Exhibit 10.3
SEVERANCE AGREEMENT
THIS AGREEMENT, dated September 30, 2003, is made by and between
Point.360 (the "Company") and Xxxx X. Steel (the "Executive").
WHEREAS, the Company considers it essential to the best interests of
its stockholders to xxxxxx the continued employment of key management personnel;
and
WHEREAS, the Board recognizes that, as is the case with many publicly
held corporations, the possibility of a Change in Control exists and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definitions of capitalized terms used in this
Agreement are provided in the last Section hereof.
2. Term of Agreement. The Term of this Agreement shall commence on the
date hereof and shall continue in effect through December 31, 2005; provided,
however, that commencing on January 1, 2006 and each January 1 thereafter, the
Term shall automatically be extended for one additional year unless, not later
than September 30 of the preceding year, the Company or the Executive shall have
given notice not to extend the Term; and further provided, however, that if a
Change in Control shall have occurred during the Term, the Term shall expire no
earlier than twenty-four (24) months beyond the month in which such Change in
Control occurred.
3. Company's Covenants Summarized. In order to induce the Executive to
remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
conditions described herein, to pay the Executive the Severance Payments and the
other payments and benefits described herein. Except as provided in Section 9.1
hereof, no Severance Payments shall be payable under this Agreement unless there
shall have been (or, under the terms of the second sentence of Section 6.1
hereof, there shall be deemed to have been) a termination of the Executive's
employment with the Company following a Change in Control and during the Term.
This Agreement shall not be construed as creating an express or implied contract
of employment and, except as otherwise agreed in writing between the Executive
and the Company, the Executive shall not have any right to be retained in the
employ of the Company.
4. The Executive's Covenants. The Executive agrees that, subject to the
terms and conditions of this Agreement, in the event of a Potential Change in
Control during the Term, the
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Executive will remain in the employ of the Company until the earliest of (i) a
date which is six (6) months from the date of such Potential Change in Control,
(ii) the date of a Change in Control, (iii) the date of termination by the
Executive of the Executive's employment for Good Reason or by reason of death,
Disability or Retirement, or (iv) the termination by the Company of the
Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the Term, during any
period that the Executive fails to perform the Executive's full-time duties with
the Company as a result of incapacity due to physical or mental illness, the
Company shall pay the Executive's full salary to the Executive at the rate in
effect at the commencement of any such period, together with all compensation
and benefits payable to the Executive under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company during such
period (other than any disability plan), until the Executive's employment is
terminated by the Company for Disability.
5.2 If the Executive's employment shall be terminated for any
reason following a Change in Control and during the Term, the Company shall pay
the Executive's full salary to the Executive through the Date of Termination at
the rate in effect immediately prior to the Date of Termination or, if higher,
the rate in effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, together with all compensation and
benefits payable to the Executive through the Date of Termination under the
terms of the Company's compensation and benefit plans, programs or arrangements
as in effect immediately prior to the Date of Termination or, if more favorable
to the Executive, as in effect immediately prior to the first occurrence of an
event or circumstance constituting Good Reason.
5.3 If the Executive's employment shall be terminated for any
reason following a Change in Control and during the Term, the Company shall pay
to the Executive the Executive's normal post-termination compensation and
benefits as such payments become due. Such post-termination compensation and
benefits shall be determined under, and paid in accordance with, the Company's
retirement, insurance and other compensation or benefit plans, programs and
arrangements as in effect immediately prior to the Date of Termination or, if
more favorable to the Executive, as in effect immediately prior to the
occurrence of the first event or circumstance constituting Good Reason.
6. Severance Payments.
6.1 If the Executive's employment is terminated following a Change
in Control and during the Term, other than (A) by the Company for Cause, (B) by
reason of death or Disability, or (C) by the Executive without Good Reason, then
the Company shall pay the Executive the amounts, and provide the Executive with
the benefits, described in this Section 6.1 ("Severance Payments") and Section
6.2, in addition to any payments and benefits to which the Executive is entitled
under Section 5 hereof. For purposes of this Agreement, the Executive's
employment shall be deemed to have been terminated following a Change in Control
by the Company without Cause or by the Executive with Good Reason, if (i) the
Executive's employment is terminated by the Company without Cause prior to a
Change in Control (whether
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or not a Change in Control ever occurs) and such termination was at the request
or direction of a Person who has entered into an agreement with the Company the
consummation of which would constitute a Change in Control, (ii) the Executive
terminates his employment for Good Reason prior to a Change in Control (whether
or not a Change in Control ever occurs) and the circumstance or event which
constitutes Good Reason occurs at the request or direction of such Person, or
(iii) the Executive's employment is terminated by the Company without Cause or
by the Executive for Good Reason and such termination or the circumstance or
event which constitutes Good Reason is otherwise in connection with or in
anticipation of a Change in Control (whether or not a Change in Control ever
occurs). For purposes of any determination regarding the applicability of the
immediately preceding sentence, any position taken by the Executive shall be
presumed to be correct unless the Company establishes to the Committee by clear
and convincing evidence that such position is not correct.
(A) In lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination and in lieu of any severance
benefit otherwise payable to the Executive, the Company shall pay to the
Executive a lump sum severance payment, in cash, equal to two (2) times the sum
of (i) the Executive's base salary as in effect immediately prior to the Date of
Termination or, if higher, in effect immediately prior to the first occurrence
of an event or circumstance constituting Good Reason, and (ii) the amount of the
highest bonus earned by the Executive in respect of the three fiscal years
ending immediately prior to the fiscal year in which occurs the Date of
Termination.
(B) For the twenty-four (24) month period immediately following
the Date of Termination, the Company shall arrange to provide the Executive and
his dependents life, disability, accident and health insurance benefits
substantially similar to those provided to the Executive and his dependents
immediately prior to the Date of Termination or, if more favorable to the
Executive, those provided to the Executive and his dependents immediately prior
to the first occurrence of an event or circumstance constituting Good Reason, at
no greater cost to the Executive than the cost to the Executive immediately
prior to such date or occurrence; provided, however, that, unless the Executive
consents to a different method (after taking into account the effect of such
method on the calculation of "parachute payments" pursuant to Section 6.2
hereof), such health insurance benefits shall be provided through a third-party
insurer. Benefits otherwise receivable by the Executive pursuant to this Section
6.1(B) shall be reduced to the extent benefits of the same type are received by
or made available to the Executive during the twenty-four (24) month period
following the Executive's termination of employment (and any such benefits
received by or made available to the Executive shall be reported to the Company
by the Executive); provided, however, that the Company shall reimburse the
Executive for the excess, if any, of the cost of such benefits to the Executive
over such cost immediately prior to the Date of Termination or, if more
favorable to the Executive, the first occurrence of an event or circumstance
constituting Good Reason.
(C) Notwithstanding any provision of any annual or long-term
incentive plan to the contrary, the Company shall pay to the Executive a lump
sum amount, in cash, equal to any unpaid incentive compensation which has been
allocated or awarded to the Executive for a completed fiscal year or other
measuring period preceding the Date of Termination under any such plan and
which, as of the Date of Termination, is contingent only upon the continued
employment of the Executive to a subsequent date.
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(D) If the Executive would have become entitled to benefits under
the Company's post-retirement health care or life insurance plans, as in effect
immediately prior to the Date of Termination or, if more favorable to the
Executive, as in effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, had the Executive's employment terminated
at any time during the period of twenty-four (24) months after the Date of
Termination, the Company shall provide such post-retirement health care or life
insurance benefits to the Executive and the Executive's dependents commencing on
the later of (i) the date on which such coverage would have first become
available and (ii) the date on which benefits described in subsection (B) of
this Section 6.1 terminate.
(E) The Company shall provide the Executive with outplacement
services suitable to the Executive's position for a period of one (1) year or,
if earlier, until the first acceptance by the Executive of an offer of
employment; provided, however, that in no event shall the cost for such
outplacement services exceed $10,000.
6.2 (A) Whether or not the Executive becomes entitled to the Severance
Payments, if any of the payments or benefits (including the vesting of options)
received or to be received by the Executive in connection with a Change in
Control or the Executive's termination of employment (whether pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Change in Control or any Person
affiliated with the Company or such Person) (all such payments and benefits,
excluding the Gross-Up Payment, being hereinafter referred to as the "Total
Payments") will be subject to the Excise Tax, the Company shall pay to the
Executive an additional amount (the "Gross-Up Payment") such that the net amount
retained by the Executive, after deduction of any Excise Tax on the Total
Payments and any federal, state and local income and employment taxes and Excise
Tax upon the Gross-Up Payment, and after taking into account the phase out of
itemized deductions attributable to the Gross-Up Payment, shall be equal to the
Total Payments.
(B) For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of
the Total Payments shall be treated as "parachute payments" (within the meaning
of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("Tax
Counsel") reasonably acceptable to the Executive and selected by the accounting
firm which was, immediately prior to the Change in Control, the Company's
independent auditor (the "Auditor"), such payments or benefits (in whole or in
part) do not constitute parachute payments, including by reason of section
280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the
meaning of section 280G(b)(l) of the Code shall be treated as subject to the
Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments
(in whole or in part) represent reasonable compensation for services actually
rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of
the Base Amount allocable to such reasonable compensation, or are otherwise not
subject to the Excise Tax, and (iii) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the Auditor in accordance
with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income tax at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of the Executive's residence on the Date of Termination (or if there is
no Date of Termination, then the date on which the Gross-Up Payment is
calculated for purposes of this Section 6.2), net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes.
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(C) In the event that the Excise Tax is finally determined to be
less than the amount taken into account hereunder in calculating the Gross-Up
Payment, the Executive shall repay to the Company, within five (5) business days
following the time that the amount of such reduction in the Excise Tax is
finally determined, the portion of the Gross-Up Payment attributable to such
reduction (plus that portion of the Gross-Up Payment attributable to the Excise
Tax and federal, state and local income and employment taxes imposed on the
Gross-Up Payment being repaid by the Executive), to the extent that such
repayment results in a reduction in the Excise Tax and a dollar-for-dollar
reduction in the Executive's taxable income and wages for purposes of federal,
state and local income and employment taxes, plus interest on the amount of such
repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In
the event that the Excise Tax is determined to exceed the amount taken into
account hereunder in calculating the Gross-Up Payment (including by reason of
any payment the existence or amount of which cannot be determined at the time of
the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in
respect of such excess (plus any interest, penalties or additions payable by the
Executive with respect to such excess) within five (5) business days following
the time that the amount of such excess is finally determined. The Executive and
the Company shall each reasonably cooperate with the other in connection with
any administrative or judicial proceedings concerning the existence or amount of
liability for Excise Tax with respect to the Total Payments.
(D) Section 6.2 of this Agreement shall supplant all other
provisions for any Gross-Up Payment or similar payment in any other agreements,
options and arrangements between the Company and the Executive.
6.3 The payments provided in subsections (A), (C) and (D) of Section
6.1 hereof and in Section 6.2 hereof shall be made not later than the fifth day
following the Date of Termination (or if there is no Date of Termination, then
the date on which the Gross-Up Payment is calculated for purposes of Section 6.2
hereof); provided, however, that if the amounts of such payments cannot be
finally determined on or before such day, the Company shall pay to the Executive
on such day an estimate, as determined in good faith by the Executive or, in the
case of payments under Section 6.2 hereof, in accordance with Section 6.2
hereof, of the minimum amount of such payments to which the Executive is clearly
entitled and shall pay the remainder of such payments (together with interest on
the unpaid remainder (or on all such payments to the extent the Company fails to
make such payments when due) at 120% of the rate provided in section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but
in no event later than the thirtieth (30th) day after the Date of Termination.
In the event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan by
the Company to the Executive, payable on the fifth (5th) business day after
demand by the Company (together with interest at 120% of the rate provided in
section 1274(b)(2)(B) of the Code). At the time that payments are made under
this Agreement, the Company shall provide the Executive with a written statement
setting forth the manner in which such payments were calculated and the basis
for such calculations including, without limitation, any opinions or other
advice the Company has received from Tax Counsel, the Auditor or other advisors
or consultants (and any such opinions or advice which are in writing shall be
attached to the statement).
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6.4 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, in seeking
in good faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5) business
days after delivery of the Executive's written requests for payment accompanied
with such evidence of fees and expenses incurred as the Company reasonably may
require.
7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control and during
the Term, any purported termination of the Executive's employment (other than by
reason of death) shall be communicated by written Notice of Termination from one
party hereto to the other party hereto in accordance with Section 10 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. Further, a Notice of Termination for Cause is required
to include a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board which was called and held for the purpose of considering
such termination (after reasonable notice to the Executive and an opportunity
for the Executive, together with the Executive's counsel, to be heard before the
Board) finding that, in the good faith opinion of the Board, the Executive was
guilty of conduct set forth in clause (i) or (ii) of the definition of Cause
herein, and specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination," with respect to
any purported termination of the Executive's employment after a Change in
Control and during the Term, shall mean (i) if the Executive's employment is
terminated for Disability, thirty (30) days after Notice of Termination is given
(provided that the Executive shall not have returned to the full-time
performance of the Executive's duties during such thirty (30) day period), and
(ii) if the Executive's employment is terminated for any other reason, the date
specified in the Notice of Termination (which, in the case of a termination by
the Company, shall not be less than thirty (30) days (except in the case of a
termination for Cause) and, in the case of a termination by the Executive, shall
not be less than fifteen (15) days nor more than sixty (60) days, respectively,
from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of an arbitrator or a court of
competent jurisdiction (which is not
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appealable or with respect to which the time for appeal therefrom has expired
and no appeal has been perfected); provided, however, that the Date of
Termination shall be extended by a notice of dispute given by the Executive only
if such notice is given in good faith and the Executive pursues the resolution
of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination occurs
following a Change in Control and during the Term and the Date of Termination is
extended in accordance with Section 7.3 hereof, the Company shall continue to
pay the Executive the full compensation in effect when the notice giving rise to
the dispute was given (including, but not limited to, salary) and continue the
Executive as a participant in all compensation, benefit and insurance plans in
which the Executive was participating when the notice giving rise to the dispute
was given, until the Date of Termination, as determined in accordance with
Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all
other amounts due under this Agreement (other than those due under Section 5.2
hereof) and shall not be offset against or reduce any other amounts due under
this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
employment with the Company terminates during the Term, the Executive is not
required to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company pursuant to Section 6 hereof or Section
7.4 hereof. Further, the amount of any payment or benefit provided for in this
Agreement (other than Section 6.1(B) hereof) shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company) to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the Executive's employment for Good
Reason after a Change in Control, except that, for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination.
9.2 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 amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death of
the Executive) if the Executive had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the executors, personal representatives or administrators of the
Executive's estate.
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10. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed, if to the
Executive, to the address inserted below the Executive's signature on the final
page hereof and, if to the Company, to the address set forth below, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon actual receipt:
To the Company:
Point.360
0000 Xxxxxxxxx Xxxxxxxxx,
Xxxxx 000
X.X. Xxx 0000
Xxxxxxxxx, XX 00000
Attention: President
11. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of any lack of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any other
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof which have been made by either party,
including but not limited to the Benefits Agreement entered into between the
Executive and the Company; provided, however, that this Agreement shall
supersede any agreement setting forth the terms and conditions of the
Executive's employment with the Company only in the event that the Executive's
employment with the Company is terminated on or following a Change in Control,
by the Company other than for Cause or by the Executive for Good Reason. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of California. All references to sections
of the Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections. Any payments provided for hereunder shall be paid
net of any applicable withholding required under federal, state or local law and
any additional withholding to which the Executive has agreed. The obligations of
the Company and the Executive under this Agreement which by their nature may
require either partial or total performance after the expiration of the Term
(including, without limitation, those under Sections 6 and 7 hereof) shall
survive such expiration.
12. Validity. 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.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
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14. Settlement of Disputes; Arbitration.
14.1 All claims by the Executive for benefits under this Agreement
shall be directed to and determined by the Committee and shall be in writing.
Any denial by the Committee of a claim for benefits under this Agreement shall
be delivered to the Executive in writing and shall set forth the specific
reasons for the denial and the specific provisions of this Agreement relied
upon. The Committee shall afford a reasonable opportunity to the Executive for a
review of the decision denying a claim and shall further allow the Executive to
appeal to the Committee a decision of the Committee within sixty (60) days after
notification by the Committee that the Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Los Angeles, California in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the evidentiary standards
set forth in this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
Notwithstanding any provision of this Agreement to the contrary, the Executive
shall be entitled to seek specific performance of the Executive's right to be
paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the following terms
shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section 6.2
hereof.
(C) "Base Amount" shall have the meaning set forth in section
280G(b)(3) of the Code.
(D) "Beneficial Owner" shall have the meaning set forth in Rule
13d-3 under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive's incapacity due to physical or mental
illness or any such actual or anticipated failure after the issuance of a Notice
of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof)
that has not been cured within 30 days after a written demand for substantial
performance is delivered to the Executive by the Board, which demand
specifically identifies the manner in which the Board believes that the
Executive has not substantially performed the Executive's duties, or (ii) the
willful engaging by the Executive in conduct which is demonstrably and
materially injurious to the Company or its subsidiaries, monetarily or
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otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act,
or failure to act, on the Executive's part shall be deemed "willful" unless
done, or omitted to be done, by the Executive not in good faith and without
reasonable belief that the Executive's act, or failure to act, was in the best
interest of the Company and (y) in the event of a dispute concerning the
application of this provision, no claim by the Company that Cause exists shall
be given effect unless the Company establishes to the Committee by clear and
convincing evidence that Cause exists.
(G) A "Change in Control" shall be deemed to have occurred if an
the event of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended ("Exchange Act"); provided that, without limitation,
such a change in control shall be deemed to have occurred if (i) a tender offer
shall be made and consummated for the ownership of 35% or more of the
outstanding voting securities of the Company, (ii) the Company shall be merged
or consolidated with another corporation and as result of such merger or
consolidation less than 50% of the outstanding voting securities of the
surviving or resulting corporation shall be owned in the aggregate by the former
shareholders of the Company, other than affiliates (within the meaning of the
Exchange Act) of any party to such merger or consolidation, as the same shall
have existed immediately prior to such merger or consolidation, (iii) the
Company shall sell, lease, exchange or transfer substantially all of its assets
to another corporation, entity or person which is not a wholly-owned subsidiary,
(iv) a person (other than Executive), as defined in Sections 13(d) and 14(d) (as
in effect on the date hereof) of the Exchange Act, shall acquire 35% or more of
the outstanding voting securities of the Company (whether directly, indirectly,
beneficially or of record, in a single transaction or a series of related
transactions by one person or more than one person acting in concert), or (v)
the shareholders of the Company approve a plan or proposal for the liquidation
or dissolution of the Company.
(H) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(I) "Committee" shall mean (i) the individuals (not fewer than
three in number) who, on the date six months before a Change in Control,
constitute the Compensation Committee of the Board, plus (ii) in the event that
fewer than three individuals are available from the group specified in clause
(i) above for any reason, such individuals as may be appointed by the individual
or individuals so available (including for this purpose any individual or
individuals previously so appointed under this clause (ii)).
(J) "Company" shall mean Point.360 and, except in determining
under Section 15(G) hereof whether or not any Change in Control of the Company
has occurred, shall include any successor to its business and/or assets which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
(K) "Date of Termination" shall have the meaning set forth in
Section 7.2 hereof.
(L) "Disability" shall be deemed the reason for the termination by
the Company of the Executive's employment, if, as a result of the Executive's
incapacity due to
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physical or mental illness, the Executive shall have been absent from the
full-time performance of the Executive's duties with the Company for a period of
six (6) consecutive months, the Company shall have given the Executive a Notice
of Termination for Disability, and, within thirty (30) days after such Notice of
Termination is given, the Executive shall not have returned to the full-time
performance of the Executive's duties.
(M) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
(N) "Excise Tax" shall mean any excise tax imposed under section
4999 of the Code.
(O) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(P) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive's
express written consent) after any Change in Control, or prior to a Change in
Control under the circumstances described in clauses (ii) and (iii) of the
second sentence of Section 6.1 hereof (treating all references in paragraphs (I)
through (VII) below to a "Change in Control" as references to a "Potential
Change in Control"), of any one of the following acts by the Company, or
failures by the Company to act, unless, in the case of any act or failure to act
described in paragraph (i), (v), (vi) or (vii) below, such act or failure to act
is corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:
(i) the assignment to the Executive of any material duties which
would be demeaning to a senior managerial employee of the Company, or which are
not in keeping with duties customarily required of senior managerial employees
of the Company;
(ii) a reduction by the Company in the Executive's annual base
salary as in effect on the date hereof or as the same may be increased from time
to time;
(iii) the relocation of the Executive's principal place of
employment to a location more than 50 miles from the Executive's principal place
of employment immediately prior to the Change in Control or the Company's
requiring the Executive to be based anywhere other than such principal place of
employment (or permitted relocation thereof) except for required travel on the
Company's business to an extent substantially consistent with the Executive's
present business travel obligations;
(iv) the failure by the Company to pay to the Executive any
portion of the Executive's current compensation or to pay to the Executive any
portion of an installment of deferred compensation under any deferred
compensation program of the Company, within seven (7) days of the date such
compensation is due;
(v) the failure by the Company to continue in effect any
compensation plan in which the Executive participates immediately prior to the
Change in Control which is material to the Executive's total compensation,
unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan,
11
or the failure by the Company to continue the Executive's participation therein
(or in such substitute or alternative plan) on a basis not materially less
favorable, both in terms of the amount or timing of payment of benefits provided
and the level of the Executive's participation relative to other participants,
as existed immediately prior to the Change in Control;
(vi) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the Executive
under any of the Company's pension, savings, life insurance, medical, health and
accident, or disability plans in which the Executive was participating
immediately prior to the Change in Control, the taking of any other action by
the Company which would directly or indirectly materially reduce any of such
benefits or deprive the Executive of any material fringe benefit enjoyed by the
Executive at the time of the Change in Control, or the failure by the Company to
provide the Executive with the number of paid vacation days to which the
Executive is entitled on the basis of years of service with the Company in
accordance with the Company's normal vacation policy in effect at the time of
the Change in Control; or
(vii) any purported termination of the Executive's employment
which is not effected pursuant to a Notice of Termination satisfying the
requirements of Section 7.1 hereof; for purposes of this Agreement, no such
purported termination shall be effective. The Executive's right to terminate the
Executive's employment for Good Reason shall not be affected by the Executive's
incapacity due to physical or mental illness. The Executive's continued
employment shall not constitute consent to, or a waiver of rights with respect
to, any act or failure to act constituting Good Reason hereunder. For purposes
of any determination regarding the existence of Good Reason, any claim by the
Executive that Good Reason exists shall be presumed to be correct unless the
Company establishes to the Committee by clear and convincing evidence that Good
Reason does not exist.
(Q) "Gross-Up Payment" shall have the meaning set forth in Section 6.2
hereof.
(R) "Notice of Termination" shall have the meaning set forth in Section
7.1 hereof.
(S) "Pension Plan" shall mean (i) any tax-qualified, supplemental or
excess defined benefit pension plan maintained by the Company and any other
defined benefit plan or agreement entered into between the Executive and the
Company which is designed to provide the Executive with supplemental retirement
benefits and (ii) tax-qualified, supplemental or excess defined contribution
plan maintained by the Company and any other defined contribution plan or
agreement entered into between the Executive and the Company.
(T) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company.
12
(U) "Potential Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following paragraphs shall have occurred:
(i) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(ii) the Company or any Person publicly announces an intention to
take or to consider taking actions which, if consummated, would constitute a
Change in Control;
(iii) any Person becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 10% or more of either the
then outstanding shares of common stock of the Company or the combined voting
power of the Company's then outstanding securities (not including in the
securities beneficially owned by such Person any securities acquired directly
from the Company or its affiliates); or
(iv) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
(V) "Retirement" shall be deemed the reason for the termination by the
Executive of the Executive's employment if such employment is terminated in
accordance with the Company's retirement policy, including early retirement,
generally applicable to its salaried employees.
(W) "Severance Payments" shall have the meaning set forth in Section
6.1 hereof.
(X) "Tax Counsel" shall have the meaning set forth in Section 6.2
hereof.
(Y) "Term" shall mean the period of time described in Section 2 hereof
(including any extension, continuation or termination described therein).
(Z) "Total Payments" shall mean those payments so described in Section
6.2 hereof
(AA) Supplemental Severance Payment shall mean the payment described in
the Addendum to this Agreement.
16. Amendment to Employment Agreement. Notwithstanding any other
provision of this Agreement, in addition to all other payments provided under
this Agreement, the Executive shall be entitled to the Supplemental Severance
Payment described in the Addendum to this Agreement upon the conditions set
forth therein. The Executive's Employment Agreement with the Company, dated June
7, 2001, is cancelled as of the date of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
13
POINT.360
By: /s/ Xxxx X. Bagerdjian
------------------------------------------
Name: Xxxx X. Bagerdjian
Title: Chairman of the Board,
President & Chief Executive Officer
/s/ Xxxx X. Steel
-------------------------------------
Xxxx X. Steel
Address: 0000 Xxxxxxxxx Xxxx., Xxxxx 000
-------------------------------------
Xxxxxxxxx, XX 00000
-------------------------------------
14
Addendum to Severance Agreement
During the first twenty-four (24) months following the date of this
Agreement, the Executive will receive a Supplemental Severance Payment shown
below next to the month of his termination if the Executive's employment is
terminated or constructively terminated without Cause as such term is defined in
the Executive's Employment Agreement with the Company dated June 7, 2001.
However, if there is a Change of Control and, during such twenty-four month
period the Executive's employment is terminated or constructively terminated
without Cause, or if the Executive terminates his employment for Good Reason,
the Executive will receive the greater of: (i) the amount the Executive would be
entitled to under the Severance Agreement, excluding this Addendum; or (ii) the
amount the Executive would be entitled to under this Addendum.
Calendar Month
(following the date of Agreement)
in which termination Supplemental Severance
takes place Payment
-------------------------------------- ---------------------------
1 $285,000
2 273,125
3 261,250
4 249,375
5 237,500
6 225,625
7 213,750
8 201,875
9 190,000
10 178,125
11 166,250
12 154,375
13 142,500
14 130,625
15 118,750
16 106,875
17 95,000
18 83,125
19 71,250
20 59,375
21 47,500
22 35,625
23 23,750
24 11,875
Thereafter 0
15
