RELATIONSHIP AGREEMENT
This Relationship Agreement is being entered into as of the 10th day of
December by and among Xxxxxxx X. Xxxxxxx ("BFB"), Xxxxxxxxxx Xxxx Holding
Corp. ("HOLDING"), Xxxxxxxxxx Xxxx & Co., Incorporated (the "RETAILER") and
General Electric Capital Corporation ("GECC"). It is intended to implement
the understandings reached among the parties with respect to BFB's ongoing
relationship with Holding and the Retailer and to agree upon the further
actions that must be taken with respect to such understandings.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties agree as follows:
1. NEW CEO. A new Chairman and Chief Executive Officer (the "NEW CEO")
for the Retailer will be recruited and will report to the board of the
Retailer. The New CEO will have senior direct responsibility for the
Retailer and such additional duties as are assigned from time to time
by the board of the Retailer.
2. NEW CEO SELECTION PROCESS. BFB will be involved in the selection
process for the New CEO as a member of a board subcommittee consisting of
Xxxxx X. Xxxxxx, Xxxxx Xxxxxxxx and BFB, but such subcommittee shall have
the power to act by the vote of a majority of its members.
3. PRO RATA DILUTION. Shares of Holding stock or options for such shares
will be issued or granted in order to attract and incentivize the New CEO
and the management team for the Retailer. Such stock and options will
dilute equally all holders of all stock of Holding then outstanding on a
fully diluted basis (taking into account all shares issuable upon
outstanding options) up to maximum dilution of 15% in the aggregate.
4. BFB TERMINATION OF EMPLOYMENT. Pursuant to the understandings reached
among the parties, upon the date of the appointment of an operating
committee (members of which need not be directors of the Retailer) by the
board of directors of the Retailer to report directly to such board of
directors with respect to the direction of the day-to-day affairs,
activities and operations of the Retailer ("TERMINATION DATE"), BFB's
employment with Holding and each of its subsidiaries will be deemed
terminated by Holding and each of such subsidiaries without cause for all
purposes, including, without limitation, for purposes of Article III of
the Stockholders' Agreement dated as of June 17, 1988 and amended and
restated as of December 29, 1994 (the "STOCKHOLDERS AGREEMENT"). Effective
on the Termination Date, BFB shall cease to be a director of each
subsidiary of the Retailer that is not a Significant Xxxx Group Member (as
defined in the Amendment Agreement referred to in paragraph 14 below (the
"AMENDMENT AGREEMENT"), it being understood that he shall continue as a
director of Holding, the Retailer and each Significant Xxxx Group Member
to the extent set forth in the Stockholders Agreement as amended by the
Amendment Agreement but shall not serve as chairman of the board of any
such company other than Holding to
the extent set forth in paragraph 9 below. The parties hereto agree to
use their best efforts to cause the Termination Date to occur on the
date of execution of this Agreement or as soon thereafter as is
practicable, but in any event prior to the end of the seven day period
referred to in paragraph 24 below. BFB acknowledges that he has had a
draft of the Agreement and notice of his termination of employment and
the terms thereof for more than 21 days prior to the date hereof.
5. PAYMENT OF LOAN AMOUNT. Holding shall loan $12.5 million in cash (the
"LOAN AMOUNT") to BFB on or after the Termination Date on the last to
occur of (i) the execution by BFB of the Amendment Agreement, (ii) the
expiration of the seven day period referred to in paragraph 24 below
without BFB having revoked this Agreement and (iii) the Termination
Date. The Loan Amount shall be paid by wire transfer of immediately
available funds to an account designated by BFB. No interest shall
accrue on or be payable with respect to the Loan Amount. Holding's sole
recourse for the repayment of the Loan Amount shall be the Holding stock
owned by BFB and his Permitted Transferees on the date hereof and any
Holding stock issued with respect thereto in any stock split, stock
dividend or other recapitalization (the "BFB HOLDING STOCK") and the
Proceeds Amount and neither BFB nor any of his Permitted Transferees
shall pledge any shares of the BFB Holding Stock other than one or more
pledges of up to 50% of the BFB Holding Stock solely for the purpose of
obtaining one or more loans to be used solely for the purpose of
financing one or more charitable contributions ("CHARITY LOANS"), so
long as the aggregate amount of the Charity Loans never exceeds at any
one time $10 million. The lesser of the Loan Amount or any Proceeds
Amount shall be repaid to Holding without interest within five business
days after BFB or any of his Permitted Transferees sells any Holdings
stock or receives any proceeds with respect to such stock other than as
a result of a Charity Loan; provided, however, that if such sale is to
Holding pursuant to a sale of BFB Holding Stock under Article III of the
Stockholders Agreement or any successor provision, (a) BFB or his
Permitted Transferees shall be deemed to have tendered to Holding a
portion of any promissory notes issued to them as payment for the Put
price equal to the lesser of the face amount of such notes or the then
outstanding balance of the Loan Amount, and such amount shall be
applied, to such extent, to reduce the Loan Amount and (b) BFB and his
Permitted Transferees shall be entitled to keep 25% of the total amount
of any Put payment (i.e., the cash portion of any Put payment) and shall
not be obligated to repay the Loan Amount with such amount; provided,
further, that in no event shall BFB be required to repay an amount in
excess of the Proceeds Amount; and provided, further, that the Loan
Amount, if not paid sooner, shall be due and payable on the last to
occur of the deaths of each of BFB, his wife and his children.
The term "Proceeds Amount" shall mean the amount paid in cash (whether
upon sale of such stock or upon payments under any notes issued in
respect of such stock) for BFB Holding Stock until the Loan Amount is
reduced to zero, or in the event that the consideration for the BFB
Holding Stock is stock or other securities, the Fair Market Value of any
such stock or securities received in the disposition of BFB Holding
Stock;
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provided, however, that if BFB Holding Stock is sold for stock or other
securities in a transaction approved by the board of directors of
Holding or in a transaction in which more than 50% of all of the common
capital stock of Holding is sold in exchange for stock or other
securities (a "SALE OF THE COMPANY"), then there shall be no Proceeds
Amount as a result thereof and the stock or other securities received by
BFB or his Permitted Transferees in the Sale of the Company shall be
deemed to be BFB Holding Stock such that upon its sale it will give rise
to a Proceeds Amount.
If BFB desires to make a gift of any shares of BFB Holding Stock to a
charity or educational institution, Holding and GECC agree to discuss
and cooperate in good faith to structure such a gift so long as such a
gift can be done on terms that are acceptable to each of BFB, Holding
and GECC.
The term "PERMITTED TRANSFEREES" shall have the meaning assigned in the
Stockholders Agreement.
The term "FAIR MARKET VALUE" shall mean as to any security the average
of the closing prices of such security's sales on all domestic
securities exchanges on which such security may at the time be listed,
or, if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such exchanges
at the end of such day, or, if on any day such security is not so
listed, the average of the representative bid and asked prices quoted in
the Nasdaq System as of 4:00 P.M., New York time, on such day, or, if on
any day such security is not quoted in the Nasdaq System, the average of
the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case
averaged over a period of 21 days consisting of the day as of which
"Fair Market Value" is being determined and the 20 consecutive business
days prior to such day; provided that if such security is listed on any
domestic securities exchange the term "business days" as used in this
sentence means business days on which such exchange is open for trading.
If at any time such security is not listed on any domestic securities
exchange or quoted in the Nasdaq System or the domestic over-the-counter
market, the "Fair Market Value" shall be the fair value thereof
determined jointly by Holding and BFB; provided that if they fail to
reach an agreement within 30 days, such fair value shall be determined
by an appraiser jointly selected by Holding and BFB. The determination
of such appraiser shall be final and binding on the parties and the fees
and expenses of such appraiser shall be paid by Holding.
6. CONSULTING ARRANGEMENT. From and after the Termination Date through the
earlier of the fifth anniversary of the Termination Date or the date
(the "STOCK LIQUIDATION DATE") on which BFB and his Permitted
Transferees no longer own any BFB Holding Stock (the "CONSULTING
PERIOD"), BFB shall be available from time to time at mutually
acceptable times and places (and for up to 20 hours per month) to advise
Holding and the Retailer with respect to strategic issues, planning,
acquisitions, merchandising
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strategies and operational issues. As payment for BFB's commitment to
provide such services and devote his time to enhance the value of
Holding and the Retailer, in lieu of any severance payment that might
otherwise be payable to BFB, from and after the Termination Date, the
Retailer and Holding shall be jointly and severally obligated to make an
annual cash consulting payment to BFB of $1.5 million payable in
substantially equal installments in arrears not less frequently
than semi-monthly until the end of the Consulting Period. The payments
shall be made regardless of whether BFB dies or becomes disabled and
regardless of the extent to which Holding and the Retailer request BFB
to perform the services outlined in this paragraph 6.
7. CONSEQUENCES OF CERTAIN COMPETITIVE ACTIVITIES. The parties agree that
nothing in this Agreement or the agreements and instruments contemplated
hereby or any other agreements, arrangements or relationships between or
among BFB and the other parties hereto shall limit in any way the right
of BFB to make any investment or participate in any business (as an
employee, director, consultant, advisor or otherwise) of any kind
whatsoever with the exception that if BFB becomes an employee or director
of, or paid consultant or advisor to, Sears, Xxxxxxx & Co., X.X. Xxxxx
Company, Inc., Wal-Mart Stores, Inc., Kmart Corporation or Xxxxxx Xxxxxx
Corporation, he shall notify Holding of his taking such position and,
regardless of whether he so notifies Holding, shall cease to be the
chairman of the board of Holding and shall forfeit his right to any
payment under paragraph 6 hereof which would accrue after the date of
such employment and the right to any benefits under paragraph 10 hereof
which would accrue after the date of such employment.
8. MAINTENANCE OF LIFE INSURANCE. Holding and the Retailer agree that
until the fifth anniversary of the date hereof, they shall pay all
premiums payable with respect to, and take all actions necessary to keep
in full force and effect, at their respective present face values, those
certain life insurance policies which are the subject of, and are
identified in, that certain Split Dollar Agreement dated November 28,
1995 between the Xxxxxxx 1995 Irrevocable Trust and Holding and keep in
full force and effect and fully perform all of Holding's obligations
under such Split Dollar Agreement.
9. CHAIRMAN OF BOARD. From and after the Termination Date through the
earlier of the Stock Liquidation Date, the fifth anniversary of the
Termination Date or the date BFB otherwise ceases to hold such office
(including pursuant to paragraph 7 above or as a result of his voluntary
resignation from such office), BFB shall serve as the non-employee
Chairman of the board of Holding. Holding and the Retailer shall
promptly reimburse BFB for any expenses reasonably incurred by him in
connection with his service in such capacity.
10. CONTINUING BENEFITS. From and after the Termination Date through the
fifth anniversary of the Termination Date, Holding and the Retailer
shall provide BFB the following:
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a. Appropriate office space, parking and furnishings for BFB in the
United States city of BFB's choice (but outside of the Retailer's
corporate complex);
b. Reasonable operating expenses for such offices for utilities,
telephone, supplies, postage and other customary expenses (all of
which shall be paid directly by the Retailer);
c. Continued use of corporate jet aircraft, when available in
accordance with the scheduling practices in effect as of the date
hereof for business use and for personal use (subject to
reimbursement by BFB for such personal use in accordance with the
Retailer's customary reimbursement policies), it being understood
that (i) business use shall mean any travel by BFB at the request of
the board of directors of Holding or the Retailer or by the CEO of
the Retailer and (ii) BFB's personal use of such aircraft shall not
exceed 30 flight hours during any year, treating each anniversary of
the Termination Date as the termination of a year for such purpose
unless such aircraft is made available to him by Holding for more
than 30 flight hours and he agrees to pay the actual out-of-pocket
per hour charge to Holding or the Retailer for all such hours over
30;
d. Continuation of all executive benefits and perquisites, including
health care, pension and dental coverage as such may apply from time
to time to senior executives of the Retailer; and
e. A full time administrative assistant of BFB's choice (such assistant
to be employed by the Retailer and to receive compensation and
benefits consistent with competitive executive assistant pay levels).
11. CONTINUATION OF LIABILITY INSURANCE AND INDEMNIFICATION. For a period
of six years after the last day on which BFB or any of his board
designees serves as a director of Holding, the Retailer or any of their
subsidiaries, Holding and the Retailer shall (and shall cause each such
subsidiary to) retain in full force and effect to the extent permitted
by applicable law all indemnification and limitation of liability
provisions (and all related liability insurance to the extent available
at commercially reasonable rates) currently in effect with respect to
officers and directors of Holding, the Retailer or such subsidiaries.
The parties acknowledge that BFB and his board designees shall have
these indemnification rights as a matter of contract.
12. TAX GROSS UP. In the event that any portion of any payment made to BFB
under paragraphs 5 or 6 above is treated as an excess parachute payment
under Section 4999 of the Internal Revenue Code or any state or local
equivalent other than as a result of any change of control transaction
caused by BFB or his Permitted Transferees, the Retailer will transfer
an additional payment to BFB sufficient to place BFB in the same after
tax economic position that he would have been in if Section
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4999 had not applied to any such payment and no gross up payment had been
made hereunder. GECC and BFB hereby, in their capacities as stockholders
of Holding, approve the payments to be made under paragraphs 5 and 6.
In addition, Holding, in its capacity as the sole stockholder of the
Retailer, hereby approved such payments.
13. LEGAL FEES AND EXPENSES. In recognition of the fact that BFB had to
restain special counsel in connection with the negotiation and execution
of this Agreement and the Amendment Agreement, that such negotiation
took place in the context of a dispute regarding certain prior actions
and agreements for which BFB had to prepare to defend his position and
that BFB's counsel has taken responsibility for drafting initial drafts
of, and revising all subsequent drafts of, this Agreement and the Amendment
Agreement, Holding and the Retailer shall pay all of the fees and
expenses of counsel incurred by BFB in connection with the negotiation
and execution of the relationship set forth herein up to an aggregate
amount of $100,000.
14. AMENDMENTS TO STOCKHOLDERS AGREEMENT, CHARTER AND BYLAWS. The
Stockholders Agreement shall be amended pursuant to the Amendment Agreement
being executed on the date hereof and the parties shall take whatever
action is necessary to amend the charter and bylaws of Holding and the
Retailer to be consistent with the Stockholders Agreement as so amended.
15. NO SET-OFF RIGHTS. The obligations of Holdings, the Retailer and GECC
hereunder, including, without limitation, payment obligations, shall not
be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which any or all may have against BFB or others
other than the right of Holding and the Retailer to set off, on a dollar-
for-dollar basis, payments due hereunder to BFB or his Permitted
Transferees in response to a failure by BFB to make any payments he is
obligated to make to Holding or the Retailer hereunder. In no event shall
BFB be obligated to seek employment or take any other action by way of
mitigation of the amounts payable to BFB under this Agreement and such
amounts shall not be reduced whether or not BFB obtains any such
employment.
16. DISPARAGING REMARKS. BFB agrees, subject to any obligations under
applicable law, that he will not make or cause to be made any disparaging
or inimical statements intended by him for publication in the media about
GECC, Holding or the Retailer, of any of their respective affiliates,
agents, officers, directors or employees. GECC, Holding and the Retailer
agree, subject to any obligations under applicable law, not to, and to
cause their respective affiliates, agents, officers, directors and
employees not to make or cause to be made any disparaging or inimical
statements intended by any of them for publication in the media about BFB.
17. WAIVER BY GECC, HOLDING AND THE RETAILER. Effective on the date hereof
GECC, Holding and the Retailer, on behalf of themselves and each of their
affiliates and their respective successors (collectively, the "RELEASING
COMPANIES"), hereby waive and
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release any and all claims any of them has or may have (in any capacity,
including as a stockholder) against BFB and his estate for obligations or
liabilities (whether known or unknown, accrued, absolute, contingent,
unliquidated or otherwise, whether due or to become due and regardless
of when asserted) arising out of or relating to BFB's status as an
employee, director or stockholder of Holding, the Retailer or any of
their affiliates or the termination of his employment or any transaction
entered into or occurring at or prior to such date, or out of any action
or inaction or any state of facts existing or event occurring at or
prior to such date, of any nature whatsoever, other than any claims
against BFB for expenses incurred by Holding or any of its subsidiaries
on BFB's behalf for which he has customarily reimbursed Holding or its
subsidiaries in the ordinary course.
18. WAIVER BY BFB. Effective on the date hereof BFB hereby waives and
releases any and all claims he has or may have (in any capacity including
as a stockholder) against any of the Releasing Companies (including their
respective officers, directors and employees to the extent acting in such
capacity) for obligations or liabilities (whether known or unknown,
accrued, absolute, contingent, unliquidated or otherwise, whether due or
to become due and regardless of when asserted) arising out of or relating
to BFB's status as an employee, director or stockholder of Holding, the
Retailer or any of their affilates or the termination of his employment or
any transaction entered into or occurring at or prior to such date, or out
of any action or inaction or any state of facts existing or event occurring
at or prior to such date, of any nature whatsoever (including any such
obligations or liabilities arising under Title VII or the Civil Rights Act
of 1964. as amended, the Americans With Disabilities Act, the Age
Discrimination in Employment Act of 1974, as amended by various
congressional enactments, including the Older Workers Benefit Protection
Act of 1990, any state or local laws or regulations similar to any of the
foregoing and any common law claims or causes of action), other than any
claims against any of the Releasing Companies (i) for indemnification or
insurance coverage under the charter or bylaws of, or any contract with,
Holding, the Retailer or any of their affilates or successors, (ii) against
Holding, the Retailer or any of their affilates or successors arising out
of any rights (that are now vested or will become vested in the future
notwithstanding the termination of BFB's employment) under written employee
benefit, retirement or compensation plans or arrangements (including
accrued salary and vacation), whether applying to BFB or to employees of
the Retailer generally, other than any claims for severance payments
which are hereby specifically waived and released by BFB and (iii) any
claims by BFB for reimbursement of expenses incurred by him for which he
has customarily been reimbursed by Holding or its subsidiaries in the
ordinary course.
19. NO STRICT CONSTRUCTION. Each of the parties hereto have been represented
by counsel and has participated in the drafting of this Agreement and the
agreements contemplated hereby and the language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule
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of strict construction or rule of presumption against the drafting party
will be applied against any person.
20. NO CIRCUMVENTION. Where any provision in this Agreement refers to action
to be taken by any person, or which such person is prohibited from
taking, such provision shall be applicable whether the action in question
is taken directly or indirectly by such person (including indirectly
through any subsidiary or through any transaction or series of
transactions, or through any scheme, artifice, device or contrivance,
no matter how structured or labeled). The parties agree that the waivers
and releases in paragraphs 17 and 18 above shall not in any way limit
any party's ability to enforce the terms and provisions of this
Agreement, the Stockholders Agreement or the Amendment Agreement.
21. COUNTERPARTS; DELIVERY BY FACSIMILE. This Agreement may be executed in
two or more counterparts, any one of which need not contain the
signatures of more than one party, but all of such counterparts taken
together shall constitute one and the same instrument. This Agreement
and any amendments hereto, to the extent delivered by means of a
facsimile machine, shall be treated in all manner and respects as an
original agreement and shall be considered to have the same binding
legal effect as if it were the original signed version thereof delivered
in person. At the request any party hereto, each other party hereto
shall re-execute original forms thereof and deliver them to all other
parties. No party hereto shall raise the use of a facsimile machine
or the fact that any signature was transmitted or communicated through
the use of a facsimile machine as a defense to the formation of a
contract and each such party forever waives any such defense.
22. GOVERNING LAW. The internal law, not the law of conflicts, of the State
of Illinois will govern all questions concerning the construction,
validity and interpretation of this Agreement and the performance of the
obligations imposed by this Agreement.
23. SUCCESSORS. This Agreement shall be binding on Holding, the Retailer and
GECC and their respective successors in interest and on BFB and, to the
extent set forth herein, on his Permitted Transferees. Each of Holdings
and the Retailer will require any proposed successor (whether by
purchase, merger, consolidation, spin off or otherwise) to all or
substantially all of its business and/or assets to, as a condition to
such succession, assume expressly and agree to perform this Agreement
(including, without limitation, the obligations under this paragraph) in
the same manner and to the same extent as Holdings and the Retailer
would be required to perform this Agreement if no such succession had
taken place.
24. RIGHT OF BFB TO REVOKE. BFB may revoke this Agreement in writing within
seven days of signing it. If BFB revokes this Agreement, he shall give
written notice to GECC and to Holding and all of the provision hereof
shall be void and unenforceable.
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25. NOTICES. All notices, requests, demands, claims, and other communications
hereunder shall be in writing. Any notice, request, demand, claim or
other communication hereunder shall be deemed duly given (i) when
delivered, if personally, delivered, (ii) when receipt is electronically
confirmed, if faxed or (iii) one day after deposit with a reputable
overnight courier, in each case addressed to the intended recipient as
set forth below:
If to Holding or the Retailer:
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Xxxxxxxxxx Xxxx Holding Corp.
Xxxxxxxxxx Xxxx & Co., Incorporated
Xxxxxxxxxx Xxxx Xxxxx
Xxxxxxx, XX 00000
Attention: General Counsel
Telecopy #: (000) 000-0000
with a copy (which shall not constitute notice)
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to:
---
Altheimer & Xxxx
00 Xxxxx Xxxxxx Xxxxx
Xxxxxxx, XX 00000
Attention: Xxxxx Xxxxxxxxx
Xxxxx Xxxxxxxxx
Telecopy #:(000) 000-0000
If to GECC:
-----------
General Electric Capital Corporation
000 Xxxx Xxxxx Xxxx
Xxxxxxxx, XX 00000
Attention: Xxxxxx Xxxxxxx
Xxxxx XxXxxxxx
Telecopy #: (000) 000-0000
with a copy (which shall not constitute notice) to:
---------------------------------------------------
Weil, Gotshal & Xxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxx X. Xxxxxxx
Telecopy #: (000) 000-0000
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If to BFB:
----------
Xxxxxxx X. Xxxxxxx
000 Xxxx Xxxxxxxxx Xxxxx
Xxxxxxx, XX 00000
Telecopy #: (000) 000-0000
with a copy (which shall not constitute notice) to:
---------------------------------------------------
Xxxxxxxx & Xxxxx
000 Xxxx Xxxxxxxx Xxxxx
Xxxxxxx, XX 00000
Attention: Xxxxx Xxxxxx, Xx., P.C.
Xxxx X. Xxxxxxxxxx
Telecopy #: (000) 000-0000
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
Xxxxxxxxxx Xxxx Holding Corp.
By:
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Its:
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Xxxxxxxxxx Xxxx & Co., Incorporated
By:
------------------------------
Its:
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General Electric Capital Corporation
By:
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Its:
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-----------------------------------
Xxxxxxx X. Xxxxxxx
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