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EXHIBIT 10.5
SEVERANCE COMPENSATION AGREEMENT
This Severance Compensation Agreement (this "Agreement") has been
entered into as of the 20th day of February, 1998 by and between PIA
Merchandising Services, Inc., a Delaware corporation ("PIA"), and Xxxxx X. Xxxx
("Executive"). It is made in the light of the following circumstances:
PIA's Board of Directors considers the establishment and
maintenance of a sound and vital management team to be essential to protecting
and enhancing the best interests of PIA and its stockholders. PIA recognizes
that the possibility of a Change of Control (as defined in this Agreement), and
the uncertainty and questions which that possibility may raise among members of
the management team, may result in the departure or distraction of management
personnel to the detriment of PIA and its stockholders. The Board of Directors
has determined that appropriate steps should be taken to reinforce and encourage
the continued attention and dedication of members of PIA's management team,
including Executive, to their assigned duties.
Accordingly, the Board of Directors has proposed to enter into
this Agreement with Executive which sets forth the severance compensation which
PIA agrees it will pay to Executive if Executive's employment with PIA should
terminate under the circumstances described below following a Change of Control
of PIA.
In the light of the foregoing the parties have agreed as follows:
1. Basic Agreement.
In order to protect Executive against certain possible
consequences of a Change in Control of PIA, and thereby to induce Executive to
continue to serve as a key employee of PIA, PIA agrees that if there is a Change
of Control of PIA, and if Executive's employment by PIA is subsequently
terminated, after, but within two years following, such Change of Control,
Executive shall be entitled to the severance compensation specified in Section 3
hereof unless such termination is (a) a result of Executive's death or
Retirement (as defined in this Agreement); (b) by PIA for Cause (as defined in
this Agreement); or (c) by Executive other than for Good Reason (as defined in
this Agreement).
As partial consideration for this Agreement, Executive
agrees that she will not voluntarily leave the employ of PIA and will continue
to perform her existing duties, or such other comparable duties as may be
assigned by PIA, for a period of at least one (1) year following any Change of
Control, subject to her right to resign for Good Reason (as provided herein).
Notwithstanding the foregoing, PIA may terminate Executive's employment at any
time, with or without cause, subject to providing the benefits hereinafter
specified in accordance with the terms hereof if such termination occurs after a
Change of Control.
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2. Term of Agreement.
This Agreement shall initially continue until the earlier
to occur of (A) the termination of Executive's employment with PIA for any
reason whatsoever, whether by action of Executive or of PIA; or (B) a Change of
Control. In the former event, all rights of Executive hereunder shall terminate
at the time of such termination of employment. In the latter case, this
Agreement shall remain effective for a full term of two (2) years from the date
of such Change of Control, and shall not thereafter be terminated until the
expiration of such period.
3. Severance Compensation.
If, during the two (2) year period following a Change of
Control, PIA shall terminate Executive's employment other than by reason of
Disability (Section 5.1), Retirement (Section 5.2) or for Cause (Section 5.3),
or if Executive shall terminate her employment for Good Reason (Section 5.4),
then PIA shall pay to Executive, as severance pay, in a lump sum, in cash, on
the 5th day following the Payment Date (as defined in Section 5.6 of this
Agreement), an amount equal to (a) one year's base compensation at the rate at
which Executive was being compensated immediately prior to such termination
(except that if the termination is based on a reduction in compensation, it
shall be the rate of compensation immediately prior to such reduction); plus (b)
the annual bonus target for the full fiscal year of PIA during which such
termination occurred.
In addition to the foregoing, PIA shall, subject to the
following sentence, under the circumstances set forth above, provide continuing
coverage of Executive under all employee benefit plans affording protection
against medical costs, including any medical, excess medical, hospitalization or
similar insurance or reimbursement plan. Such coverage shall be provided at
PIA's cost for a period of one year from the Payment Date or until Executive
obtains other employment if that shall occur before one year from the Payment
Date; provided, however, that PIA shall have no obligation to provide any such
coverage if a dispute exists pursuant to clause (2) or (3) in Section 5.6(a).
Notwithstanding the foregoing provisions of this Section
3, if the severance compensation provided in this Section 3, either alone or
together with other payments which Executive would have the right to receive
from PIA, would constitute a "parachute payment," as defined in Section 280G of
the Internal Revenue Code of 1986 (the "Code"), as in effect at the time of
payment, such payment shall be reduced to the largest amount as will result in
no portion being subject to the excise tax imposed by Section 4999 of the Code
or the disallowance of a deduction by PIA pursuant to Section 280G(a) of the
Code. The determination of the amount of any reduction pursuant to this
paragraph, and the payments or other compensation to which such reductions shall
apply, shall be made in good faith by PIA, and such determination shall be
binding on Executive.
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4. Change of Control.
No benefits shall be payable hereunder unless there shall
have been a Change of Control of PIA, as defined in this Section 4 and
Executive's employment by PIA shall thereafter have been terminated as described
in Section 5 below.
4.1 For purposes of this Agreement, "Change of Control"
shall mean the happening of any of the following:
(i) The acquisition by any Holder, at any time after the
date hereof, of Beneficial Ownership of securities of PIA
representing 50% or more of the combined voting power of the then
outstanding securities of PIA.
(ii) The occurrence of a transaction requiring approval
by the stockholders of PIA for the acquisition of PIA through the
purchase of all or substantially all of PIA's securities or
assets, or by merger, or otherwise.
(iii) The election, during any period of 24 months or
less, of a majority of the members of the Board of Directors of
PIA without the approval of the nominations of such members by a
majority of the Board members who were serving as such at the
beginning of such period.
4.2 "Beneficial Ownership" or "Beneficially Owned" shall
have the meaning set forth in Rule 13d-3 under the Securities Exchange Act of
1934, as amended.
4.3 "Group" shall mean persons who act in concert as
described in Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended, and the regulations thereunder. The formation of a Group, or
any change in the membership of a Group, shall be deemed to be an acquisition by
the Group of the aggregate number of PIA securities Beneficially Owned by each
member thereof.
4.4 "Holder" shall mean any entity, person or Group other
than the Corporation, or an employee benefit plan maintained by the Corporation.
5. Termination Following Change of Control.
If there shall have been a Change of Control as defined in
Section 4 above, Executive shall be entitled to the severance compensation
provided in Section 3 hereof in the event that Executive's employment by PIA is
terminated within two (2) years thereafter; unless such termination is (a)
because of Executive's death or Retirement; (b) by PIA for Cause or Disability;
or (c) by Executive other than for Good Reason. For these purposes, the
following definitions shall apply:
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5.1 "Disability" shall mean absence from full time
performance of Executive's duties with PIA for one hundred thirty (130)
consecutive business days, as a result of Executive's incapacity due to physical
or mental illness, unless within thirty (30) days after Notice of Termination
(as hereinafter defined) is given following such absence Executive shall have
returned to the full time performance of Executive's duties.
5.2 "Retirement" shall mean a termination of employment in
accordance with the retirement policy generally applicable to all salaried
employees at the time of the Change of Control.
5.3 "Cause" shall mean:
(a) the deliberate and intentional failure by
Executive to devote substantially her entire business time and efforts to the
performance of her duties (other than any such failure resulting from
Executive's incapacity due to physical or mental illness or disability);
(b) engaging by Executive in gross misconduct
materially and demonstrably injurious to PIA;
(c) Executive's commission of any crime (other than
minor traffic offenses and similar infractions); or
(d) Executive's willful failure to comply with
instructions of the Board of Directors of PIA.
5.4 "Good Reason" shall mean the occurrence of:
(a) without Executive's express written consent,
the assignment to Executive of any position, duties or responsibilities
materially and substantially less favorable than her positions, duties and
responsibilities with PIA immediately prior to the Change in Control, or a
material adverse change in her reporting responsibilities, status, titles or
offices as in effect immediately prior to a Change in Control;
(b) a reduction by PIA in Executive's base salary
as in effect at the time of the Change in Control;
(c) a failure by PIA to continue to provide
incentive compensation comparable to that provided by PIA immediately prior to
any Change in Control;
(d) the failure by PIA after a Change in Control to
continue in effect any benefit or compensation plan, stock option plan, pension
plan, health and accident plan or disability plan in which Executive is
participating immediately prior thereto (provided, however, that there shall not
be deemed to be any such failure if PIA substitutes for the discontinued plan, a
plan providing Executive with substantially similar benefits) or the taking of
any action by PIA which would adversely affect Executive's participation in or
materially reduce
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Executive's benefits under any of such plans or deprive Executive of any
material fringe benefit enjoyed by Executive immediately prior to a Change in
Control (provided, however, that any act or failure to act by PIA that is on a
plan-wide basis, i.e., it similarly affects all employees of PIA or all
employees eligible to participate in any such plan, as the case may be, shall
not constitute Good Reason); or
(e) the failure of PIA to obtain the assumption of
this Agreement by any successor as contemplated in Section 7.1 hereof.
5.5 Notice of Termination. Any termination by PIA pursuant
to Sections 5.1 or 5.3 above shall be communicated by a Notice of Termination.
The term "Notice of Termination" shall mean a written notice indicating those
specific termination provisions in this Agreement relied upon and setting forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provisions so indicated and
which otherwise complies with Sections 5.1 or 5.3, as applicable. No termination
by PIA shall be effective for purposes of Sections 5.1 or 5.3 above without such
Notice of Termination.
5.6 Payment Date.
(a) The term "Payment Date" shall mean (1) if
Executive's employment is terminated by PIA without allegation that such
termination is by reason of Disability (Section 5.1), Retirement (Section 5.2)
or for Cause (Section 5.3), the actual effective date of such termination as
specified by PIA in its notice of such termination given to Executive; (2) if
Executive's employment is terminated by PIA purportedly for Cause and if (i)
within 30 days after PIA's giving of the Notice of Termination prescribed by
Section 5.5, Executive notifies PIA that a dispute exists concerning whether or
not the termination is legitimately for Cause, and (ii) it is finally
determined, whether by mutual agreement by the parties or upon final judgment,
order or decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been perfected), that such
termination is not legitimately for Cause, the Payment Date shall be the date
the dispute is so finally determined; and (3) if Executive's employment is
terminated by Executive purportedly for Good Reason, 30 days after Executive so
notifies PIA, which notice shall fully describe the basis which the Executive
alleges to constitute Good Reason; provided, however, that if, within such
30-day period, PIA notifies Executive that a dispute exists concerning whether
or not the termination is legitimately for Good Reason, the Payment Date shall
be the date that it is finally determined (but only if so determined), whether
by mutual agreement by the parties or upon final judgment, order or decree of a
court of competent jurisdiction (the time for appeal therefrom having expired
and no appeal having been perfected), that such termination by Executive is
legitimately for Good Reason.
(b) Notwithstanding the foregoing, the definition
of "Payment Date" shall not entitle Executive to any compensation with respect
to any period during which Executive's employment has actually ceased. Rather,
such definition shall be used solely to determine the date, if applicable, upon
which severance pay becomes payable to Executive pursuant to Section 3 of this
Agreement.
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6. No Obligation to Mitigate.
6.1 Executive shall not be required to mitigate damages or
the amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by Executive as the result
of employment by any other person after the termination of employment with PIA,
or otherwise, except as provided in Section 3.
6.2 The provisions of this Agreement, and any payment
provided for hereunder, shall not reduce any amounts otherwise payable, or in
any way diminish Executive's existing rights, or rights which would accrue
solely as a result of the passage of time, under any benefit plan, incentive
plan or securities plan, employment agreement or other contract, plan or
arrangement.
7. Binding on Successors.
7.1 This Agreement shall be binding on and inure to the
benefit of any successor to PIA. PIA agrees to require any successor or assign
to all or substantially all of its business and/or assets, by written agreement,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that PIA would be required to perform it if no such
transaction had taken place, except where such assignment occurs as a matter of
law (e.g., in the case of a merger or consolidation), in which case no such
formal assumption shall be required. Any failure of PIA to obtain such agreement
prior to the effectiveness of any such transaction shall be a material breach of
this Agreement and shall entitle Executive to terminate her employment for Good
Reason, but shall not otherwise affect the rights of PIA or such successor or
assign under any such agreement between them, nor invalidate any such agreement.
As used in this Agreement, "PIA" shall mean PIA as presently constituted and any
successor or assign to its business and/or assets which executes and delivers
the agreement provided for in this Section 7.1 or which otherwise becomes bound
by all the terms and provisions of this Agreement by operation of law.
7.2 This Agreement shall inure to the benefit of and be
enforceable by Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devotees and legatees. If
Executive should die while any amounts are still payable to her hereunder, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to Executive's estate.
8. Notices.
8.1 Method of Giving Notice. Any notice (which term
includes payments and communications of any sort whatsoever) required or
permitted to be delivered under this Agreement shall be in writing and shall be
delivered to the party to whom addressed in person, or by certified mail, return
receipt requested, addressed as follows:
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If to Company: PIA Merchandising Services, Inc.
00000 XxxXxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
If to Executive: At her address as shown on the records of
PIA.
8.2 Change of Address. Any person whose address is
specified herein may change such address by giving notice to the other in the
manner herein provided.
8.3 Effectiveness of Notice. All notices given in
accordance with this Agreement shall, if mailed, be deemed to have been given or
delivered two (2) days after the date they are placed in the United States mail,
postage prepaid, properly addressed as herein required. If delivered personally
or by courier, they shall be deemed given when actually received.
9. Choice of Law.
This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California.
10. Severability.
The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
11. Legal Fees and Expenses.
In the event of any dispute under this Agreement, the
prevailing party shall be entitled to recover all legal fees and expenses which
it may incur in resolving such dispute.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
PIA MERCHANDISING SERVICES, INC. EXECUTIVE:
By: /s/ Xxxxx X. Xxxxx /s/ Xxxxx X. Xxxx
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Xxxxx X. Xxxxx, Chief Executive XXXXX X. XXXX
Officer and President
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