Exhibit 10.6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of June 1, 1997, by and between, U.S.
Industries, Inc., a Delaware corporation, with its principal United States
office at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ (the "Company"), and
▇▇▇▇ ▇▇▇▇▇▇, residing at ▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
("Executive").
W I T N E S S E T H:
WHEREAS, Executive is currently employed by the Company and prior to
the date hereof (the "Effective Date") Executive has been employed by the
Company in various executive positions;
WHEREAS, Executive is willing to continue to be employed by the
Company;
WHEREAS, as of the Effective Date, the Company desires to employ the
Executive as a Group Vice President;
WHEREAS, the Company and Executive desire to enter into an agreement
(the "Agreement") as to the terms of his employment by the Company.
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
parties agree as follows:
1. Term of Employment. Except for earlier termination as provided in
Section 7 hereof, Executive's employment under this Agreement shall be for a
two-year term
(the "Employment Term") commencing on the Effective Date and ending two years
thereafter. Subject to Section 7 hereof, the Employment Term shall be
automatically extended for additional terms of successive two (2) year periods
unless the Company or the Executive gives written notice to the other at least
ninety (90) days prior to the expiration of the then current Employment Term of
the termination of Executive's employment hereunder at the end of such current
Employment Term.
2. Positions. (a) As of the Effective Date, Executive shall serve as
Group Vice President of the Company. If requested by the Board of Directors of
the Company (the "Board") or the Chairman and so elected by the stockholders of
the Company, Executive shall also serve on the Board of Directors of the Company
without additional compensation. Executive shall also serve, if requested by the
Board of Directors of the Company or the Chairman, as an executive officer and
director of subsidiaries and a director of associated companies of the Company
and shall comply with the policy of the Compensation Committee of the Company's
Board of Directors (the "Compensation Committee") with regard to retention or
forfeiture of the director's fees.
(b) Executive shall report to any more senior officer of the Company
as designated by the Chairman or the President and, shall have such duties and
authority, consistent with his position as a Group Vice President of the Company
as shall be assigned to him from time to time by the Board, the Chairman, the
President or such other more senior officer(s) of the Company.
2
(c) During the Employment Term, Executive shall devote substantially
all of his business time and efforts to the performance of his duties hereunder;
provided, however, that Executive shall be allowed, to the extent that such
activities do not materially interfere with the performance of his duties and
responsibilities hereunder, to manage his passive personal investments and to
serve on corporate, civic, or charitable boards or committees. Notwithstanding
the foregoing, the Executive shall not serve on any corporate board of directors
if such service would be inconsistent with his fiduciary responsibilities to the
Company.
3. Base Salary. During the Employment Term, the Company shall pay
Executive a base salary at the annual rate of not less than $220,000. Base
salary shall be payable in accordance with the usual payroll practices of the
Company. Executive's Base Salary shall be subject to annual review by the Board
after the conclusion of each fiscal year during the Employment Term and may be
increased, but not decreased, from time to time upon recommendation of the
Compensation Committee, except, prior to a Change in Control, as defined in
Section 10 hereof, it may be decreased proportionately in connection with an
across the board decrease applying to all senior executives of the Company. The
base salary as determined as aforesaid from time to time shall constitute "Base
Salary" for purposes of this Agreement.
4. Incentive Compensation. (a) Bonus. The Company shall recommend to
the Compensation Committee at its next meeting that Executive be eligible to
receive a discretionary cash bonus for the 1997 fiscal year outside the U.S.
Industries, Inc. Annual Performance Incentive Plan but conditioned on the
performance criteria under such Plan being
3
achieved by the Company and with a target bonus potential equal to at least 65%
of his Base Salary; subject to such potential discretionary bonus being reduced
by the amount paid to Executive under the USI American Holdings, Inc. Plan for
the 1997 fiscal year. Furthermore, for each fiscal year during the Employment
Term beginning with the first fiscal year commencing after the Effective Date,
Executive shall be eligible to participate in an annual incentive pay plan of
the Company that provides an annualized cash bonus opportunity with a target
bonus potential equal to at least 65% of Base Salary.
(b) Restricted Stock. The Company shall recommend to the
Compensation Committee at its next meeting that Executive be granted 15,000
restricted shares (the "1997 Restricted Stock") of common stock of the Company
(the "Common Stock") in accordance with the terms of the U.S. Industries, Inc.
1997 Restricted Stock Plan and subject to the terms and conditions of a
Restricted Stock Agreement entered into by the Company and the Executive in the
form of Exhibit 1 hereto.
(c) Options. The Company shall recommend to the Compensation
Committee at its next meeting that the Executive be granted nonqualified options
(the "Options") to purchase five thousand (5,000) shares of Common Stock in
accordance with the terms of the Amended U.S. Industries, Inc. Stock Option Plan
(the "Stock Option Plan") and subject to the terms and condition of an Option
Agreement entered into by the Company and the Executive in the form of Exhibit 2
hereto.
4
(d) Other Compensation. The Company may, upon recommendation of the
Compensation Committee, award to the Executive such other bonuses and
compensation as it deems appropriate and reasonable.
5. Employee Benefits and Vacation. (a) During the Employment Term,
Executive shall be entitled to participate in all pension, retirement, savings,
welfare and other employee benefit plans and arrangements and fringe benefits
and perquisites generally maintained by the Company from time to time for the
benefit of the senior executives of the Company of a materially comparable level
in accordance with their respective terms as in effect from time to time (other
than any special arrangement entered into by contract with an executive). The
Executive shall be initially provided with a leased automobile or an automobile
allowance by the Company, in such manner and at such level as determined by the
Company; however, the Company reserves the right, upon recommendation of the
Compensation Committee, to modify the arrangement or change the level of
allowances in the future. To the extent permitted under applicable law, the
Company shall not treat as compensation to Executive fringes and perquisites
provided to Executive or the items under Section 6 below. Notwithstanding the
foregoing, after a Change of Control, during the Employment Term, Executive
shall be entitled to (i) coverage and benefits at least equal in the aggregate
to the benefits provided under the benefit plans and programs, including,
without limitation, any life insurance, medical insurance, disability, pension,
savings, incentive, retirement and other plans and programs, of the Company
applicable to Executive immediately prior to such Change of Control and any (ii)
fringe benefits and perquisites of at least equal value to those provided by the
Company to the Executive immediately prior to the Change of Control.
5
(b) During the Employment Term, Executive shall be entitled to
vacation each year in accordance with the Company's policies in effect from time
to time, but in no event less than four (4) weeks paid vacation per calendar
year. The Executive shall also be entitled to such periods of sick leave
customarily provided by the Company for its senior executive employees.
6. Business Expenses. The Company shall reimburse Executive for the
travel, entertainment and other business expenses incurred by Executive in the
performance of his duties hereunder, in accordance with the Company's policies
as in effect from time to time.
7. Termination. (a) The employment of Executive under this Agreement
shall terminate upon the occurrence of any of the following events:
(i) the death of the Executive;
(ii) the termination of the Executive's employment by the
Company due to the Executive's Disability pursuant to Section 7(b)
hereof;
(iii) the termination of the Executive's employment by the
Executive for Good Reason pursuant to Section 7(c) hereof;
(iv) the termination of the Executive's employment by the
Company without Cause;
6
(v) the termination of employment by the Executive without
Good Reason upon sixty (60) days prior written notice;
(vi) the termination of employment by the Executive with or
without Good Reason during the thirty (30) day period commencing one
(1) year after the Change in Control (such thirty (30) day period
being referred to herein as the "Change in Control Protection
Period"), provided that the Executive shall have a right to
terminate employment pursuant to this Section 7(a)(vi) and receive
the amounts under Section 8(c)(A)(i) and (ii) unless simultaneous
with the Change in Control, the Company or the person or entity
triggering the Change in Control delivers to the Executive an
irrevocable direct pay letter of credit with regard to the amounts
under Section 8(c)(A)(i) and (ii) and satisfying the requirements of
Section 7(g) hereof (and further provided that the foregoing shall
in no way affect full vesting of 1997 Restricted Stock and Options,
as well as other restricted stock and options, if any, upon a Change
in Control in accordance with Section 4 hereof);
(vii) the termination of the Executive's employment by the
Company for Cause pursuant to Section 7(e);
(viii)The retirement of the Executive by the Company at or
after his sixty-fifth birthday to the extent such termination is
specifically permitted as a stated exception from applicable federal
and state age discrimination laws based on position and retirement
benefits.
7
(b) Disability. If, by reason of the same or related physical or
mental reasons, Executive is unable to carry out his material duties pursuant to
this Agreement for more than six (6) months in any twelve (12) consecutive month
period, the Company may terminate Executive's employment for Disability upon
thirty (30) days prior written notice, by a Notice of Disability Termination, at
any time thereafter during such twelve (12) month period in which Executive is
unable to carry out his duties as a result of the same or related physical or
mental illness. Such termination shall not be effective if Executive returns to
the full time performance of his material duties within such thirty (30) day
notice period.
(c) Termination for Good Reason. A Termination for Good Reason means
a termination by Executive by written notice given within ninety (90) days after
the occurrence of the Good Reason event. For purposes of this Agreement, "Good
Reason" shall mean the occurrence or failure to cause the occurrence, as the
case may be, without Executive's express written consent, of any of the
following circumstances, unless such circumstances are fully corrected prior to
the date of termination specified in the Notice of Termination for Good Reason
(as defined in Section 7(d) hereof): (i) any material diminution of Executive's
positions, duties or responsibilities hereunder (except in each case in
connection with the termination of Executive's employment for Cause or
Disability or as a result of Executive's death, or temporarily as a result of
Executive's illness or other absence), or, after a Change in Control, the
assignment to Executive of duties or responsibilities that are inconsistent with
Executive's position as Group Vice President; (ii) Removal of, or the
nonreelection of, the Executive from the officer positions, if any, with the
Company specified herein without election to a materially comparable or higher
position; (iii) A relocation of the Company's
8
principal United States executive offices to a location more than both
thirty-five (35) miles from Iselin, New Jersey and thirty-five (35) miles from
his residence at the time of relocation; (iv) After a Change of Control, a
failure by the Company (A) to continue any bonus plan, program or arrangement in
which Executive is entitled to participate immediately prior to the Change of
Control (the "Bonus Plans"), provided that any such Bonus Plans may be modified
at the Company's discretion from time to time but shall be deemed terminated if
(x) any such plan does not remain substantially in the form in effect prior to
such modification and (y) if plans providing Executive with substantially
similar benefits are not substituted therefor ("Substitute Plans"), or (B) to
continue Executive as a participant in the Bonus Plans and Substitute Plans on
at least the same basis as to potential amount of the bonus and substantially
the same level of criteria for achievability thereof as Executive participated
in immediately prior to any change in such plans or awards, in accordance with
the Bonus Plans and the Substitute Plans; (v) Any material breach by the Company
of any provision of this Agreement, including without limitation Section 11
hereof; (vi) if on the Board at the time of a Change in Control, Executive's
removal from or failure to be reelected to the Board thereafter; or (vii)
failure of any successor to assume in a writing delivered to Executive upon the
assignee becoming such, the obligations of the Company hereunder.
(d) Notice of Termination for Good Reason. A Notice of Termination
for Good Reason shall mean a notice that shall indicate the specific termination
provision in Section 7(c) relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for Termination for Good
Reason. The failure by Executive to set forth in the Notice of Termination for
Good Reason any facts or circumstances which
9
contribute to the showing of Good Reason shall not waive any right of Executive
hereunder or preclude Executive from asserting such fact or circumstance in
enforcing his rights hereunder. The Notice of Termination for Good Reason shall
provide for a date of termination not less than ten (10) nor more than sixty
(60) days after the date such Notice of Termination for Good Reason is given,
provided that in the case of the events set forth in Section 7(c)(ii) or (iii)
the date may be two (2) days after the giving of such notice.
(e) Cause. Subject to the notification provisions of Section 7(f)
below, Executive's employment hereunder may be terminated by the Company for
Cause. For purposes of this Agreement, the term "Cause" shall be limited to (i)
willful misconduct by Executive with regard to the Company or its business; (ii)
the refusal of Executive to follow the proper written direction of the Board or
a more senior officer of the Company, provided that the foregoing refusal shall
not be "Cause" if Executive in good faith believes that such direction is
illegal, unethical or immoral and promptly so notifies the Board or the more
senior officer (whichever is applicable); (iii) substantial and continuing
willful refusal by the Executive to attempt to perform the duties required of
him hereunder (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 Board or a more senior officer of the
Company which specifically identifies the manner in which it is believed that
the Executive has substantially and continually refused to attempt to perform
his duties hereunder; (iv) the Executive being convicted of a felony (other than
a felony involving a motor vehicle); (v) the breach by Executive of any material
fiduciary duty owed by Executive to the Company; or
10
(vi) Executive's dishonesty, misappropriation or fraud with regard to the
Company (other than good faith expense account disputes).
(f) Notice of Termination for Cause. A Notice of Termination for
Cause shall mean a notice that shall indicate the specific termination provision
in Section 7(e) relied upon and shall set forth in reasonable detail the facts
and circumstances which provide for a basis for Termination for Cause. Further,
a Notification for Cause shall be required to include a copy of a resolution
duly adopted by at least two-thirds of the entire membership of the Board at a
meeting of the Board which was called for the purpose of considering such
termination and which Executive and his representative had the right to attend
and address the Board, finding that, in the good faith opinion of the Board,
Executive engaged in conduct set forth in the definition of Cause herein and
specifying the particulars thereof in reasonable detail. The date of termination
for a Termination for Cause shall be the date indicated in the Notice of
Termination. Any purported Termination for Cause which is held by a court not to
have been based on the grounds set forth in this Agreement or not to have
followed the procedures set forth in this Agreement shall be deemed a
Termination by the Company without Cause.
(g) The irrevocable direct pay letter of credit required to be
delivered pursuant to Section 7(a)(vi) hereof shall be in amount equal to the
amount the Executive would be entitled to under Section 8(c)(A)(i) and (ii)
hereof if he was terminated without Cause upon the Change in Control (the
"Occurrence") and have an expiration date of no less than two (2) years after
the Occurrence. The Executive shall be entitled to draw on the letter of credit
upon presentation to the issuing bank of a demand for payment signed by the
Executive that states
11
that (i) (A) a Good Reason event has occurred and the Executive would be
entitled to payment under Section 8(c) of his Employment Agreement if he elected
to terminate employment for Good Reason or (B) one (1) year and not more than
one (1) year and thirty (30) days has expired since the Occurrence or (C) the
Executive is entitled to payment under Section 8(c) of the Agreement and (ii)
assuming the event set forth in (i) entitled him to payment under Section 8(c)
of his Employment Agreement, the amount the Company would be indebted to him at
the time of presentation under Section 8(c)(A)(i) and (ii) if he then was
eligible to receive payments under Section 8(c). There shall be no other
requirements (including no requirement that the Executive first makes demand
upon the Company or that the Executive actually terminates employment) with
regard to payment of the letter of credit. To the extent the letter of credit is
not adequate to cover the amount owed to the Executive by the Company under the
Employment Agreement, is not submitted by the Executive or is not paid by the
issuing bank, the Company shall remain liable to the Executive for the remainder
owed the Executive pursuant to the terms of this Agreement. To the extent any
amount is paid under the letter of credit it shall be a credit against any
amounts the Company then or thereafter would owe to the Executive under Section
8(c) of the Agreement. The letter of credit shall be issued by a national money
center bank with a rating of at least A by Standard and Poors. The Company shall
bear the cost of the letter of credit.
8. Consequences of Termination of Employment. (a) Death. If
Executive's employment is terminated during the Employment Term by reason of
Executive's death, the employment period under this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement except for: (i) any compensation
12
earned but not yet paid, including and without limitation, any declared but
unpaid bonus, any amount of Base Salary or deferred compensation accrued or
earned but unpaid, any accrued vacation pay payable pursuant to the Company's
policies and any unreimbursed business expenses payable pursuant to Section 6
which amounts shall be promptly paid in a lump sum to Executive's estate; (ii)
the product of (x) the target annual bonus for the fiscal year of the
Executive's death, multiplied by (y) a fraction, the numerator of which is the
number of days of the current fiscal year during which the Executive was
employed by the Company, and the denominator of which is 365, which bonus shall
be paid when bonuses for such period are paid to the other executives; (iii)
full accelerated vesting under any non-equity based long term incentive plans
with pro rata payment based on actual coverage under such plans at the time
payment normally would be made under such plans; (iv) subject to Section 9
hereof, any other amounts or benefits owing to Executive under the then
applicable employee benefit or equity plans or policies of the Company, which
shall be paid in accordance with such plans or policies; (v) payment on a
monthly basis of six (6) months of Base Salary, which shall be paid to
Executive's spouse, or if he is not married or if she shall predecease him, then
to the Executive's estate; and (vi) payment of the spouse's and dependent's
COBRA coverage premiums to the extent, and so long as, they remain eligible for
COBRA coverage, but in no event more than three (3) years. Section 11 hereof
shall also continue to apply.
(b) Disability. If Executive's employment is terminated by reason of
Executive's Disability, Executive shall be entitled to receive the payments and
benefits to which his representatives would be entitled in the event of a
termination of employment by reason of his death, provided that the payment of
Base Salary shall be reduced by the projected
13
amount he would receive under any long-term disability policy or program
maintained by the Company during the six (6) month period during which Base
Salary is being paid. Section 11 hereof shall also continue to apply.
(c) Termination by Executive for Good Reason or for any Reason
During the Change in Control Protection Period or Termination by the Company
without Cause or Nonextension of the Term by the Company. If (i) outside of the
Change in Control Protection Period, Executive terminates his employment
hereunder for Good Reason during the Employment Term, (ii) if a Change in
Control occurs and during the Change in Control Protection Period Executive
terminates his employment for any reason, (iii) if Executive's employment with
the Company is terminated by the Company without Cause or (iv) Executive's
employment with the Company terminates as a result of the Company giving notice
of nonextension of the Employment Term pursuant to Section 1 hereof, Executive
shall be entitled to receive (A) subject to the second and third from last
sentences of this Section 8(c), in a lump sum within five (5) days after such
termination (i) two (2) times Base Salary, (ii) two (2) times the highest annual
bonus paid or payable to Executive for any of the previous three completed
fiscal years by the Company, (iii) any unreimbursed business expenses payable
pursuant to Section 6, and (iv) any Base Salary, Bonus, vacation pay or other
deferred compensation accrued or earned but not yet paid at the date of
termination; (B) subject to Section 9 hereof, any other amounts or benefits due
Executive under the then applicable employee benefit, long term incentive or
equity plans of the Company as shall be determined and paid in accordance with
such plans, policies and practices; (C) two (2) years of additional service and
compensation credit (at his then compensation level) for pension purposes under
14
any defined benefit type qualified or nonqualified pension plan or arrangement
of the Company, which payments shall be made through and in accordance with the
terms of the nonqualified defined benefit pension arrangement if any then
exists, or, if not, in an actuarially equivalent lump sum (using the actuarial
factors then applying in the Company's defined benefit plan covering Executive);
(D) two (2) years of the maximum Company contribution (assuming Executive
deferred the maximum amount and continued to earn his then current salary) under
any type of qualified or nonqualified 401(k) plan (payable at the end of each
such year); and (E) payment by the Company of the premiums for the Executive and
his dependents' health coverage for two (2) years under the Company's health
plans which cover the senior executives of the Company or materially similar
benefits. Payments under (E) above may at the discretion of the Company be made
by continuing participation of Executive in the plan as a terminee, by paying
the applicable COBRA premium for Executive and his dependents, or by covering
Executive and his dependents under substitute arrangements. In the event that
the termination entitling Executive to payments under this Section 8(c) occurs
on or after the sixth (6th) anniversary of the Effective Date, but prior to a
Change in Control, the amounts payable under subparts (A)(i) and (ii) of this
Section 8(c) beyond one times the amounts specified shall not be paid in a lump
sum, but shall be paid, subject to Section 9 hereof, in twelve (12) equal
monthly installments commencing one (1) year after such termination. If there is
a Change in Control thereafter, the amounts, if any, remaining to be paid
pursuant to the preceding sentence (and in accordance with Section 9 hereof)
shall be paid in a lump sum within five (5) days thereafter. In the
circumstances of (i) through (iv) above, Section 11 hereof shall also continue
to apply.
15
(d) Termination with Cause or Voluntary Resignation without Good
Reason or Retirement. If Executive's employment hereunder is terminated (i) by
the Company for Cause, (ii) by Executive without Good Reason outside of the
Change in Control Protection Period, or (iii) by the Company pursuant to Section
7(a)(viii) hereof, the Executive shall be entitled to receive only his Base
Salary through the date of termination, any earned but unpaid bonus, and any
unreimbursed business expenses payable pursuant to Section 6. All other benefits
(including without limitation restricted stock and options) due Executive
following such termination of employment shall be determined in accordance with
the plans, policies and practices of the Company.
9. No Mitigation; Set-Off. In the event of any termination of
employment under Section 8, Executive shall be under no obligation to seek other
employment and prior to the sixth (6th) anniversary of the Effective Date or
after a Change in Control, there shall be no offset against any amounts due
Executive under this Agreement on account of any remuneration attributable to
any subsequent employment that Executive may obtain. In the event of any
termination of employment entitling the Executive to payments under Section 8(c)
hereof on or after the sixth (6th) anniversary of the Effective Date and before
a Change in Control, there shall be no offset against any amounts due Executive
under this Agreement on account of any remuneration that Executive receives
during the one (1) year after the Executive's employment terminates (the
"One-Year Period"); but if, at any time after the One-Year Period, but prior to
a Change in Control, the Executive is employed on a substantially full time
basis either as an employee or independent contractor (other than self employed
as an independent contractor doing special projects for unrelated entities or
unrelated consulting
16
firms with no project scheduled to extend, or extending, on a substantially
full-time basis for more than sixty (60) days after the end of the One-Year
Period) the amounts payable to him under Section 8(c)(A)(i) and (ii) hereof
shall cease. Any amounts due under Section 8 are in the nature of severance
payments, or liquidated damages, or both, and are not in the nature of a
penalty. Such amounts are inclusive, and in lieu of any amounts payable under
any other salary continuation or cash severance arrangement of the Company and
to the extent paid or provided under any other such arrangement shall be offset
from the amount due hereunder.
10. Change of Control. For purposes of this Agreement, the term
"Change in Control" shall mean (i) any "person" as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934 ("Act") (other than the
Company, any trustee or other fiduciary holding securities under any employee
benefit plan of the Company, or any company owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of Common Stock of the Company), is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Act), directly or indirectly, of securities
of the Company representing twenty-five percent (25%) or more of the combined
voting power of the Company's then outstanding securities; (ii) during any
period of two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors, and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (i), (iii), or (iv) of this paragraph)
whose election by the Board of Directors or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of the
two-year period or whose election or
17
nomination for election was previously so approved, cease for any reason to
constitute at least a majority of the Board of Directors; (iii) the stockholders
of the Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than fifty percent (50%) of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation;
provided, however, that a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no person
acquires more than twenty-five percent (25%) of the combined voting power of the
Company's then outstanding securities shall not constitute a Change in Control
of the Company; or (iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets other than
the sale of all or substantially all of the assets of the Company to a person or
persons who beneficially own, directly or indirectly, at least fifty percent
(50%) or more of the combined voting power of the outstanding voting securities
of the Company at the time of the sale.
11. Indemnification. (a) The Company agrees that if Executive is
made a party to or threatened to be made a party to any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he is or was a director, employee or
officer of the Company and/or any affiliate of the Company, or is or was serving
at the request of any of such companies as a director, officer, member,
18
employee, fiduciary or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including, without limitation, service with
respect to employee benefit plans, whether or not the basis of such Proceeding
is alleged action in an official capacity as a director, officer, member,
employee, fiduciary or agent while serving as a director, officer, member,
employee, fiduciary or agent, he shall be indemnified and held harmless by the
applicable company to the fullest extent authorized by Delaware law (or, if
other than the Company, the law applicable to such company), as the same exists
or may hereafter be amended, against all Expenses incurred or suffered by
Executive in connection therewith, and such indemnification shall continue as to
Executive even if Executive has ceased to be an officer, director, member,
fiduciary or agent, or is no longer employed by the company, and shall inure to
the benefit of his heirs, executors and administrators.
(b) As used in this Agreement, the term "Expenses" shall include,
without limitation, damages, losses, judgments, liabilities, fines, penalties,
excise taxes, settlements and costs, attorneys' fees, accountants' fees, and
disbursements and costs of attachment or similar bonds, investigations, and any
expenses of establishing a right to indemnification under this Agreement.
(c) Expenses incurred by Executive in connection with any Proceeding
shall be paid by the company in advance upon request of Executive and the giving
by the Executive of any undertakings required by applicable law.
(d) Executive shall give the company notice of any claim made
against him for which indemnity will or could be sought under this Agreement. In
addition, Executive
19
shall give the company such information and cooperation as it may reasonably
require and as shall be within Executive's power and at such times and places as
are reasonably convenient for Executive.
(e) With respect to any Proceeding as to which Executive notifies
the company of the commencement thereof:
(i) The company will be entitled to participate therein at
its own expense; and
(ii) Except as otherwise provided below, to the extent that it
may wish, the company jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel
reasonably satisfactory to Executive. Executive also shall have the right
to employ his own counsel in such action, suit or proceeding and the fees
and expenses of such counsel shall be at the expense of the company.
(f) The company shall not be liable to indemnify Executive under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The company shall not settle any action or
claim in any manner which would impose any penalty or limitation on Executive
without Executive's written consent. Neither the company nor Executive will
unreasonably withhold or delay their consent to any proposed settlement.
20
(g) The right to indemnification and the payment of expenses
incurred in defending a Proceeding in advance of its final disposition conferred
in this Section 11 shall not be exclusive of any other right which Executive may
have or hereafter may acquire under any statute, provision of the certificate of
incorporation or by-laws of the company, agreement, vote of stockholders or
disinterested directors or otherwise.
(h) The Company agrees to obtain Officer and Director liability
insurance policies covering Executive and shall maintain at all times during the
Employment Term coverage under such policies in the aggregate with regard to all
officers and directors, including Executive, of an amount not less than $20
million. The Company shall maintain for a six (6) year period commencing on the
date the Executive ceases to be an employee of such entity, Officer and Director
liability insurance coverage for events occurring during the period the
Executive was an employee or director of such entity in the same aggregate
amount and under the same terms as are maintained for its active officers and
directors. The phrase "in the same aggregate amount and under the same terms"
shall include the same level of self-insurance by the entity as shall be
maintained for active officers and directors. Notwithstanding the foregoing, if
Executive at no time served in connection with such entity or related entities
in a capacity of a type standardly covered by such Officer and Director
liability insurance, the obligations under this paragraph (h) shall not apply to
such entity.
12. Special Tax Provision. (a) Anything in this Agreement to the
contrary notwithstanding, in the event that any amount or benefit paid, payable,
or to be paid, or distributed, distributable, or to be distributed to or with
respect to Executive by the Company (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement
21
with the Company, any person whose actions result in a change of ownership
covered by Internal Revenue Code (the "Code") Section 280G(b)(2) or any person
affiliated with the Company or such person) as a result of a change in ownership
of the Company or a direct or indirect parent thereof covered by Code Section
280G(b)(2) (collectively, the "Covered Payments") is or becomes subject to the
excise tax imposed by or under Section 4999 of the Code (or any similar tax that
may hereafter be imposed), and/or any interest or penalties with respect to such
excise tax (such excise tax, together with such interest and penalties, is
hereinafter collectively referred to as the "Excise Tax"), the Company shall pay
to Executive an additional amount (the "Tax Reimbursement Payment") such that
after payment by Executive of all taxes (including, without limitation, any
interest or penalties and any Excise Tax imposed on or attributable to the Tax
Reimbursement Payment itself), Executive retains an amount of the Tax
Reimbursement Payment equal to the sum of (i) the amount of the Excise Tax
imposed upon the Covered Payments, and (ii) without duplication, an amount equal
to the product of (A) any deductions disallowed for federal, state or local
income tax purposes because of the inclusion of the Tax Reimbursement Payment in
Executive's adjusted gross income, and (B) the highest applicable marginal rate
of federal, state or local income taxation, respectively, for the calendar year
in which the Tax Reimbursement Payment is made or is to be made. The intent of
this Section 12 is that (a) the Executive, after paying his Federal, state and
local income tax and any payroll taxes on Executive, will be in the same
position as if he was not subject to the Excise Tax under Section 4999 of the
Code and did not receive the extra payments pursuant to this Section 12 and (b)
that Executive should never be "out-of-pocket" with respect to any tax or other
amount subject to this Section 12, whether payable to any
22
taxing authority or repayable to the Company, and this Section 12 shall be
interpreted accordingly.
(b) Except as otherwise provided in Section 12(a), for purposes of
determining whether any of the Covered Payments will be subject to the Excise
Tax and the amount of such Excise Tax,
(i) such Covered Payments will be treated as "parachute
payments" (within the meaning of Section 280G(b)(2) of the Code) and such
payments in excess of the Code Section 280G(b)(3) "base amount" shall be
treated as subject to the Excise Tax, unless, and except to the extent
that, the Company's independent certified public accountants appointed
prior to the change in ownership covered by Code Section 280G(b)(2) or
legal counsel (reasonably acceptable to Executive) appointed by such
public accountants (or, if the public accountants decline such appointment
and decline appointing such legal counsel, such independent certified
public accountants as promptly mutually agreed on in good faith by the
Company and the Executive) (the "Accountant"), deliver a written opinion
to Executive, reasonably satisfactory to Executive's legal counsel, that
Executive has a reasonable basis to claim that the Covered Payments (in
whole or in part) (A) do not constitute "parachute payments", (B)
represent reasonable compensation for services actually rendered (within
the meaning of Section 280G(b)(4) of the Code) in excess of the "base
amount" allocable to such reasonable compensation, or (C) such "parachute
payments" are otherwise not subject to such Excise Tax (with appropriate
legal authority, detailed analysis and explanation provided therein by the
Accountants); and
23
(ii) the value of any Covered Payments which are non-cash
benefits or deferred payments or benefits shall be determined by the
Accountant in accordance with the principles of Section 280G of the Code.
(c) For purposes of determining the amount of the Tax Reimbursement
Payment, Executive shall be deemed:
(i) to pay federal, state and/or local income taxes at the
highest applicable marginal rate of income taxation for the calendar
year in which the Tax Reimbursement Payment is made or is to be
made, and
(ii) to have otherwise allowable deductions for federal, state
and local income tax purposes at least equal to those disallowed due
to the inclusion of the Tax Reimbursement Payment in Executive's
adjusted gross income.
(d) (i) (A) In the event that prior to the time the Executive has
filed any of his tax returns for the calendar year in which the change in
ownership event covered by Code Section 280G(b)(2) occurred, the Accountant
determines, for any reason whatever, the correct amount of the Tax Reimbursement
Payment to be less than the amount determined at the time the Tax Reimbursement
Payment was made, the Executive shall repay to the Company, at the time that the
amount of such reduction in Tax Reimbursement Payment is determined by the
Accountant, the portion of the prior Tax Reimbursement Payment attributable to
such reduction (including the portion of the Tax Reimbursement Payment
attributable to the Excise Tax and federal, state and local income tax imposed
on the portion of the Tax Reimbursement Payment being repaid by the Executive,
using the assumptions and
24
methodology utilized to calculate the Tax Reimbursement Payment (unless
manifestly erroneous)), plus interest on the amount of such repayment at the
rate provided in Section 1274(b)(2)(B) of the Code.
(B) In the event that the determination set forth in (A)
above is made by the Accountant after the filing by the Executive of any of his
tax returns for the calendar year in which the change in ownership event covered
by Code Section 280G(b)(2) occurred but prior to one (1) year after the
occurrence of such change in ownership, the Executive shall file at the request
of the Company an amended tax return in accordance with the Accountant's
determination, but no portion of the Tax Reimbursement Payment shall be required
to be refunded to the Company until actual refund or credit of such portion has
been made to the Executive, and interest payable to the Company shall not exceed
the interest received or credited to the Executive by such tax authority for the
period it held such portion (less any tax the Executive must pay on such
interest and which he is unable to deduct as a result of payment of the refund).
(C) In the event the Executive receives a refund
pursuant to (B) above and repays such amount to the Company, the Executive shall
thereafter file for refunds or credits by reason of the repayments to the
Company.
(D) The Executive and the Company shall mutually agree
upon the course of action, if any, to be pursued (which shall be at the expense
of the Company) if the Executive's claim for refund or credit is denied.
25
(ii) In the event that the Excise Tax is later determined by
the Accountants or the Internal Revenue Service to exceed the amount taken into
account hereunder at the time the Tax Reimbursement Payment is made (including
by reason of any payment the existence or amount of which cannot be determined
at the time of the Tax Reimbursement Payment), the Company shall make an
additional Tax Reimbursement Payment in respect of such excess (plus any
interest or penalties payable with respect to such excess) once the amount of
such excess is finally determined.
(iii) In the event of any controversy with the Internal
Revenue Service (or other taxing authority) under this Section 12, subject to
subpart (i)(D) above, the Executive shall permit the Company to control issues
related to this Section 12 (at its expense), provided that such issues do not
potentially materially adversely affect the Executive, but the Executive shall
control any other issues. In the event the issues are interrelated, the
Executive and the Company shall in good faith cooperate so as not to jeopardize
resolution of either issue, but if the parties cannot agree Executive shall make
the final determination with regard to the issues. In the event of any
conference with any taxing authority as to the Excise Tax or associated income
taxes, the Executive shall permit the representative of the Company to accompany
him and the Executive and his representative shall cooperate with the Company
and its representative.
(iv) With regard to any initial filing for a refund or any
other action required pursuant to this Section 12 (other than by mutual
agreement) or, if not required, agreed to by the Company and the Executive, the
Executive shall cooperate fully with the
26
Company, provided that the foregoing shall not apply to actions that are
provided herein to be at the sole discretion of the Executive.
(e) The Tax Reimbursement Payment, or any portion thereof, payable
by the Company shall be paid not later than the fifth (5th) day following the
determination by the Accountant and any payment made after such fifth (5th) day
shall bear interest at the rate provided in Code Section 1274(b)(2)(B). The
Company shall use its best efforts to cause the Accountant, to promptly deliver
the initial determination required hereunder and, if not delivered, within
ninety (90) days after the change in ownership event covered by Section
280G(b)(2) of the Code, the Company shall pay the Executive the Tax
Reimbursement Payment set forth in an opinion from counsel recognized as
knowledgeable in the relevant areas selected by the Executive, and reasonably
acceptable to the Company, within five (5) days after delivery of such opinion.
The amount of such payment shall be subject to later adjustment in accordance
with the determination of the Accountant as provided herein.
(f) The Company shall be responsible for all charges of the
Accountant and if (e) is applicable the reasonable charges for the opinion given
by Executive's counsel.
(g) The Company and the Executive shall mutually agree on and
promulgate further guidelines in accordance with this Section 12 to the extent,
if any, necessary to effect the reversal of excessive or shortfall Tax
Reimbursement Payments. The foregoing shall not in any way be inconsistent with
Section 12(d)(i)(D) hereof.
27
13. Legal and Other Fees and Expenses. In the event that a claim for
payment or benefits under this Agreement is disputed, the Company shall pay all
reasonable attorney, accountant and other professional fees and reasonable
expenses incurred by Executive in pursuing such claim, provided the Executive is
successful with regard to a material portion of his claim.
14. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New Jersey without reference to
principles of conflict of laws.
(b) Entire Agreement/Amendments. This Agreement and the instruments
contemplated herein, contain the entire understanding of the parties with
respect to the employment of Executive by the Company from and after the
Effective Date and supersedes any prior agreements between the Company and
Executive. There are no restrictions, agreements, promises, warranties,
covenants or undertakings between the parties with respect to the subject matter
herein other than those expressly set forth herein and therein. This Agreement
may not be altered, modified, or amended except by written instrument signed by
the parties hereto.
(c) No Waiver. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver of such party's rights or deprive such party of the right thereafter to
insist upon strict adherence to that term or any
28
other term of this Agreement. Any such waiver must be in writing and signed by
Executive or an authorized officer of the Company, as the case may be.
(d) Assignment. This Agreement shall not be assignable by Executive.
This Agreement shall be assignable by the Company only to an acquiror of all or
substantially all of the assets of the Company, provided such acquiror promptly
assumes all of the obligations hereunder of the Company in a writing delivered
to the Executive and otherwise complies with the provisions hereof with regard
to such assumption.
(e) Successors; Binding Agreement; Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees legatees and permitted assignees of the parties hereto.
(f) Communications. For the purpose of this Agreement, notices and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given (i) when faxed or delivered, or (ii) two
business days after being mailed by United States registered or certified mail,
return receipt requested, postage prepaid, addressed to the respective addresses
set forth on the initial page of this Agreement, provided that all notices to
the Company shall be directed to the attention of the Senior Vice President,
General Counsel and Secretary of the Company, or to such other address as any
party may have furnished to the other in writing in accordance herewith. Notice
of change of address shall be effective only upon receipt.
29
(g) Withholding Taxes. The Company may withhold from any and all
amounts payable under this Agreement such Federal, state and local taxes as may
be required to be withheld pursuant to any applicable law or regulation.
(h) Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of Executive's employment to the
extent necessary to the agreed preservation of such rights and obligations.
(i) Counterparts. This Agreement may be signed in counterparts, each
of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
(j) Headings. The headings of the sections contained in this
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any provision of this Agreement.
(k) Executive's Representation. The Executive represents and
warrants to the Company that there is no legal impediment to him performing his
obligations under this Agreement and neither entering into this Agreement nor
performing his contemplated service hereunder will violate any agreement to
which he is a party or any other legal restriction.
30
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
U.S. INDUSTRIES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Senior Vice President
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇
31
