EXHIBIT 10AI
EXECUTION COPY
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement")
dated as of October 2, 1998, is by and between Zenith Electronics Corporation, a
Delaware corporation (the "Company"), and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (the "Executive").
WHEREAS, the Executive currently serves as Senior Vice President and
General Counsel of the Company pursuant to an Employment Agreement dated as of
January 1,1997; and
WHEREAS, the Company and the Executive desire to amend and restate
the existing Employment Agreement by entering into this Agreement to provide for
the continued employment of the Executive by the Company upon the terms and
subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties hereby agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive and
the Executive hereby agrees to be employed by the Company upon the terms and
subject to the conditions contained in this Agreement. The term of employment
of the Executive by the Company pursuant to this Agreement (the "Employment
Period") shall commence on the date hereof and shall end on December 31, 2000,
unless earlier terminated pursuant to Section 4, provided that the Employment
Period shall automatically be extended as of December 31, 2000 for one
additional year and, if so extended, shall automatically be further extended as
of each December 31 thereafter, for additional consecutive one-year periods,
unless either the Company or the Executive elects not to extend the Agreement by
written notice given to the other party on or prior to the October 2 that
precedes such December 31.
2. Position and Duties. The Company shall employ the Executive during
the Employment Period as its Senior Vice President and General Counsel. The
Executive shall perform faithfully and loyally and to the best of his abilities
the duties assigned to him hereunder, shall devote his full business time,
attention and effort to the affairs of the Company and shall use his reasonable
best efforts to promote the interests of the Company. The Executive shall report
to such executive officer of the Company as shall be designated from time to
time by the Chief Executive Officer of the Company (the "CEO") or the Board of
Directors of the Company (the "Board"). Notwithstanding the foregoing, the
Executive may engage in charitable, civic or community activities and, with the
prior approval of the CEO or the Board, may serve as a director of any business
corporation, provided that such activities of service does not materially
interfere with his duties hereunder or violate the terms of any of the covenants
contained Section 10 or 11.
3. Compensation.
------------
(a) Base Compensation. As compensation for the services to be
-----------------
provided by the Executive hereunder, the Company shall pay to the Executive
during the Employment Period a minimum annual salary of $275,000 (the "Base
----
Salary"), payable in installments in accordance with the Company's normal
------
payment schedule for senior management or the Company. The Executive's salary
may be increased or decreased from time to time, provided that the Executive's
salary shall not be decreased below the Base Salary specified by this Section
3(a). The Executive's annual salary in effect from time to time under this
Section 3(a) is hereinafter called his "Base Compensation."
(b) Annual Incentive Compensation. In addition to his Base
-----------------------------
Compensation, the Executive shall be entitled to receive an annual incentive
compensation award for services rendered during the Employment Period,
determined in accordance with Appendix A (the "Annual Incentive Compensation,"
---------- -----------------------------
and together with the Base Compensation, the "Annual Compensation").
-------------------
(c) Retention Bonus. In addition to his Annual Compensation,
---------------
the Executive shall be entitled to receive a retention bonus payable in two
installments, each in the amount of 25% of his Base Compensation as in effect
on the date of payment, on, or as soon as practicable after, each of January 1,
1999 and July 1, 1999 (the "Retention Bonus"); provided, however, that the right
--------------- -------- -------
to receive each such payment shall be subject to the condition (and only to the
condition) that the Executive shall not have voluntarily terminated his
employment hereunder or been terminated for Cause (as defined in Section 8)
prior to the relevant payment date (other than as a result of his death or
disability).
(d) Long-Term Incentive Bonus. In addition to his Annual
-------------------------
Compensation and his Retention Bonus, the Executive shall be entitled to receive
a long-term incentive bonus for services rendered during the Employment Period,
determined in accordance with Appendix B (the "Long-Term Incentive Bonus").
---------- -------------------------
(e) Supplemental Long-Term Disability Benefits. During the
------------------------------------------
Employment Period, the Executive shall be eligible for supplemental long-term
disability benefits, the current terms of which are described on Appendix C
----------
attached hereto.
2
(f) Supplemental Life Insurance Benefits. During the Employment
------------------------------------
Period, the Executive shall be eligible for supplemental life insurance
benefits, the current terms of which are described on Appendix D attached
----------
hereto.
(g) Other Benefits. In addition to the benefits described in
--------------
subsections (c), (d), (e) and (f) above, the Executive shall be entitled to
participate in all employee benefit plans generally available to those
executives who are parties to agreements with the Company which are comparable
to this Agreement, including, as of the date of this Agreement, automobile
allowance, home observation programs, tax, legal and financial services, group
medical and dental, health and accident, group life insurance, long-term
disability, short-term disability, executive insurance, pension, profit sharing
and 401(k) plans. The Executive shall be entitled to take time off for vacation
or illness in accordance with the Company's policy for senior executives and to
receive all other fringe benefits as are from time to time made generally
available to senior executives of the Company. The Company may from time to
time modify the benefits provided to the Executive, provided that all such
modifications are made on the same basis for all executives in positions
comparable to that of the Executive.
(h) Expense Reimbursement. The Company shall reimburse the Executive
---------------------
for all proper expenses incurred by him in the performance of his duties
hereunder in accordance with the Company's policies and procedures.
(i) Entitlement to Incentive Compensation. Notwithstanding any other
-------------------------------------
provision of this Agreement, the Executive shall be entitled to receive, when
and as payable in the ordinary course, any unpaid Annual Incentive Compensation
and any unpaid Long-term Incentive Bonus which is determined by reference to a
period which has ended prior to the year in which the Termination Date occurs.
4. Termination of Employment Period. The Employment Period shall be
--------------------------------
terminated upon the first to occur of (i) termination of the employment of the
Executive by the Company at any time without Cause (as such term is defined in
Section 8) upon written notice given to the Executive at least 30 days prior to
such termination, (ii) the election by the Company pursuant to Section 1 not to
extend this Agreement in accordance with Section 1, (iii) the election by the
Executive pursuant to Section 1 not to extend this Agreement in accordance with
Section 1, (iv) termination of the employment of the Executive by the Company at
any time for Cause or Serious Misconduct upon written notice given to the
Executive, (v) termination of the employment of the Executive by the Company on
account of the Executive's having become unable (as determined by the Board in
good faith) to
3
regularly perform his duties hereunder by reason of illness or incapacity for a
period of more than 180 consecutive days, (vi) termination of the employment of
the Executive by reason of retirement, (vii) the Executive's death, (viii)
termination of employment by the Executive at any time upon written notice
given to the Company at least 90 days prior to such termination which specifies
a Termination Date prior to or after December 31, 1999 or (ix) termination of
employment by the Executive upon written notice given to the Company on or prior
to October 2, 1999 which specifies a Termination Date of December 31, 1999. The
date on which the Employment Period terminates is hereinafter referred to as the
"Termination Date." Notwithstanding anything to the contrary herein, under no
----------------
circumstances shall termination of employment pursuant to clauses (i), (ii),
(iii), (v), (viii) or (ix) above be considered termination of employment by
reason of retirement (except for purposes of Appendix D).
5. Consequences of Termination Outside of a Change in Control Period.
-----------------------------------------------------------------
If a Termination Date occurs, other than within a Change in Control Period, as
defined in Section 8, the Executive shall be entitled to receive the Retention
Bonus provided in Section 3(c) (except as otherwise provided therein), any
Annual Incentive Compensation and Long Term Incentive Bonus earned under
Sections 3(b), (d) and (i) and not previously paid and the compensation and
benefits specified by this Section 5 in lieu of any severance amounts which
otherwise would be payable to the Executive.
(a) Termination by Company Without Cause. If the Employment Period
------------------------------------
terminates for a reason set forth in clause (i) of Section 4;
(i) the Company shall pay to the Executive (A) Base
Compensation otherwise payable through the Termination Date, (B)
vacation pay accrued through the Termination Date and (C)
reimbursement of expenses incurred through the Termination Date, in
each case to the extent not theretofore paid;
(ii) the Company shall pay to the Executive, if the termination
occurs prior to January 1, 2000, an amount equal to one and one-half
times the Executive's Annual Compensation for the year in which the
Termination Date occurs, or if the termination occurs on or after
January 1, 2000, one times the Executive's Annual Compensation for the
year in which the Termination Date occurs (assuming in each case that
Annual Incentive Compensation will be paid at the target level);
(iii) the Company shall pay to the Executive a pro rata portion
of (A) the Executive's targeted Annual
4
Incentive Compensation for the year in which the Termination Date
occurs and (B) the Executive's Long-Term Incentive Bonus, each of
which shall be determined and payable as soon as possible; the
Long-Term Incentive Bonus portion shall be based on the
appropriate percentage of the Executive's aggregate Base
Compensation earned from January 1, 1998 through the end of the
month in which the Termination Date occurs, as determined by the
Board or its delegate in the manner described in Section 3 after
prorating through the end of the month in which the Termination
Date occurs on a straight line basis over the three year period
the applicable performance criteria set forth on (or determined
pursuant to) Appendix B;
----------
(iv) the Company shall provide the Executive with continued
coverage, or substantially equivalent coverage, during the period
represented by the amount of the Annual Compensation payment
under clause (ii) (i.e., one and one-half years or one year, as
----
the case may be) under all welfare benefit plans or arrangements
(including group medical and dental, health and accident, long-
term disability, short-term disability, group life insurance,
and executive insurance programs) unless the Executive becomes
covered under similar plans or arrangements maintained by a
subsequent employer; provided that if the Company is unable to
--------
provide such continued coverage or substantially similar
coverage, the Company shall pay the Executive a lump sum cash
amount equal to the present value of such benefits; and
(v) the Company shall provide to the Executive outplacement
services appropriate for the Executive in accordance with
industry standards (the cost of which shall not exceed 15% of the
Executive's Base Compensation).
If the Company shall cause the "Constructive Discharge" of the Executive as
defined in Section 8, it shall be treated for all purposes hereunder as a
termination of the employment of the Executive without Cause.
(b) Failure of Company to Renew Agreement. If the Employment
-------------------------------------
Period terminates for a reason set forth in clause (ii) of Section 4, in lieu of
any severance amounts which otherwise would be payable to the Executive, the
Company shall (i) pay to the Executive the amounts or provide the Executive the
benefits set forth in Sections 5(a) (i), (ii), (iii) and (v) and (ii) provide to
the Executive the benefits described in Section 5(a) (iv) for the period of one
year commencing on the Termination Date.
5
(c) Termination for Cause. If the Employment Period terminates for a
---------------------
reason set forth in clause (iv) of Section 4, (1) the Company shall pay to the
Executive the amounts set forth in Section 5(a) (i), (ii) the Company may, in
its sole discretion, but shall have no obligation to, pay to the Executive the
amount of the targeted Annual Incentive Compensation for the year in which the
Termination Date occurs, prorated to the Termination Date, and (iii) the
Executive shall not be entitled to any severance payments, but shall be entitled
to any benefits payable under applicable plans.
(d) Disability, Retirement or Death. If the Employment Period
-------------------------------
terminates for any reason set forth in clause (v), (vi) or (vii) of Section 4,
(i) the Company shall pay to the Executive or his executor, administrator or
other legal representative, as the case may be, the amounts set forth in Section
5(a) (i), (ii) the Company may, in its sole discretion, but shall have no
obligation to, pay to the Executive or his executor, administrator or other
legal representative, as the case may be, the amount of the targeted Annual
Incentive Compensation for the year in which the Termination Date occurs,
prorated to the Termination Date, and (iii) and the Executive (or his executor,
administrator or other, legal representative, as the case may be) shall not be
entitled to any severance payments, but shall be entitled to any benefits
payable under applicable plans.
(e) Failure of Executive to Renew Agreement; Voluntary Termination by
-----------------------------------------------------------------
the Executive Prior to or After December 31, 1999. If the Employment Period
-------------------------------------------------
terminates for any reason set forth in clause (iii) or (viii) of Section 4, (1)
the Company shall pay to the Executive the amounts set forth in Section 5(a)
(i), (ii) the Company may, in its sole discretion, but shall have no obligation
to, pay to the Executive the amount of the targeted Annual Incentive
Compensation for the year in which the Termination Date occurs, prorated to the
Termination Date, and (iii) the Executive shall not be entitled to any severance
payments, but shall be entitled to any benefits payable under applicable plans.
(f) Voluntary Termination by the Executive On December 31, 1999.
-----------------------------------------------------------
Notwithstanding the foregoing provisions of this Section 5, if the Employment
Period terminates for any reason set forth in clause (ix) or Section 4, and
whether or not the Termination Date occurs during a Change in Control Period, as
defined in Section 8, the Company shall (i) pay to the Executive the amounts set
forth in Section (5)(a) (i), (ii), (iii) (A) and (v) and (ii) provide to the
Executive the benefits described in Section 5(a) (iv) for the period of one and
one-half years commencing on the Termination Date; provided that, for this
purpose, the amounts set forth in Section 5(a) (iii) (A) shall be determined
based upon the actual Annual Incentive Compensation for 1999 rather than the
targeted level. The provisions of this paragraph are not intended to limit the
6
Executive's right to severance payments and other benefits under Section 6 to
the extent that the Executive is entitled thereto; however, no severance
payments or other benefits shall be payable or due the Executive under this
Section 5 in any circumstance where Executive obtains the severance payments
and other benefits provided in Section 6(a).
6. Consequence of Termination Within Change in Control Period.
----------------------------------------------------------
(a) Termination Payments and Benefits. If during a Change in Control
---------------------------------
Period, as defined in Section 8, the Employment Period of the Executive
terminates other than by reason of a Nonqualifying Termination, as defined in
Section 8, then the Company shall pay or provide to the Executive (or his
executor, administrator or other legal representative, as the case may be)
within 30 days following the Termination Date, as compensation for services
rendered to the Company and in lieu of any severance amounts which otherwise
would be payable to the Executive, the following amounts:
(i) the Company shall pay to the Executive a lump sum cash
amount equal to the sum of (A) the Executive's Base Compensation,
accrued vacation pay and reimbursable expenses incurred through the
Termination Date, in each case to the extent not theretofore paid, (B)
the Executive's Annual Incentive Compensation in an amount equal to
the annualized (for any fiscal year consisting of less than 12 full
months or with respect to which the Executive has been employed by the
Company for less than 12 full months) bonus payable to the Executive
by the Company for the fiscal year in which the Termination Date
occurs (determined at the higher of the target or actual level of
performance for such year), multiplied by a fraction, the numerator of
which is the number of days in the fiscal year in which the
termination occurs prior to the Termination Date and the denominator
of which is 365 or 366, as applicable, (C) a pro rata portion of the
Executive's Long-Term Incentive Bonus, calculated in the manner
described in Section 5(a) (iii), (D) three times the Executive's
highest annual rate of Base Compensation during the three full fiscal
years prior to the Termination Date, (E) three times the greater of
(I) the Executive's highest Annual Incentive Compensation (or
predecessor annual bonus) payable during the three full fiscal years
prior to the Termination Date and (II) the target Annual Incentive
Compensation for the year in which the Termination Date occurs, (F)
any Retention Bonus not previously paid to the Executive, whether or
not then due, and (G) all
7
accruals under the Zenith Electronics Corporation Supplemental
Salaried Profit Sharing Retirement Plan;
(ii) for a period of three years commencing on the Termination
Date, or until such earlier date on which the Executive becomes
covered under similar plans maintained by a subsequent employer, the
Company shall continue to provide the Executive and his dependents
with coverage, or shall provide substantially equivalent coverage,
under all welfare benefit plans or arrangements (including group
medical and dental, health and accident, long-term disability, short-
term disability, group life insurance and executive insurance
programs) with the same level of coverage, upon the same terms and
otherwise to the same extent as such plans or arrangements shall have
been in effect immediately prior to the Termination Date or, if more
favorable to the Executive, as provided generally with respect to
other peer executives of the Company. If the Company cannot provide
such continued coverage or substantially equivalent coverage, the
Company shall pay the Executive a lump sum cash amount equal to the
present value of such coverage; and
(iii) the company shall provide ourplacement services appropriate
for the Executive in accordance with industry standards (which shall
not exceed 15% of the Executive's Base Compensation).
(b) Nonqualifying Termination Within Change in Control Period. If
---------------------------------------------------------
during a Change in Control Period the Employment Period shall terminate by
reason of a Nonqualifying Termination, as defined in Section 8, then the Company
shall pay to the Executive (or to his executor, administrator or other legal
representative, as the case may be) within 30 days following the Termination
Date, a lump sum cash amount equal to the sum of the Executive's Base
Compensation payable through the Termination Date, any vacation pay accrued
prior to the Termination Date and any reimbursable expenses incurred prior to
the Termination Date, in each case to the extent not theretofore paid.
(c) Bonus Payments. In the event of a termination described in
--------------
Section 6(a) or Section 6(b) as described above, in addition to the amounts
therein provided, the Executive shall be entitled to received the Retention
Bonus provided in Section 3(c) (except as otherwise provided therein) and any
Annual Incentive Compensation and Long Term Incentive Bonus earned under
Sections 3(b), (d) and (i) and not previously paid.
7. Certain Additional Payments by the Company.
------------------------------------------
8
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the Company
or its affiliated companies to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement of otherwise, but determined without regard to any additional payments
required under this Section 7; (a "Payment") would be subject to the excise tax
-------
imposed by Section 4999 of the Internal Revenue Code of 1980, as amended (the
"Code"), or any interest or penalties are incurred by the Executive with respect
----
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
----------
the Executive shall be entitled to receive an additional payment (a "Gross-Up
--------
Payment") in an amount such that after payment by the Executive of all taxes
-------
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 7(c), all determinations
required to be made under this Section 7, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by the Company's
public accounting firm (the "Accounting Firm") which shall provide detailed
---------------
supporting calculations both to the Company and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change in Control, the Executive shall appoint another
nationally recognized public accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 7, shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall furnish the
Executive with a written opinion that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations
------------
9
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 7(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than 10 business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which the Executive gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
-------- -------
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 7(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and ▇▇▇ for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such
10
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided further, that if the Company directs the Executive to pay
-------- -------
such claim and ▇▇▇ for a refund, the Company shall advance the amount of such
payment to the Executive on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and provided further, that any extension of the statute of limitations relating
-------- -------
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 7(c), the Executive becomes entitled to receive,
and receives, any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section 7(c)
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 7(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid; provided that to the extent that such advance being forgiven shall
result in increased federal, state and local taxes, Executive shall be paid an
additional amount (to the extent not payable pursuant to any of the other
provisions of this Agreement) sufficient, after paying all federal, state and
local taxes on such amount, to provide Executive with an amount in cash equal to
the amount of increased federal, state and local taxes incurred with respect to
such advance having been forgiven.
8. Definitions. As used in this Agreement, the following terms
-----------
shall have the respective meanings set forth below;
(a) "Cause" means (i) embezzlement or misappropriation of corporate
-----
funds by the Executive, (ii) commission by the Executive of a felony involving
moral turpitude or (iii) a material
11
breach by the Executive of the Executive's duties and responsibilities to the
Company as in effect on the date hereof, including the refusal to perform or the
substantial disregard of such duties, other than as a result of incapacity due
to physical or mental illness, which is demonstrably willful and deliberate,
which is committed in bad faith or without a reasonable belief that the breach
is in the Company's best interests, and which is not remedied within a
reasonable period of time after receipt of written notice of such breach.
(b) "Change in Control" means:
-----------------
(i) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of Section
------
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the
"Exchange Act"), of beneficial ownership within the meaning of
------------
Rule 13d-3 promulgated under the Exchange Act, of 25% or more of
either (i) then outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (ii) the combined
--------------------------------
voting power of then outstanding securities of the Company
entitled to vote generally in the election of, directors (the
"Outstanding Company Voting Securities"), provided such ownership
------------------------------------- --------
interest is greater than the interest then owned by LG
Electronics, Inc. and its affiliates (collectively, "LGE");
excluding, however, the following: (A) any acquisition directly
from the Company (excluding any acquisition resulting from the
exercise of an exercise, conversion or exchange privilege unless
the security being so exercised, converted or exchanged was
acquired directly from the Company), (B) any acquisition by the
Company or LGE, (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 (3) of this Section
8(b); provided further, that for purposes of clause (B), if any
----------------
Person (other than the Company, LGE or any employee benefit plan
(or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company) shall become the
beneficial owner of 25% or more of the Outstanding Company Common
Stock or 25% or more of the Outstanding Company Voting Securities
by reason of an acquisition by the Company (and which ownership
interest is greater than the interest then owned by LGE), and
such Person shall, after such acquisition by the Company, become
the beneficial owner of any additional shares of the Outstanding
Company Common Stock or any additional Outstanding Company Voting
Securities and such beneficial ownership is publicly
12
announced, such additional beneficial ownership shall constitute
a Change in Control;
(ii) individuals who, as of the date hereof, constitute the
Board (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 date
hereof whose election, or nomination for election by the
Company's stockholders, was approved by the vote or 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; and
(iii) approval by the stockholders at the Company of a
reorganization, merger or consolidation 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 Company Common Stock and the
Outstanding Company Voting Securities immediately prior to such
Corporate Transaction will beneficially own, directly or
indirectly, more than 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 Company Common Stock and the Outstanding
Company Voting Securities, as the case may be, (ii) no Person
(other than; the Company or LGE; 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
13
indirectly, 25% or more of the Outstanding Company Common Stock
or the Outstanding Company Voting Securities, as the case may be)
will beneficially own, directly or indirectly, 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.
Notwithstanding anything else contained herein to the contrary, in no event
shall the reorganization of the Company in bankruptcy (the "Reorganization") or
--------------
the occurrence of any of the events described in paragraphs (i), (ii) or (iii)
of this Section 8(b) in connection with the Reorganization, be deemed to
constitute a Change in Control, if and to the extent that, immediately following
the Reorganization, LGE is the holder of record of not less than 50% of the
Outstanding Company Voting Securities.
(c) "Change in Control Period" means the period of time
------------------------
beginning on the date on which a Change in Control is consummated and ending on
the earlier to occur of (i) 24 months following such Change in Control and (ii)
the Executive's death.
(d) "Constructive Discharge" by the Company means the Executive
----------------------
electing to terminate his employment with the Company if (i) the Company commits
a material breach of this Agreement, (ii) Executive gives the Company written
notice of such material breach, (iii) the Company fails to fully remedy such
material breach within 30 days of Executive's written notice, and (iv) Executive
by written notice to the Company within 90 days of the expiration of such 30
days period terminates his employment.
(e) "Good Reason" means, without the Executive's express written
-----------
consent, the occurrence of any of the following events within a Change in
Control Period:
(i) any of (i) the assignment to the Executive of any
duties inconsistent in any material respect with the Executive's
position(s), duties, responsibilities or status with the Company
immediately prior to the commencement of such Change in Control
Period, (ii) a change in the Executive's reporting
responsibilities, titles or offices with the Company as in effect
immediately prior to the commencement of such Change in Control
Period or (iii) any failure to re-elect the Executive to any
position with the Company held by the
14
Executive immediately prior to the commencement of such Change in
Control Period;
(ii) a reduction by the Company in the Executive's rate of Base
Compensation as in effect immediately prior to the commencement of
such Change in Control Period or as the same may be increased from
time to time thereafter or the failure by the Company to increase such
rate of Base Compensation each year after the commencement of such
Change in Control Period by an amount which at least equals, on a
percentage basis, the mean average percentage increase, during the two
full fiscal years of the Company immediately preceding the
commencement of such Change in Control Period, in the rates of base
salary for all officers of the Company elected by the Board;
(iii) the failure of the Company to pay the Executive his Annual
Incentive Compensation at or greater than the target level in effect
in the year in which the Change in Control Period commences;
(iv) any requirement of the Company that the Executive (i) be
based anywhere other than at, the facility where the Executive is
located immediately prior to the commencement of such Change in
Control Period or (ii) travel on Company business to an extent
substantially more burdensome than the travel obligations of the
Executive immediately prior to the commencement of such Change in
Control Period,
(v) an election by the Company not to extend the Employment
Period in accordance with Section 1;
(vi) the failure of the Company to (i) continue in effect any
employee benefit plan or compensation plan in which the Executive is
participating immediately prior to the commencement of such Change in
Control Period, unless the Executive is permitted to participate in
other plans providing the Executive with substantially comparable
benefits, or the taking of any action by the Company which would
adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such plan, (ii) provide the
Executive and the Executive's dependents welfare benefits (including,
without limitation, group medical and dental, health and accident,
long-term disability, short-term disability, group life insurance, and
executive insurance programs) in accordance with the most favorable
plans, practices, programs and policies of the Company and its
affiliate companies in effect for the Executive
15
immediately prior to the commencement of such Change in Control Period
or, if more favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the Company
and its affiliated companies, (iii) provide fringe benefits in
accordance with the most favorable plans, practices, programs and
policies of the Company and its affiliated companies in effect for the
Executive immediately prior to the commencement of such Change in
Control Period or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives
of the Company and its affiliated companies, (iv) provide the
Executive with paid vacation in accordance with the most favorable
plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive immediately prior
to the commencement of such Change in Control Period or, if more
favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and
its affiliated companies, or (v) reimburse the Executive promptly for
all reasonable employment expenses incurred by the Executive in
accordance with the most favorable policies, practices and procedures
of the Company and its affiliated companies in effect for the
Executive immediately prior to the commencement of such Change in
Control Period, or if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives
of the Company and its affiliated companies; or
(vii) the failure of the Company to obtain the assumption
agreement from any successor as contemplated in Section 18(b).
For purposes of this Agreement, any good faith determination of Good
Reason made by the Executive shall be conclusive; provided, however, that an
-------- -------
isolated, insubstantial and inadvertent action taken in good faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive shall not constitute Good Reason.
(f) "Nonqualifying Termination" means a termination of the Employment
-------------------------
Period (i) by the Company for Serious Misconduct, (ii) by the Executive as a
result of his election pursuant to Section 1 not to extend the Agreement in
accordance with Section 1 or by the Executive at any other time for any reason,
in either case other than for Good Reason, (iii) as a result of the Executive's
death or (iv) by the Company due to the Executive's absence from his duties with
the Company on a full-time basis for at least 180 consecutive days as a result
of the Executive's
16
incapacity due to physical or mental illness. A termination of the Employment
Period for any reason not expressly set forth in the preceding sentence,
including, without limitation, the election by the Company not to extend the
Agreement pursuant to Section 1, shall not constitute a Nonqualifying
Termination.
(g) "Serious Misconduct" means (i) embezzlement or misappropriation
------------------
of corporate funds by the Executive, (ii) commission by the Executive of a
felony involving moral turpitude or (iii) a material breach by the Executive of
the Executive's duties and responsibilities to the Company as in effect prior to
the commencement of the Change in Control Period, including the refusal to
perform or the substantial disregard of such duties, other than as a result of
incapacity due to physical or mental illness, which is demonstrably willful and
deliberate, which is committed in bad faith or without a reasonable belief that
the breach is in the Company's best interests, and which is not remedied within
a reasonable period of time after receipt of written notice of such breach.
9. Federal and State Withholding. The Company shall deduct from the
-----------------------------
amounts payable to the Executive pursuant to this Agreement the amount of all
required federal and state withholding taxes in accordance with the Executive's
Form W-4 on file with the Company and all applicable social security taxes.
10. Noncompetition; Nonsolicitation.
-------------------------------
(a) The Executive acknowledges that in the course of his employment
with the Company pursuant to this Agreement he will become familiar, and during
the course of his employment with the Company or any of its subsidiaries prior
to the date of this Agreement he has become familiar, with trade secrets and
customer lists of, and other confidential information concerning, the Company
and its subsidiaries and that his services have been and will be of special,
unique and extraordinary value to the Company.
(b) The Executive agrees that during the Employment Period and, if
the Employment Period terminates for a reason set forth in clause (i) or (ii) of
Section 4, for a period of two years thereafter (the "Noncompetition Period"),
---------------------
he shall not in any manner, directly or indirectly, through any person, firm or
corporation, alone or as a member of a partnership or as an officer, director,
stockholder, investor or employee of or consultant to any other corporation or
enterprise or otherwise, engage or be engaged, or assist any other person, firm,
corporation or enterprise in engaging or being engaged, in any business being
conducted by the Company or any of its subsidiaries as of the termination of the
Employment Period in any geographic area in which the Company is then conducting
such business.
17
(c) The Executive further agrees that during the Noncompetition
Period he shall not in any manner, directly or indirectly induce or attempt to
induce any employee of the Company or any of its subsidiaries to terminate or
abandon his or her employment for any purpose whatsoever.
(d) Nothing in this Section 10 shall prohibit the Executive from
being (i) a stockholder in a mutual fund or a diversified investment company or
(ii) a passive owner of not more than two percent of the outstanding stock of
any class of a corporation any equity securities of which are publicly traded,
so long as the Executive has no active participation in the business of such
corporation.
(e) If, at any time of enforcement of this Section 10, a court holds
that the restrictions stated herein unreasonable under circumstances then
existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances shall be substituted for
the stated period, scope or area and that the court shall be allowed to revise
the restrictions contained herein to cover the maximum period, scope and area
permitted by law.
11. Confidentiality. The Executive shall not, at any time during the
---------------
Employment Period or thereafter, make use of or disclose, directly or
indirectly, any trade secret or other confidential or secret information of the
Company or of its subsidiaries or other technical, business, proprietary or
financial information of the Company or of its subsidiaries not available to the
public generally or to the competitors of the Company or of its subsidiaries
("Confidential Information"), except to the extent that such Confidential
------------------------
Information (a) becomes a matter of public record or is published in a
newspaper, magazine or other periodical available to the general public, other
than as a result of any act or omission of the Executive, or (b) is required to
be disclosed by any law, regulation or order of any court or regulatory
commission, department or agency. Promptly following the termination of the
Employment Period, the Executive shall surrender to the Company all records,
memoranda, notes, plans, reports, computer tapes and software and other
documents and data relating to any Confidential Information or the business of
the Company or of its subsidiaries which he may then possess or have under his
control (together with all copies thereof); provided, however, that the
Executive may retain copies of such documents as are necessary for the
preparation of his federal or state income tax returns and other personal
financial purposes (including defense and prosecution of claims); provided
further it shall not be a violation of this Agreement for Executive to disclose
Confidential Information while employed by the Company when the Executive in
good faith reasonably believes he is pursuing the Company's best interests.
18
12. Enforcement. The parties hereto agree that the Company would be
-----------
damaged irreparably in the event any provision of Sections 10 or 11 of this
Agreement were not performed in accordance with their respective terms or were
otherwise breached and that money damages would be an inadequate remedy for any
such nonperformance or breach. Therefore, the Company or its successors or
assigns shall be entitled, in addition to other rights and remedies existing
in their favor, to an injunction or injunctions to prevent any breach or
threatened breach of any of such provisions and to enforce such provisions
specifically (without posting a bond or other security).
13. Survival. Sections 10, 11 and 12 of this Agreement and any rights
--------
and remedies arising out of this Agreement shall survive and continue in full
force and effect in accordance with the respective terms hereof, notwithstanding
any termination of the Employment Period.
14. Reimbursement of Expenses. If any contest or dispute shall arise
-------------------------
under this Agreement involving termination of the Executive's employment with
the Company or involving the failure or refusal of the Company to perform fully
in accordance with the terms hereof, the Company shall reimburse the Executive,
on a current basis, for all legal fees and expenses, if any, incurred by the
Executive in connection with such contest or dispute, together with interest in
an amount equal to the prime rate from time to time in effect, as published in
The Wall Street Journal under "Money Rates," but in no event higher than the
-----------------------
maximum legal rate permissible under applicable law, such interest to accrue
from the date the Company receives the Executive's statement for such fees and
expenses through the date of payment thereof; provided, however, that in the
-------- -------
event the resolution of any such contest or dispute includes a finding denying,
in total, the Executive's claims in such contest or dispute, the Executive shall
be required to reimburse the Company, over a period of 12 months from the date
of such resolution, for all sums advanced to the Executive pursuant to this
Section 14. If the amounts of Executive's federal, state and local taxes are
increased by Executive's receipt of reimbursement pursuant to this Section 14
("Reimbursement Tax Increase"), such reimbursement shall be increased by an
--------------------------
amount ("Tax Gross-Up Amount") sufficient after paying all amounts of increases
-------------------
in federal, state and local taxes occurring by virtue of Executive's receipt of
such Tax Gross-Up Amount to provide Executive with an amount equal to such
Reimbursement Tax Increase.
15. Notices. All notices and other communications required or
-------
permitted under this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered, when delivered by courier or
overnight express service or five days after having been sent by certified or
registered mail, postage
19
prepaid, addressed (a) if to the Executive, to the Executive's address set forth
in the records of the Company or, if to the Company, to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
President and Chief Executive Officer, Zenith Electronics Corporation, ▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ or (b) to such other address as either party may have
furnished to the other party in writing in accordance herewith, except that
notices of change of address shall be effective only upon receipt.
16. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
17. Entire Agreement. This Agreement constitutes the entire agreement
----------------
and understanding between the parties with respect to the subject matter hereof
and supersedes and preempts any prior understanding, agreements or
representations (including indemnification arrangements and existing employee
benefit plans and programs) by or between the parties, written or oral, which
may have related in any manner to the subject matter hereof other than rights to
indemnification, if any, for the benefit of the Executive. Pursuant to, but not
in limitation of, the foregoing sentence, the Employment Agreement dated January
1, 1997 between the Company and the Executive shall be terminated, effective as
of the date hereof, and shall have no further force or effect, and the Executive
and the Company each release any and all claims and any rights arising
thereunder.
18. Successors; Binding Agreement.
------------------------------
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in paragraph (a) of this Section
18, it will cause any successor or transferee unconditionally to assume, by
written instrument delivered to the Executive (or his executor, administrator or
other
20
legal representative, as the case may be), all of the obligations of the Company
hereunder. Failure of the Company to obtain such assumption prior to the
effectiveness of any such merger, consolidation or transfer of assets shall be a
breach of this Agreement and shall entitle the Executive to compensation and
other benefits from the Company in the same amount and on the same terms as the
Executive would be entitled hereunder if the Executive's employment were
terminated during a Change in Control Period other than by reason of a
Nonqualifying Termination. For purposes of implementing the foregoing, the date
on which any such merger, consolidation or transfer becomes effective shall be
deemed the Termination Date.
(c) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amounts would be payable to the Executive hereunder had the
Executive continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to such person or
persons appointed in writing by the Executive to receive such amounts or, if no
person is so appointed, to the Executive's estate.
19. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal laws of the State of Illinois
without regard to the principle of conflict of laws.
20. Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended or waived only with the prior written consent of the Company and the
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
21. Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed to be an original and both of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
ZENITH ELECTRONICS CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------
Its: President & Chief
Executive Officer
------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
APPENDIX A
Annual Incentive Compensation
-----------------------------
For each fiscal year of the Company, the Executive shall be entitled
to Annual Incentive Compensation in an amount equal to between 50% (target
performance) and 100% (maximum performance) or, if applicable, a lesser amount
if target performance is not achieved for each performance criteria, of his
average Base Compensation for the year. Such Annual Incentive Compensation will
be based upon the extent to which specified target and maximum levels of
performance criteria are achieved for such year.
For 1998, the performance criteria will be comprised of the following
corporate objectives, each having the weighting allocation designated below:
1. Adjusted Operating Income 35%
2. Operating Cash Flow 35%
3. Cash Flow from Restructuring
(i.e., proceeds from assets
sales less cash for Restructuring) 30%
For years after 1998, the weighting allocation of the Annual Incentive
Compensation among each of the performance criteria and the corresponding
performance levels shall be established as soon as practicable after the
beginning of the relevant fiscal year by the Board (or a duly authorized
committee thereof) upon recommendation from the CEO. Achievement of the
performance criteria shall be determined by the Board or its delegate based on
audited financial statements of the Company; provided, however, that in
-------- -------
determining the extent to which such criteria have been attained, such criteria
shall be subject to appropriate and equitable adjustments by the Board or its
delegate to reflect extraordinary events or circumstances, such as mergers,
acquisitions, dispositions or similar events. To the extent that the performance
criteria are attained at a specified performance level for any component of the
formula which is at or above the minimum performance level, the corresponding
portion (determined based on both the weighting allocation of the performance
criteria and the level at which performance is achieved) of the Annual Incentive
Compensation shall be payable. At achievement of performance between specified
performance levels (including target and maximum levels of performance), the
percentage of Base Compensation payable with respect to a particular performance
criteria shall be determined by mathematical interpolation.
23
For 1998, the performance levels for each performance criteria shall
be:
Performance Minimum Level II Level III Target Maximum
----------- ------- -------- --------- ------ -------
Criteria (25%) (45%) (70%) (100%) (200%)
-------- ----- ----- ----- ------ ------
Adjusted ($155,000,000) ($140,000,000) ($130,000,000) ($117,000,000) ($45,000,000)
Operating
Income (35%)
Operating Cash ($115,000,000) ($100,000,000) ($ 90,000,000) ($ 78,000,000) $ 0
Flow (35%)
Cash Flow from ($ 20,000,000) ($ 10,000,000) ($ 2,000,000) $ 3,000,000 $20,000,000
Restructuring
(30%)
For example, if the Executive's average Base Compensation for the year
was $100,000 and if the Company had earnings before taxes of
($135,000,000), operating cash flow of ($120,000,000) and cash flow from
restructuring of $25,000,000, the Executive's Annual Incentive Compensation
would be determined a follows:
(i) Adjusted Operating Income Portion: (35% weighting * (50% of
$100,000) = target) * (45% for Level II performance) + ((($140,000,000) -
($135,000,000)/($140,000,000) - ($130,000,000)) * (70% - 45%) for
interpolated portion of Level III performance) = $ 7,887.50.
(ii) Operating Cash Flow Portion: (35% weighting * (50% of $100,000)
= target) * (0% for inability to meet minimum performance level) = $0.
(iii) Cash Flow From Restructuring Portion: (30% weighting * (50% of
$100,000) = target) * (200% for maximum performance = $30,000.
Total: $ 37,887.50
=========
24
APPENDIX B
Long-Term Incentive Bonus
-------------------------
The Executive shall be entitled to a Long-Term Incentive Bonus
payable on the later of March 31, 2001 or 30 days after receipt of the Company's
audited financial statements for calendar year 2000 (the "Long-Term Incentive
-------------------
Bonus"), based upon the extent to which specified target and maximum levels of
-----
performance criteria are achieved for the three year period of 1998 to 2000. The
Executive's Long-Term Incentive Bonus will be equal to 225% of his average Base
Compensation for such three year period if target performance is achieved and
300% of such average Base Compensation if maximum performance is achieved.
The performance criteria will be comprised of the following corporate
objectives, each having the weighting allocation designated below:
1. Adjusted Operating Income 30%
2. Operating Cash Flow 30%
3. Cash Flow from Restructuring
(i.e., proceeds from assets
sales less cash for Restructuring) 20%
4. Digital Income (i.e., gross
profit on digital products
and VSB royalties) 20%
Achievement of the performance criteria shall be determined by the
Board or its delegate based on audited financial statements of the Company;
provided, however, that in determining the extent to which such criteria have
-------- -------
been attained, such criteria shall be subject to appropriate and equitable
adjustments by the Board or its delegate to reflect extraordinary events or
circumstances, such as mergers, acquisitions, dispositions or similar events. To
the extent that the performance criteria are attained at a specified performance
level for any component of the formula which is at or above the minimum
performance level, the corresponding portion (determined based on both the
weighting allocation of the performance criteria and the level at which
performance is achieved of the Long-Term Incentive Bonus shall be payable. At
achievement of performance between specified performance levels (including
target and maximum levels of performance), the percentage of Base Compensation
payable with respect to a particular performance criteria shall be determined by
mathematical interpolation.
25
Performance levels for each performance criteria for the 1998-2000
period shall be:
Performance Minimum Level II Level III Target Maximum
----------- ------- -------- --------- ------ -------
Criteria (25%) (45%) (70%) (100%) (200%)
-------- ----- ----- ----- ------ ------
Adjusted ($245,000,000) ($225,000,000) ($205,000,000) ($187,000,000) ($90,000,000)
Operating
Income (30%)
Operating Cash ($140,000,000) ($120,000,000) ($100,000,000) ($ 83,000,000) $15,000,000
Flow (30%)
Cash Flow from ($ 20,000,000) ($ 10,000,000) $ 0 $ 8,000,000 $60,000,000
Resturcturing
(20%)
Digital Income $ 10,000,000 $ 13,000,000 $ 16,000,000 $ 20,000,000 $50,000,000
(20%)
26
APPENDIX C
Supplemental Long-Term Disability Benefits
------------------------------------------
(a) Purpose. The benefits provided by this Schedule shall be in
-------
addition to the benefits provided by the long term disability plan maintained by
the Company for salaried employees as of the date hereof (the "LTD Plan"),
--------
provided, however, that no benefits shall be payable under this Schedule if the
Executive does not elect to participate in the LTD Plan.
(b) Definitions. As used in this Schedule, the following terms shall
-----------
have the following respective meanings:
(i) "Disability" means the inability of the Executive arising
----------
during his employment by the Company to perform the duties pertaining
to the employment position held by the Executive with the Company at
the inception of such disability, if such inability is due to sickness
or injury. If such disability continues for a period of more than 180
days, it shall become a "total long term disability" effective upon
the expiration of such 180 days. The terms "disability" and "total
long term disability" exclude disability resulting from intentional
self-inflicted injuries or sickness.
(ii) "Maximum monthly salary" of the Executive means the maximum
----------------------
amount of monthly salary specified in the LTD Plan on which the
benefit payments under such plan will be calculated and based. (As of
the date hereof, benefits under the LTD Plan are 66-2/3% of monthly
salary. The maximum monthly salary thereunder is $6,000 and the
maximum monthly benefit thereunder is $4,000.)
(c) Benefits Payable. The amount of monthly benefits payable by the
----------------
Company to the Executive during a total long term disability of the Executive
shall be 66-2/3% of the amount, if any, by which the actual monthly salary he
was receiving immediately prior to the commencement of his disability exceeds
his maximum monthly salary as heretofore defined, provided, however, that if
such actual monthly salary exceeds $12,500, then the amount of such benefits
payable by the Company to the Executive shall be limited to 66-2/3% of the
amount by which $12,500 exceeds his maximum monthly salary.
(d) Exclusion. No benefits shall be payable under this Schedule if
---------
the LTD Plan has been terminated prior to the date of the commencement of the
disability.
(e) Period of Benefit Payment. Benefits shall be payable by the
--------------------------
Company to the Executive upon the commencement of
27
the total long term disability (180 days after inception of the disability) and
thereafter as long as both of the following conditions continue to be satisfied:
(i) The long term disability continues, and
(ii) The Executive is under the care of a physician.
Notwithstanding the foregoing, the benefits hereunder shall cease and terminate
upon the first of the following to occur:
(i) The cessation of the total long term disability.
(ii) The death of the Executive.
(iii) The failure of the Executive to comply with Subsection (i)
of this Schedule.
(iv) The cessation of the payment of benefits to the Executive
under the LTD Plan for any reason not specified above.
(f) Reduction or Termination of Benefits. If during the period of
------------------------------------
total long term disability the Executive becomes employed by any employer
(including the Company) in a position substantially comparable to the employment
position held by the Executive with the Company at the inception of such
disability or if it is determined that the Executive is medically able to work
in another such position, the Company shall then or at any time or times
thereafter have the right to reduce the amount of benefits provided hereunder to
any lesser amount specified by the Company or discontinue such benefits
altogether.
(g) Effect of Termination of Long Term Disability Plan. In the event
--------------------------------------------------
the Executive elects not to participate or elects to terminate his participation
in the LTD Plan, then this Schedule shall be of no further force and effect, and
the Company shall have no obligation to provide the benefits described herein.
In the event the Executive does participate in and does not terminate his
participation in the LTD Plan, and the LTD Plan is terminated by the Company
subsequent to the commencement of the disability, the Executive shall
nevertheless continue to be entitled to the benefits provided hereunder and, in
addition, the Company shall be obligated to provide, and the Executive shall be
entitled to receive, long term disability benefits in the same amounts and under
the same terms and conditions as if the LTD Plan remained in full force and
effect. Nothing herein shall prohibit the Company from at any time, or from time
to time, establishing a substitute plan or plans for the LTD Plan, in which
event: (1) the Company shall be relieved of its obligation to continue payment
of benefits
28
under the terminated LTD Plan and shall be obligated to provide benefits under
the substituted plan or plans; and (2) "maximum monthly salary" defined in
Subsection (b) (2) above shall mean the maximum monthly salary specified in such
substitute plan or plans.
(h) Determinations. All determinations as to whether a disability or
--------------
total long term disability exists at any time or has ceased to exist, all
determinations as to date of commencement or cessation of such disability or
total long term disability and all determinations as to whether the Executive is
medically able to work in another position as provided in Subsection (f) shall
be made by the Company's Corporate Medical Director (or if at any time no person
holds such a position with the Company, then by any physician designated by the
Company from time to time), which determination shall be final and binding on
the parties hereto regardless of whether such determination is in accord with
any medical or other decision made under the LTD Plan.
(i) Medical Examinations and Data. The Company at its own expense
-----------------------------
shall have the right and opportunity to make a medical examination of the person
of the Executive in the event of a sickness or injury of the Executive which
constitutes or might constitute a disability or a total long term disability as
herein defined and as often as the Company may require. Such examination shall
be conducted by the Company's Corporate Medical Director or any physician
designated by the Company from time to time. The Executive agrees to submit to
all such examinations. In addition, the Company shall be entitled to examine and
obtain copies of all medical records pertaining to such sickness or injury of
any licensed physician, hospital, organization, institution or person and the
Executive agrees to furnish the Company with written authorization to examine
and obtain copies of such records as often as required by the Company.
29
APPENDIX D
Supplemental Life Insurance Benefits
------------------------------------
(a) Supplemental Life Insurance Benefit. The life insurance benefits
-----------------------------------
provided in this Schedule shall be in addition to any group term life insurance
program applying generally to salaried employees. In the event the Executive's
employment with the Company is terminated for any reason, other than by death,
prior to age fifty-five (55), no benefits shall be paid pursuant to this
Schedule.
(b) Benefit Amount - Preretirement. If the Executive shall die prior
------------------------------
to retirement, the Company shall pay to the beneficiary designated by the
Executive in writing (or, if the Executive fails to designate a beneficiary, to
the Executive's estate) a lump sum equal to one and one-half (1-1/2) times the
Executive's base salary at the date of death.
(c) Benefit Amount - Postretirement. The life insurance benefits
-------------------------------
provided under this Schedule shall continue for a period of ten (10) years from
the date of the Executive's retirement. If the Executive shall die within one
year after the date of retirement, the Company shall pay to the beneficiary
designated by the Executive in writing (or, if the Executive fails to designate
a beneficiary, to the Executive's estate) a lump sum equal to one and one-half
(1-1/2) times the Executive's base salary in effect on the date of the
Executive's retirement. Thereafter, on each yearly anniversary after
commencement of such ten (10) year period, the amount of such life insurance
benefit shall be decrease by ten percent (10%) of the amount of such benefit in
effect at the commencement of such ten (10) year period. If the Executive is
alive on the tenth (10th) anniversary of the commencement of such ten (10) year
period, the life insurance benefits provided under this Schedule shall cease and
expire and be of no further force and effect and the Company shall have no
further obligation hereunder.
(d) Purchase of Life Insurance Policy. The Company may, but is not
---------------------------------
required to, purchase a life insurance policy to fund the life insurance
benefits payable to the Executive hereunder. If such an insurance policy is
purchase by the Company, such policy shall name the Company as owner and
beneficiary and, when purchased, shall remain a general unsecured, unrestricted
asset of the Company, and neither the Executive nor any beneficiary of the
Executive shall have any rights with respect to, or claim against, such policy.
Such policy, if and when purchased by the Company, shall not be deemed to be
held under any trust for the benefit of the Executive or any beneficiary of the
Executive, nor shall such policy be deemed to be held in trust as collateral
security for fulfilling the obligations of the Company hereunder. The benefits
30
provided to the Executive and any beneficiary of the Executive under this
Schedule are based upon the general credit of the Company and are otherwise
unsecured. In the event the Company shall purchase a life insurance policy as
set forth in this Subsection (d), and if a medical examination or examinations
of the Executive and/or the furnishing of a health statement signed by the
Executive (which statement may include an authorization by the Executive to any
licensed physician or any organization, institution, or person that has
knowledge of the Executive or his dependents to give such information to the
insurer), is requested by the insurer, then the Executive agrees to submit to
such examination or examinations or to provide such health statement in whatever
form required by the insurer. If the Executive refuses to submit to such
examination or examinations or to provide such health statement, then neither
the Executive nor any beneficiary of the Executive shall have any right to the
life insurance benefits provided under this Schedule and the Company shall have
no further obligation hereunder.
31
