Exhibit 10.1
SEVERANCE AGREEMENT AND GENERAL RELEASE
THIS SEVERANCE AGREEMENT AND GENERAL RELEASE (the "Agreement"), dated as of
March 1, 2005, is by and between CIRCUIT CITY STORES, INC. (the "Company"), and
Xxxx X. Xxxxxx (the "Employee").
Background Statement
In consideration for the Employee's resignation of employment
effective March 1, 2005, the Company has determined that it is in the best
interests of the Company and its shareholders to enter into this Agreement which
provides the Employee with a severance benefit and change of control benefit.
Upon execution of this Agreement, any prior employment agreement by and between
Employee and the Company, whether oral or written, will have no force and effect
with respect to the terms and conditions of the Employee's employment and will
be replaced and superseded by the terms of this Agreement.
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants and agreements set forth herein, the parties, intending legally to be
bound, hereto agree as follows:
Article 1. Severance Payment.
(a) Beginning March 2, 2005 and ending December 31, 2005, the Company will pay
to the Employee an amount equal to two (2) times the Employee's current Base
Salary of $650,000 and the Employee's current target Annual Bonus of eighty
percent (80%) of Base Salary in equal monthly installments or as otherwise
determined by the Company;
(b) The Company shall also pay to the Employee a target Annual Bonus for the
2005 fiscal year in an amount which is equal to the greater of: (i) $520,000 or
(ii) the amount of bonus pay-out for fiscal year 2005 that Employee would have
received based upon the Company's performance level under the 2003 Annual
Performance-Based Bonus Plan, as certified by the Compensation and Personnel
Committee. Such payment shall be made to Employee by April 15, 2005, or as soon
thereafter as administratively practical;
(c) The Company shall continue, at the same cost to the Employee as existed as
of the effective date of this Agreement, all health and welfare benefit plan
participation for two (2) full years beginning March 2, 2005; provided, however,
that the applicable COBRA "period of coverage" under any plan subject to Section
4980B of the Internal Revenue Code of 1986, as amended (the "Code"), or Sections
601 through 609 of the Employee Retirement Income Security Act of 1974 (ERISA)
shall begin as of March 1, 2005, the effective date of the Employee's
resignation;
(d) The Company shall also provide the Employee with outplacement services not
to exceed a cost of fifty thousand dollars ($50,000), provided, however that
such services must be performed on or before December 31, 2005;
(e) The following unvested stock options, outstanding restricted stock and
restricted stock units will vest or become exercisable as of March 2, 2005:
(i) 16, 667 shares of restricted stock which were awarded on June 13, 2000
and were originally scheduled to vest on June 13, 2005;
(ii) 93,744 non-qualified stock options with an option exercise price of
$8.30 which were awarded on April 10, 2001 and were originally scheduled to
vest on April 10, 2005;
(iii) 13, 333 restricted stock units which were awarded on November 8, 2002
and were originally scheduled to vest on November 8, 2005;
(iv) 3,087 restricted stock units which were awarded on November 22, 2002
and were originally scheduled to vest on November 8, 2005; and
(v) 155,000 non-qualified stock options with an option exercise price of
$7.395 which were awarded on June 17, 2003 and were originally scheduled to
vest on February 28, 2006.
Any stock options that are already vested as of the date of this Agreement
(March 1, 2005) will remain vested and exercisable until December 31, 2005.
Options that become exercisable under the terms of this Agreement will remain
exercisable through December 31, 2005. The Employee must satisfy all tax
withholding requirements.
The restricted stock units awarded on November 8, 2002 and November 22, 2002
will remain subject to the "Alternate Deferral Restriction Period" outlined in
sections six and seven of the award agreements dated November 8, 2002 and
November 20, 2002, respectively. All remaining unvested stock options and
restricted stock not referenced in this Article 1, including all restricted
stock grants issued under a performance based plan, are hereby forfeited; and
(f) If a Change in Control of the Company, as defined in Article 2.2 below,
should occur during the period beginning March 2, 2005 and ending on December
31, 2005, the Employee also shall be entitled to the benefits as defined in
Article 2.
Article 2. Change in Control.
2.1. Change in Control. This Article 2 shall not become effective, and the
Company shall have no obligation hereunder, if a Change in Control (as defined
in Article 2.2 below) does not occur during the period beginning March 2, 2005
and ending on December 31, 2005.
2.2. Definition of Change in Control. Change in Control of the Company
means, and shall be deemed to have occurred, upon the first to occur of any of
the following events:
(a) The acquisition by any individual, entity, or group (a "Person"),
including a "person" within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), but excluding an Affiliate (as defined below) of
the Company, of beneficial ownership within the meaning of Rule
13d-3 promulgated under the Exchange Act, of 35 percent (35%)
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or more of either: (i) the then outstanding shares of common stock
of the Company (the "Outstanding Common Stock"); or (ii) the
combined voting power of the then outstanding securities of the
Company entitled to vote generally in the election of directors
(the "Outstanding Voting Securities"); excluding, however, the
following: (A) any acquisition directly from the Company
(excluding an acquisition resulting from the exercise of an
option, conversion right, or exchange privilege unless the
security being so exercised, converted or exchanged was acquired
directly from the Company); (B) any acquisition by the Company;
(C) any acquisition by an employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company; or (D) any acquisition by any
corporation pursuant to a transaction which complies with clauses
(i), (ii), and (iii) of subsection (c) of this Article 2.2;
(b) Individuals who, as of the effective date, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to
constitute at least a majority of such Board; provided that any
individual who becomes a director of the Company subsequent to the
effective date, whose election, or nomination for election by the
Company's stockholders, was approved by the vote of at least a
majority of the directors then comprising the Incumbent Board
shall be deemed a member of the Incumbent Board; and provided
further, that any individual who was initially elected as a
director of the Company as a result of an actual or threatened
election contest, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act, or any other
actual or threatened solicitation of proxies or consents by or on
behalf of any Person other than the Board shall not be deemed a
member of the Incumbent Board;
(c) The consummation of a reorganization, merger or consolidation of
the Company or sale or other disposition of all or substantially
all of the assets of the Company (a "Corporate Transaction");
excluding, however, a Corporate Transaction pursuant to which: (i)
all or substantially all of the individuals or entities who are
the beneficial owners, respectively, of the Outstanding Common
Stock and the Outstanding Voting Securities immediately prior to
such Corporate Transaction will beneficially own, directly or
indirectly, more than sixty percent (60%) of, respectively, the
outstanding shares of common stock, and the combined voting power
of the outstanding securities of such corporation entitled to vote
generally in the election of directors, as the case may be, of the
corporation resulting from such Corporate Transaction (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 indirectly) in substantially
the same proportions relative to each other as their ownership,
immediately prior to such Corporate Transaction, of the
Outstanding Common Stock and the Outstanding Voting Securities, as
the case may be; (ii) no Person (other than: the Company; any
employee benefit plan (or related trust) sponsored or maintained
by the Company or any corporation controlled by the Company; the
corporation resulting from such Corporate Transaction; and any
Person which beneficially owned, immediately prior to such
Corporate Transaction, directly or indirectly,
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twenty-five percent (25%) or more of the Outstanding Common Stock
or the Outstanding Voting Securities, as the case may be) will
beneficially own, directly or indirectly, twenty-five percent
(25%)or more of, respectively, the outstanding shares of common
stock of the corporation resulting from such Corporate Transaction
or the combined voting power of the outstanding securities of such
corporation entitled to vote generally in the election of
directors; and (iii) individuals who were members of the Incumbent
Board will constitute at least a majority of the members of the
board of directors of the corporation resulting from such
Corporate Transaction; or
(d) The consummation of a plan of complete liquidation, dissolution,
or sale of substantially all the assets of the Company.
For purposes of this Article 2, "Affiliate" shall mean with reference to a
specified Person, any Person that directly or indirectly through one (1) or more
intermediaries controls or is controlled by or is under common control with the
specified Person. For purposes of this definition, "control" (including, with
correlative meaning, the terms "controlled by" and "under common control with"),
as used in respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of management and
policies of such Person, whether through ownership of voting securities or by
contract or otherwise.
2.3. Change-in-Control Severance Benefits. If at any time during the period
beginning March 2, 2005 and ending on December 31, 2005, there is a Change in
Control of the Company, the Company shall provide to the Employee the following:
(a) A lump sum cash payment in an amount that is equal to the
Employee's Base Salary ($650,000) and the Employee's target Annual
Bonus, which is eighty percent (80%) of the Employee's base salary
that was in effect immediately prior to the March 1, 2005
effective date of the Employee's resignation, payable within
thirty (30) days of the effective date of the Change in Control or
as soon thereafter as administratively practical;
(b) The Company shall continue, at the same cost to the Employee as
existed as of the effective date of this Agreement, all health and
welfare benefit plan participation for one (1) full year in
addition to the coverage provided for under Article 1(c),
beginning March 2, 2007; and
(c) A lump sum cash payment in an amount that is equal to the fair
market value on the effective date of the Change in Control of
95,000 shares of Circuit City Stores, Inc. Common Stock, payable
within thirty (30) days of the effective date of the Change in
Control, or as soon thereafter as administratively practical.
For the purposes of this Article 2.3, the "fair market value" of shares of
Circuit City Common Stock shall be determined as provided in the Circuit City
Stores, Inc. 2003 Stock Incentive Plan; provided, that if the Change in Control
involves a Corporate Transaction in which cash or securities are exchanged (the
"Exchange Consideration") for shares of Circuit City Stores, Inc.
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Common Stock, "fair market value" shall be determined based on the fair market
value of the Exchange Consideration on the date the Corporate Transaction is
consummated.
2.4. Excise Tax Equalization Payment. In the event that any of the
severance benefits under this Agreement or any other agreement with or plan of
the Company (in the aggregate, the "Total Payments"), will be subject to the tax
(the "Excise Tax") imposed by Section 4999 of the Code or any similar excise tax
that may hereafter be imposed, the Company shall pay to the Employee in cash an
additional amount (the "Gross-Up Payment"), such that the net amount retained by
the Employee after deduction of any Excise Tax upon the Total Payments and any
federal, state, and local income tax and Excise Tax upon the Gross-Up Payment
provided for by this Article 2.4 (including FICA and FUTA), shall be equal to
the Total Payments. The Company shall make such payment to the Employee as soon
as practicable following the effective date of a Change in Control of the
Company, but in no event beyond thirty (30) days from such date.
For purposes of determining the amount of the Gross-Up Payment, the
Employee shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made, and state and local income taxes at the highest marginal
rate of taxation in the state and locality of the Employee's residence on the
effective date of a Change in Control of the Company, net of the maximum
reduction in federal income taxes which could be obtained from deduction of such
state and local taxes.
The Company's Compensation Committee shall determine, based upon the advice
of the Company's independent certified public accountants, whether any payments
or benefits hereunder are subject to the Excise Tax.
Article 3. Noncompetition and Confidentiality.
3.1. Noncompetition.
(a) During the Employee's employment and for a period of two (2) years
following the last day of the Employee's employment, the Employee
shall not directly or indirectly compete with the Company by
engaging, in a competitive capacity, in any business that is
engaged in the same or similar business of the Company in one or
more Metropolitan Statistical Areas ("MSAs") in which the Company
is doing business on the last day of the Employee's employment. A
business will not be considered to be in competition with the
Company for purposes of this paragraph 3.1(a) or paragraph 3.1(b)
below if:
(i) The business or the operating unit of the business in
which the Employee is employed or with which the Employee
is associated (collectively the "Business Unit") is not
engaged in the retail sales of consumer electronics;
(ii) If sales of the Business Unit's products or services in
the retail sales and service of consumer electronics
constitute less than ten percent (10%) of such Business
Unit's sales; or
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(iii) If the sales of the Business Unit in the retail sales and
service of consumer electronics do constitute more than
ten percent (10%) of the sales of the Business Unit, but
the Business Unit solely operates outside of North
America.
Notwithstanding the foregoing, nothing herein shall be deemed to prevent or
limit the right of the Employee to invest in the capital stock or other
securities of any corporation whose stock or securities are regularly traded on
any public exchange, nor shall anything herein contained be deemed to prevent
Employee from investing in real estate for his own benefit (as long as such
investment is not related to or in support of any entity engaged in the same or
similar business as the Company in competition with the Company in one or more
MSA's in which the Company is doing business during the Employee's employment).
(b) During the Employee's employment and for a period of two (2) years
following the last day of the Employee's employment, the Employee
shall not directly or indirectly compete with the Company by
engaging, in a competitive capacity, in any business engaged in
the same or similar business of the Company in one or more MSAs
where, on the last day of the Employee's employment, the Company
is engaged in real estate site selection or has taken further
steps toward the commencement of operations in the future, of
which the Employee is aware.
(c) The Employee agrees that competition, as set forth in Article
3.1(a) above, shall include, but not be limited to, engaging in
competitive activity, as an individual, as a partner, as a joint
venturer with any other person or entity, or as an employee,
agent, or representative of any other person or entity.
(d) It is the specific intent of the parties that the Employee shall
be restricted from competing directly or indirectly with any
segment of the Company's business in which the Employee engaged
prior to the last day of his employment and from any segment of
the Company's business about which the Employee acquired
proprietary or confidential information during the course of his
employment.
(e) If any provision of this Article 3.1 relating to the time period,
geographic area or scope of restricted activities shall be
declared by a court of competent jurisdiction to exceed the
maximum time period, geographic area or scope of activities, as
applicable, that such court deems reasonable and enforceable, said
time period, geographic area or scope of activities shall be
deemed to be, and thereafter shall become, the maximum time
period, scope of activities or largest geographic area that such
court deems reasonable and enforceable and this Agreement shall
automatically be considered to have been amended and revised to
reflect such determination.
(f) The Employee and the Company have examined in detail this Covenant
Not to Compete and agree that the restraint imposed upon the
Employee is reasonable in
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light of the legitimate interests of the Company, and it is not
unduly harsh upon the Employee's ability to earn a livelihood.
3.2. Non-Solicitation of Employees. The Employee agrees that during the
Employee's employment with the Company and for a period of two (2) years
following the last day of the Employee's employment, the Employee shall not,
directly or indirectly, solicit or induce, or attempt to solicit or induce, any
employee of the Company to leave the Company for any reason whatsoever or hire
any individual employed by the Company. For purposes of this Article 3.2,
employee shall mean any individual employed by the Company on the last day of
the Employee's employment or within the three-month period prior to the last day
of the Employee's employment.
3.3. Confidentiality. The Company has advised the Employee and the Employee
acknowledges that it is the policy of the Company to maintain as secret and
confidential all Protected Information (as defined below), and that Protected
Information has been and will be developed at substantial cost and effort to the
Company. The Employee agrees to hold in strict confidence and safeguard any
information of or about the Company gained by the Employee in any manner or from
any source during the Employee's employment. The Employee shall not, without the
prior written consent of the Company, at any time, directly or indirectly,
divulge, furnish, use, disclose or make accessible to any person, firm,
corporation, association, or other entity (otherwise than as may be required in
the regular course of the Employee's employment), either during the Employee's
employment with the Company or subsequent to the last day of the Employee's
employment, any Protected Information, or cause any such information of the
Company to enter the public domain.
The Employee understands and agrees that any information, data and/or trade
secrets about Company or its suppliers and/or distributors is the property of
the Company and is essential to the protection of the Company's goodwill and to
the maintenance of the Company's competitive position and accordingly should be
kept secret. For purposes of this Agreement, "Protected Information" means trade
secrets, confidential and proprietary business information of or about the
Company, and any other information of the Company, including, customer lists
(including potential customers), sources of supply, processes, plans, materials,
pricing information, internal memoranda, marketing plans, promotional plans,
internal policies, research, purchasing, accounting and financial information,
computer programs, hardware, software, and products and services which may be
developed from time to time by the Company and its agents or employees,
including the Employee; provided, however, that information that is in the
public domain (other than as a result of a breach of this Agreement), approved
for release by the Company or lawfully obtained from third parties who are not
bound by a confidentiality agreement with the Company, is not Protected
Information.
Nothing contained in this Article is intended to reduce in any way
protection available to the Company pursuant to the Uniform Trade Secrets Act as
adopted in Virginia or any other state or other applicable laws that prohibit
the misuse or disclosure of confidential or proprietary information.
3.4 Acknowledgement of Covenants. The parties hereto acknowledge that the
Employee's services are of a special, extraordinary, and intellectual character
which gives
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him/her unique value, and that the business of the Company and its subsidiaries
is highly competitive, and that violation of any of the covenants provided in
this Article 3 would cause immediate, immeasurable, and irreparable harm, loss,
and damage to the Company not adequately compensable by a monetary award. The
Employee acknowledges that the time, scope of activities and geographical area
restrained by the provisions of this Article 3 are reasonable and do not impose
a greater restraint than is necessary to protect the goodwill of the Company's
business. The Employee further acknowledges that he and the Company have
negotiated and bargained for the terms of this Agreement and that the Employee
has received adequate consideration for entering into this Agreement. In the
event of any such breach or threatened breach by the Employee of any one or more
of such covenants, the Company shall be entitled to such equitable and
injunctive relief as may be available to restrain the Employee from violating
the provisions hereof. Nothing herein shall be construed as prohibiting the
Company from pursuing any other remedies available at law or in equity for such
breach or threatened breach, including the recovery of damages and the immediate
termination of the employment of the Employee hereunder for cause.
Article 4. General Release. On his last day of employment, the Employee
agrees to surrender any and all Company property within his possession or
control. Further, in exchange for the consideration set forth above, the
Employee for himself, his heirs, and assigns, hereby releases Circuit City
Stores, Inc., and/or any affiliated or related companies and their officers,
stockholders, directors, employees and agents and their successors, heirs, and
assigns ("Released Parties") of and from all manner of actions, suits, debts,
sums of money, accounts, contracts, promises, damages, claims and demands of
every kind or character whatsoever, whether presently known or unknown,
suspected or unsuspected, under state or federal laws, which Employee now has
against any Released Parties. Specifically included in this release are any
claims in connection with the employment relationship between Employee and the
Company, including the termination thereof, and such claims due to alleged
breach of contract, tort, Title VII of the Civil Rights Act of 1964, as amended
(which prohibits discrimination based on race, sex, color, religion or national
origin), the Fair Labor Standards Act (FLSA), the American with Disabilities Act
of 1990 (ADA) (which prohibits discrimination against individuals with
disabilities), and/or any other statute or any other right or claim that might
exist under federal, state or local law, including common law.
The Employee understands and agrees that this General Release specifically
waives all rights and claims he may have under the Age Discrimination in
Employment Act, 29 U.S. ss. 621 et seq.
The Company and the Employee represent and warrant that by the provisions
of this paragraph, the Company has advised the Employee in writing that he
should consult with an attorney before signing this Severance Agreement and
General Release and that the Company has given the Employee a period of at least
21 days within which to consider this Severance Agreement and General Release.
The Company and the Employee agree that the Employee shall have seven (7) days
after the execution of this Severance Agreement and General Release within which
to revoke his signature and consent to this Agreement. The Employee has
carefully read the foregoing Release and understands the contents of the Release
and freely and voluntarily
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assents to all terms and conditions thereof and signs this Agreement freely and
on his own volition.
Article 5. Assignment; Binding Effect. This Agreement shall be binding
upon, inure to the benefit of, and be enforceable by the parties hereto and
their respective heirs, legal representatives, successors, and assigns;
provided, however, that in no event shall Employee have the right to assign his
rights or obligations under this Agreement. If the Company is merged with or
into another entity, such action shall not be considered to cause an assignment
of this Agreement and the surviving or successor entity shall become the
beneficiary of this Agreement and all references to the "Company" shall be
deemed to refer to such surviving or successor entity. No other Person shall be
a third-party beneficiary under this Agreement.
Article 6. Complete Agreement; Waiver; Amendment. Employee has no oral
representations, understandings, or agreements with the Company or any of its
officers, directors, or representatives covering the same subject matter as this
Agreement. This Agreement is the final, complete, and exclusive statement and
expression of the agreement between the Company and Employee with respect to the
subject matter hereof and cannot be varied, contradicted, or supplemented by
evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be later modified except by a further writing signed
by a duly authorized officer of the Company and Employee, and no term of this
Agreement may be waived except by a writing signed by the party waiving the
benefit of such term.
Article 7. Notice. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
To the Company: Circuit City Stores, Inc.
Attention: Senior Vice President of Human Resources
0000 Xxxxxxx Xxxxx
Xxxxxxxx, XX 00000
To Employee: Xxxx X. Xxxxxx
Richmond, VA
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as set forth above and sent first class
mail, certified return receipt requested, or, if sent by express delivery, hand
delivery, or facsimile, when actually received. Either party may change the
address for notice by notice to the other party of such change by providing
Notice of such change within ten (10) days of such change.
Article 8. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
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Article 9. Issue Resolution. Except for actions initiated by the Company to
enjoin a breach by, and/or recover damages from the Employee related to
violation of any of the restrictive covenants in Article 3 of this Agreement,
which Company may bring in an appropriate court of law or equity, any
disagreement between the Employee and the Company concerning anything covered by
this Agreement or concerning other terms or conditions of the Employee's
employment or the termination of the Employee's employment will be settled by
final and binding arbitration pursuant to the Company's Associate Issue
Resolution Program. The Dispute Resolution Agreement and the Dispute Resolution
Rules and Procedures are incorporated herein by reference as if set forth in
full in this Agreement. The decision of the arbitrator will be final and binding
on both the Employee and the Company and may be enforced in a court of
appropriate jurisdiction.
Article 10 Governing Law. This Agreement shall in all respects be construed
according to the laws of the Commonwealth of Virginia, without regard to its
conflict of laws principles.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
CIRCUIT CITY STORES, INC.
/s/ W. Xxxx XxXxxxxxxx
--------------------------------------
W. Xxxx XxXxxxxxxx
Chairman, and Chief Executive Officer
EXECUTIVE
/s/ Xxxx X. Xxxxxx 2/24/05
--------------------------------------
Xxxx X. Xxxxxx, SSN:
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