantial injury to the Company.
(ii) "Change of Control Event" means any one of the following: (a) the
consummation of a sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and its
subsidiaries, taken as a whole, to any person except a person in which the
stockholders of the Company own, directly or indirectly, a majority of the
voting power of such person's outstanding equity securities immediately
following such transaction; (b) the consummation of any transaction which
results in another person or group (other than KLC Associates, L.P., KLC
Associates II, L.P. or any of their affiliates, partners or partners'
affiliates) becoming the "beneficial owner" (as defined in Rules l3d-3 and l3d-5
of the Securities Exchange Act of 1934) directly or indirectly, of 25% or more
of aggregate total voting power of the outstanding equity securities of the
Company if after such transaction KLC Associates, L.P, KLC Associates II, L.P.
and any of their partners, affiliates and partners' affiliates as a group, are
the beneficial owners, directly or indirectly, of less of the aggregate total
voting power of the outstanding equity securities of the Company than such
acquiring person or group; or (c) the Company consolidates with, or merges with
or into, another person, unless immediately after giving effect to such
transaction, the stockholders of the Company immediately prior to such
transaction own, directly or indirectly, and in the same proportion as
immediately prior to the transaction, a majority of the voting power of the
outstanding equity securities of the person surviving or created in such merger
or consolidation or of the person which owns a majority of the voting power of
such surviving or created person's equity securities immediately following such
transaction.
(iii) INTENTIONALLY OMITTED
(iv) "Permanent Disability" means, as applied to the Executive, that (a)
the Executive has been totally incapacitated by bodily injury or disease so as
to be prevented thereby from engaging in any occupation or employment for
remuneration or profit, (b) such total incapacity shall have continued for a
period of six consecutive months and (c) such total incapacity will, in the
opinion of a qualified physician approved by the Executive and Company, be
permanent and continuous during the remainder of the Executive's life.
(v) "Termination" means any termination of the employment of the Executive
following the occurrence of any Change of Control Event, by the Company except
for Cause or by the Executive for any reason; provided, however, that
"Termination" shall not include any termination of the employment of the
Executive (a) by the Company as a result of the Permanent Disability of the
Executive, or (b) as a result of the death of the Executive.
APPENDIX II
RELEASE OF CLAIMS
1. Parties.
The parties to Release of Claims (hereinafter "Release") are Xxx X.
Xxxxxxxxx and KinderCare Learning Centers, Inc., a Delaware corporation, as
hereinafter defined.
1.1 Executive.
For the purposes of this Release, "Executive" means Xxx X. Xxxxxxxxx and
his or her attorneys, heirs, executors, administrators, assigns, and spouse.
1.2 The Company.
For purposes of this Release "Company" means KinderCare Learning Centers,
Inc., a Delaware corporation, its predecessors and successors, corporate
affiliates, and all of each corporation's officers, directors, employees,
insurers, agents, or assigns, in their individual and representative capacities.
2. Background And Purpose.
Executive was employed by Company. Executive's employment is ending
effective __________ under the conditions described in Section 3 of the
Severance Agreement dated November 12, 2004 between Company and Executive
("Agreement").
The purpose of this Release is to settle, and the parties hereby settle,
fully and finally, any and all claims Executive may have against Company,
whether asserted or not, known or unknown, including, but not limited to, claims
arising out of or related to Executive's employment, any claim for reemployment,
or any other claims whether asserted or not, known or unknown, past or future,
that relate to Executive's employment, reemployment, or application for
reemployment.
3. Release.
Except as provided in paragraph 3.1, Executive waives, acquits and forever
discharges Company from any obligations Company has and all claims Executive may
have including but not limited to obligations and/or claims arising from the
Agreement or any other document or oral agreement relating to employment
compensation, benefits, severance or post-employment issues. Executive hereby
releases Company from any and all claims, demands, actions, or causes of action,
whether known or unknown, arising from or related in any way to any employment
of or past or future failure or refusal to employ Executive by Company, or any
other past or future claim (except as reserved by this Release or where
expressly prohibited by law) that relates in any way to Executive's employment,
compensation, benefits, reemployment, or application for employment, with the
exception of any claim Executive may have against Company for enforcement of
this Release. This release includes any and all claims, direct or indirect,
which might otherwise be made under any applicable local, state or federal
authority, including but not limited to any claim arising under state statutes
dealing with employment, discrimination in employment, Title VII of the Civil
Rights Act of 1964, the Civil Rights Act of 1991, the Americans With
Disabilities Act, the Family and Medical Leave Act of 1993, the Equal Pay Act of
1963, Executive Order 11246, the Rehabilitation Act of 1973, the Uniformed
Services Employment and Reemployment Rights Act of 1994, the Age Discrimination
in Employment Act, Older Workers Benefit Protection Act ("OWBPA"), the Fair
Labor Standards Act, state wage and hour statutes, all as amended, any
regulations under such authorities, and any applicable contract, tort, or common
law theories.
3.1 Reservations Of Rights.
This Release shall not affect any rights which Executive may have under (i)
any employee benefit plans or programs, including, without limitation, under any
medical insurance, disability plan, workers' compensation, unemployment
compensation, indemnifications, company stock incentive plan(s) and related
agreements (including the Management Stockholder's Agreement between Company and
Executive), or the Savings and Investment Plan and Nonqualified Deferred
Compensation Plan maintained by the Company or (ii) any provision of the
Agreement that contains obligations of Company that continue after the payment
of benefits under Sections 3(a) and 3(b) of the Agreement, including without
limitation, Sections 3(c), 3(d), 3(e), 3(g), 4, 5 and 6.
3.2 No Admission Of Liability.
It is understood and agreed that the acts done and evidenced hereby and the
release granted hereunder is not an admission of liability on the part of
Executive or Company, by whom liability has been and is expressly denied.
4. Consideration To Executive.
After receipt of this Release signed by Executive, and the expiration of
the seven-day revocation period provided by the OWBPA without Executive's
revocation, Company shall pay the Executive the severance benefits as provided
in the Agreement.
5. Scope Of Release.
The provisions of this Release shall be deemed to obligate, extend to, and
inure to the benefit of the parties; Company's parents, subsidiaries,
affiliates, successors, predecessors, assigns, directors, officers, and
employees; and each parties insurers, transferees, grantees, legatees, agents
and heirs, including those who may assume any and all of the above-described
capacities subsequent to the execution and effective date of this Release.
6. Opportunity For Advice Of Counsel.
Executive acknowledges that Executive has been encouraged to seek advice of
counsel with respect to this Release and has had the opportunity to do so.
7. Entire Release.
This Release and the Agreement signed by Executive contain the entire
agreement and understanding between the parties and, except as reserved in
paragraph 3, supersede and replace all prior agreements, written or oral, prior
negotiations and proposed agreements, written or oral. Executive and Company
acknowledge that no other party, nor agent nor attorney of any other party, has
made any promise, representation, or warranty, express or implied, not contained
in this Release concerning the subject matter of this Release to induce this
Release, and Executive and Company acknowledge that they have not executed this
Release in reliance upon any such promise, representation, or warranty not
contained in this Release.
8. Severability.
Every provision of this Release is intended to be severable. In the event
any term or provision of this Release is declared to be illegal or invalid for
any reason whatsoever by a court of competent jurisdiction or by final and
unappealed order of an administrative agency of competent jurisdiction, such
illegality or invalidity should not affect the balance of the terms and
provisions of this Release, which terms and provisions shall remain binding and
enforceable.
9. Parties May Enforce Release.
Nothing in this Release shall operate to release or discharge any parties
to this Release or their successors, assigns, legatees, heirs, or personal
representatives from any rights, claims, or causes of action arising out of,
relating to, or connected with a breach of any obligation of any party contained
in this Release.
10. Costs And Attorney's Fees.
In the event of any administrative or civil action to enforce the
provisions of this Release, Company shall pay Executive's reasonable attorneys'
fees through trial and/or on appeal.
11. Acknowledgment.
Executive acknowledges that the Release provides severance pay and benefits
which Company would otherwise have no obligation to provide.
12. Revocation.
As provided by the OWBPA, Executive is entitled to have 21 days [or 45 days
if required at the time by the OWBPA] to consider this Release. For a period of
7 days from execution of this Release, Executive may revoke this Release. Upon
receipt of Executive's signed Release and the end of the revocation period
without revocation by Executive, payment by Company as described in paragraph 4
above will be forwarded by mail in a timely manner as provided herein.
_______________________________________ Dated: _____________________________
Xxx X. Xxxxxxxxx
STATE OF ________________)
) ss.
County of _______________)
Personally appeared the above named and acknowledged the foregoing
instrument to be his or her voluntary act and deed.
Before me: _________________________________________
Notary Public for _______________________
My commission expires: __________________
COMPANY
By: ___________________________________ Dated: _____________________________
Its:___________________________________
APPENDIX III
Termination payment (assumes current base salary and target bonus):
Base Incentive Benefits Termination
Salary Bonus Allowance Multiple Payment
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