EXHIBIT 12.2
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of September 8, 1994, by and between TYCO TOYS, INC., a
Delaware corporation having an office at 6000 Midlantic Drive, Mt. Laurel, New
Jersey 08054 (the "Company"), and GARY BAUGHMAN, residing at 2094 Sampson
Circle, Hudson, Ohio 44236 ("Mr. Baughman").
WITNESSETH:
WHEREAS, the parties are desirous of formalizing the terms of Mr.
Baughman's employment by the Company on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the premises and mutual agreements
hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT.
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a. Subject to Section 6 hereof, the Company hereby agrees to employ
Mr. Baughman (i) for the period of the Term ending on December 31,
1995 (the "Initial Period") as President and Chief Operating Officer
of the Company and (ii) for the remainder of the Term (the "Remainder
Period") as President and Chief Executive Officer of the Company. Mr.
Baughman hereby accepts such employment.
b. Mr. Baughman shall have such powers and duties as generally
pertain to the offices set forth in Section 1.a. hereof, including
without
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limitation the hiring and firing of subordinates; provided, however,
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that in the case of persons occupying, or whose employment is being
considered for, positions directly reporting to Mr. Baughman, such
hiring and firing shall be with the consent of the Chief Executive
Officer for the Initial Period and the Board for the Remainder Period.
c. Mr. Baughman shall be responsible to, and report directly to, the
Chief Executive Officer during the Initial Period, and to the Board
for the Remainder Period. Mr. Baughman shall perform those executive
duties consistent with the foregoing as shall be designated from time
to time by the Chief Executive Officer during the Initial Period, and
by the Board for the Remainder Period and on the terms and conditions
of this Agreement.
2. TERM. Subject to Section 6. hereof, Mr. Baughman's employment
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hereunder shall commence on ________, 1994 and terminate on December 31, 1998.
Subject to Section 7 hereof, on December 31, 1998, the term of Mr. Baughman's
employment shall be renewed and extended for an additional one-year period
unless by September 30, 1998 either party has given written notice to the other
that the term of Mr. Baughman's employment shall not be so renewed and extended.
3. COMPENSATION.
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a. The Company shall pay or grant, as the case may be, to Mr.
Baughman during the Term, except as otherwise expressly provided
herein:
(1) Base salary (the "Base Salary") at an annual rate of (A)
Four Hundred Fifty Thousand Dollars ($450,000) for the Initial Period and
(B) not less than Five Hundred Fifty Thousand Dollars ($550,000) for the
Remainder
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Period. The Base Salary shall be payable in bi-weekly installments and
subject to such deductions as are required by law. The Compensation
Committee shall review the amount of the Base Salary annually commencing
with the Base Salary payable for the calendar year 1997.
(2) An annual incentive bonus (the "Annual Bonus"), based on
a target amount equal to 90% (and a maximum amount equal to 135%) of the
Base Salary during the period to which the bonus relates, payable pursuant
to the Annual Bonus Plan (as defined below) upon the attainment by the
Company of specific performance criteria to be established by the
Compensation Committee and approved by the Board. Subject to such terms as
are set forth in the Annual Bonus Plan (as defined below), (i) thirty
percent of the Annual Bonus will be payable in restricted Common Stock
(valued for this purpose by the Compensation Committee in its sole
discretion at eighty percent of the fair market value of such stock on the
date of issuance) (the "Restricted Stock"), which stock will not be
transferable by Mr. Baughman for a period of two years from the date of
issuance and which will be subject to forfeiture upon termination for Cause
or resignation without Good Reason (for the lesser of cost and fair market
value on the date of termination or resignation) within such two-year
period, and (ii) the remaining seventy percent of the Annual Bonus will be
payable in cash or the Restricted Stock in such proportion as Mr. Baughman
may elect. The Restricted Stock which has not been forfeited will not be
subject to restriction on transferability at any time that Mr. Baughman is
not an employee of the Company. The Annual Bonus payable to Mr. Baughman
with respect to calendar year 1995 shall be an amount not less than Two
Hundred Twenty-Five Thousand Dollars ($225,000), a minimum of 30% of which
shall be payable in the Restricted Stock. The Annual
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Bonus shall be paid to Mr. Baughman no later than March 31 of the year
following the calendar year to which the Annual Bonus relates, but, except
with respect to the $225,000 bonus for 1995 referred to immediately above,
no earlier than the date the Compensation Committee determines that the
relevant performance criteria have been satisfied. Payment of the Annual
Bonus may be, in the sole discretion of the Compensation Committee, subject
to approval by holders of a majority of the voting shares of the Company of
the material terms of the plan or arrangement pursuant to which the Annual
Bonus is paid (the "Annual Bonus Plan"). The provisions of this Section
3.a.(2) are subject to the adoption by the Compensation Committee and the
Board of the Annual Bonus Plan, the terms and conditions thereof, and the
granting of specific awards thereunder; and
(3) (i) On January 1, 1995, options to acquire Common Stock
(the "Options") and performance accelerated restricted stock units of the
Company (the "PARS") with an aggregate value on such date equal to $787,500
and (ii) on January 1, 1996, Options and PARS with an aggregate value on
such date equal to $313,500. Subject to such terms as are set forth in the
LTIP (as defined below), (i) the actual number of PARS and Options to be
granted will be determined based on the fair market value of the PARS and
the Options on the date of the grant as determined by the Compensation
Committee in its sole discretion, (ii) one-third of the Options will become
exercisable on each of the first three anniversaries of the date of grant,
(iii) the PARS will become transferable and no longer subject to forfeiture
on the seventh anniversary of the date of grant, subject to earlier vesting
in whole or in part as set forth in the LTIP commencing on the third
anniversary of the date of grant and (iv) the exercise price of each of the
Options will be no less than the fair market value of the Common Stock on
the
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date of grant. Adoption of the LTIP (as defined below) may be, in the sole
discretion of the Compensation Committee, subject to approval by holders of
a majority of the voting shares of the Company. The provisions of this
Section 3.a.(3) are subject to the adoption by the Compensation Committee
and the Board of a long term incentive plan (the "LTIP"), the terms and
conditions thereof, and the granting of awards thereunder.
(4) On ____, 40,000 shares of restricted Common Stock on
terms set forth in a restricted stock agreement, which terms will include
the vesting of such stock on the first anniversary of the date of grant
unless, prior to such anniversary, Mr. Baughman terminates his employment
with the Company without Good Reason or the Company terminates Mr.
Baughman's employment for Cause.
b. The Company shall provide to Mr. Baughman, subject to his
insurability, $500,000 of group life insurance and such other fringe
benefits as are currently available to all senior executive employees,
as well as those which the Company may generally make available to its
senior executive employees in the future, including without
limitation, group medical and hospital coverage.
c. The Company shall reimburse Mr. Baughman for all reasonable
ordinary and necessary business expenditures made by him in connection
with, or in furtherance of, his employment, upon presentation and
approval of expense statements, receipts or vouchers or such other
supporting information as may from time to time be reasonably
requested by the Company.
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d. During the Term, the Company shall provide Mr. Baughman with a
private office, secretarial help and such other facilities and
services reasonably suitable to his position and adequate for the
performance of his duties, including an automobile allowance equal to
$900 per month.
e. The parties acknowledge and agree that the LTIP and the Annual
Bonus Plan shall contain such provisions and be administered in such
manner as the Compensation Committee shall, upon advice of legal
counsel, determine may be necessary so that compensation attributable
thereto is not subject to the deductibility limitations of Section
162(m) of the Code.
f. The Company shall have the right to deduct from any payment
hereunder an amount equal to the federal, state and local income taxes
and other amounts as may be required by law to be withheld.
4. FULL TIME DEVOTED TO COMPANY. Mr. Baughman shall devote his full time
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and attention to the business of the Company and shall not during the Term be
engaged in any other business activity, whether or not such business activity is
pursued for gain, profit or other pecuniary advantage, but this shall not be
construed as preventing Mr. Baughman from:
a. investing his assets in such form or manner as will not require
any services on his part in the operation of the affairs of the
entities in which such investments are made;
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b. serving as an officer or director of a trade or business
association related to the toy industry, such as, for example, The Toy
Manufacturer's Association;
c. serving as a member of the board of directors of corporations
which are not, and whose affiliates are not, engaged in the toy
industry; and
d. serving as a member of the Board, a parent, or a subsidiary
thereof, provided that Mr. Baughman in his sole discretion agrees to
so serve. If Mr. Baughman (with his consent) is elected or appointed
a director of any such entity (and, if so appointed, as a member of
any committee of the Board) during the Term, he shall serve in such
capacity without further compensation.
5. NON-COMPETITION; CONFIDENTIALITY.
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a. During the Non-Competition Period (as defined below), Mr. Baughman
will not directly or indirectly engage in the business of, or own or
control any interest in (except as a passive investor in a publicly
owned company whose primary business is not a Competing Enterprise and
owning less than 5% of the equity securities thereof), or act as
director, officer of, employee of, or consultant to, or participate in
or render any service to or be in any other way connected with, any
individual, partnership, joint venture, corporation or other business
entity directly or indirectly engaged anywhere in the United States in
any Competing Enterprise. In addition, during the Non-Competition
Period Mr. Baughman will not solicit suppliers or customers (or
potential suppliers or customers) of the Company for any Competing
Enterprise or entice any individual to
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terminate his employment with the Company or of any of the Company's
subsidiaries. In the event (1) the Company terminates Mr. Baughman's
employment for Cause or pursuant to Section 6.f. hereof or Mr.
Baughman's employment terminates as of the expiration of the Term and
(2) the provisions of Sections 6.b., 6.c. and 6.e. do not apply, this
Section 5.a. shall not apply unless it is specifically invoked by the
Company and the Company agrees to pay Mr. Baughman during the Non-
Competition Period in bi-weekly installments at an annual rate equal to
the Base Salary in effect on the date of termination. For purposes of
the foregoing, the Non-Competition Period is the period commencing on
______________, 1994 and terminating on the first anniversary of the
June 30th which occurs during the year in which Mr. Baughman's
employment with the Company terminates for any reason, including
expiration of the Term.
b. Mr. Baughman agrees that during the Term and thereafter all trade
secrets, confidential information with respect to marketing plans,
manufacturing plans or techniques and confidential financial matters
of the Company and its subsidiaries (collectively "Trade Secrets")
which are learned by him in the course of his employment by the
Company and any other Trade Secrets received, developed or hereafter
learned in the course of such employment or in association with the
(or its subsidiaries) shall be treated as confidential by him
shall not be disclosed by him unless expressly authorized by the
Company, or unless the Trade Secrets become generally available to the
public otherwise than through disclosure by Mr. Baughman.
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c. Mr. Baughman acknowledges and agrees that in view of the unique
quality of his services provided to the Company and the fact that the
Company's business heavily depends upon its proprietary information,
the remedies of the Company at law for breach by Mr. Baughman of any
of the restrictions contained in Sections 5.a. or 5.b. hereof will be
inadequate and that the Company shall be entitled to enforce such
restrictions by temporary or permanent injunctive or mandatory relief
obtained in an action or proceeding instituted in any court of
competent jurisdiction without the necessity of proving irreparable
damages. It is understood by the Company and Mr. Baughman that the
covenants contained in Sections 5.a. and 5.b. hereof are essential
elements of this Agreement and that, but for Mr. Baughman's agreement
to comply with such covenants, the Company would not have entered into
this Agreement. Mr. Baughman acknowledges that such covenants are
reasonable and valid.
6. TERMINATION.
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a. Subject to the provisions of this Section 6., the Company and Mr.
Baughman may terminate this Agreement on fifteen days written notice
to the other party, which notice shall specify the exact cause for
termination.
b. Subject to Section 6.i. hereof, if within six months following a
Change of Control occurring during the Term the Company terminates Mr.
Baughman's employment hereunder without Cause or Mr. Baughman
terminates his employment for Good Reason, the Company shall pay to
Mr. Baughman (1) the portion of the Base Salary accrued through the
date of
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termination, and (2) an amount equal to the product of 2.99
and the average of the sum of the Base Salary and the Annual Bonus for
the last five calendar years prior to the date of termination (or if
shorter, the period of Mr. Baughman's employment hereunder) (the
"Five-Year Compensation Average"). If termination pursuant to this
Section 6.b. occurs during 1995, the Annual Bonus, for purposes of
calculating the payment to be made pursuant to this Section 6.b.,
shall be equal to the full annual incentive bonus that Mr. Baughman
would have received with respect to calendar year 1995 if his
employment with the Company had continued through December 31, 1995.
c. Subject to Section 6.i. hereof, in the event that (1) during the
Term the Company enters into a binding written agreement to engage in
a transaction which, if consummated, would result in a Change of
Control, (2) such transaction is consummated after the last date of
the Term and within four months thereof, and (3) subsequent to
entering into such agreement and during the Term the Company
terminates Mr. Baughman's employment without Cause or Mr. Baughman
terminates his employment for Good Reason, the Company shall pay to
Mr. Baughman an amount equal to the payment set forth in Section 6.b.
hereof.
d. If the Company terminates Mr. Baughman's employment hereunder for
Cause or Mr. Baughman terminates his employment hereunder without Good
Reason, the Company's sole obligation hereunder shall be to pay Mr.
Baughman the portion of the Base Salary accrued through the date of
termination.
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e. If the Company terminates Mr. Baughman's employment hereunder
without Cause or Mr. Baughman terminates his employment hereunder for
Good Reason and, in either case, Sections 6.b. and 6.c. hereof do not
apply, the Company shall pay to Mr. Baughman (1) the portion of the
Base Salary accrued through the date of termination, (2) an amount
equal to the product of the Base Salary in effect on the date of such
termination and 2.0 (if termination occurs after December 31, 1995) or
3.0 (if termination occurs prior to January 1, 1996) and (3) to the
extent provided under the terms of the Annual Bonus Plan, a pro rata
share of the Annual Bonus for the year of termination. In addition,
to the extent provided under the terms of the LTIP, Options and/or
PARS previously granted to Mr. Baughman under the LTIP shall become
exercisable or immediately vest, as the case may be.
f. If Mr. Baughman becomes physically or mentally disabled during the
Term so that he is unable to perform the services required of him
pursuant to this Agreement for a period of six (6) successive months,
or an aggregate of six (6) months in any 12-month period, the Company
may terminate Mr. Baughman's services hereunder, in which event the
Company's only obligations hereunder shall be (i) to have paid Mr.
Baughman the portion of the Base Salary accrued during such period,
(ii) to have afforded Mr. Baughman the full benefits provided in
Section 3.b. above during such period, (iii) to the extent provided
under the terms of the Annual Bonus Plan, to pay Mr. Baughman a pro
rata share of the Annual Bonus for the year in which his employment is
terminated, and (iv) to provide Mr. Baughman those benefits set forth
in the LTIP which he would
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be entitled to in the event his employment terminates by reason of his
disability.
g. In the event of Mr. Baughman's death during the Term, the Company
shall (i) pay to his spouse, if he is survived by a spouse, or if not,
to the estate of Mr. Baughman, the portion of the Base Salary accrued
through the date of his death, (ii) pay to his spouse, if he is
survived by his spouse, or if not, to the estate of Mr. Baughman, an
amount equal to one-half of Mr. Baughman's annual Base Salary as of
the date of his death, payable in a lump sum or over six months in
equal bi-weekly installments as the Board shall determine, (iii) to
the extent provided under the terms of the Annual Bonus Plan, pay to
Mr. Baughman a pro rata share of the Annual Bonus for the year of his
death and (iv) provide Mr. Baughman those benefits set forth in the
LTIP which he would be entitled to in the event of his death.
h. The Company shall pay to Mr. Baughman any amounts owing pursuant
to Sections 6.b., 6.c. or 6.e. in two equal installments on the date
fifteen days following termination and the first anniversary of such
date.
i. (1) Notwithstanding anything contained in this Agreement to the
contrary, to the extent that the payments and benefits provided under
this Agreement or provided to or for the benefit of Mr. Baughman under
any other plan or agreement of or with the Company (each such payment
or benefit, a " Payment," and such payments and benefits collectively,
the "Payments") would be subject to the excise tax (the "Excise Tax")
imposed under Section 4999 of the Code, the Payments shall be reduced
to the extent necessary so that no Payment shall be subject to the
Excise Tax (such reduced amount, the "Limited Payment Amount").
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The Company shall reduce or eliminate the Payments by first reducing or
eliminating the payments due under Sections 6.b. or 6.c. hereof, then
by reducing or eliminating any other amounts payable in cash, and then
by reducing or eliminating benefits which are not payable in cash, in
each case in reverse order beginning with payments or benefits which
are to be paid the farthest in time from the date of the Determination
(as hereinafter defined).
(2) An initial determination as to whether the Payments shall be
reduced and the amount of the Limited Payment Amount shall be made at
the Company's expense by an accounting firm selected by the Company
which is one of the five largest accounting firms in the United States
(the "Accounting Firm"). The Accounting Firm shall provide its
determination (the "Determination"), together with detailed supporting
calculations and documentation, to the Company and Mr. Baughman within
15 days of the date Mr. Baughman's employment is terminated, and if the
Accounting Firm determines that no Excise Tax is payable it shall
furnish Mr. Baughman with an opinion to such effect reasonably
acceptable to Mr. Baughman. Within ten (10) days of the delivery of the
Determination to Mr. Baughman, Mr. Baughman shall have the right to
dispute the Determination (the "Dispute"). If there is no Dispute, the
Determination shall be binding, final and conclusive upon the Company,
subject to the application of subparagraph (3) below.
(3) If it is established pursuant to a final determination of a
court or an Internal Revenue Service (the "IRS") proceeding which has
been finally and conclusively resolved, that any portion of the
Payments or the Limited Payment Amount is subject to the Excise Tax,
such portion shall be deemed for all purposes to be a loan to Mr.
Baughman made on the date received by Mr. Baughman, and
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Mr. Baughman shall repay such portion to the Company on demand (but on
not less than ten (10) days' written notice) together with interest at
the "Applicable Federal Rate" (as defined in Section 1274(d) of the
Code).
7. NON-ASSIGNMENT. This Agreement and all of Mr. Baughman's rights
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and obligations hereunder are personal to Mr. Baughman and shall not be
assignable; provided, however, that upon his death all of Mr. Baughman's rights
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to cash payments under this Agreement shall inure to the benefit of his widow,
personal representatives, designees or other legal representatives, as the case
may be. Any person, firm or corporation succeeding to the business of the
Company by merger, purchase, consolidation or otherwise shall assume by contract
or operation of law the obligations of the Company hereunder, provided, however,
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that the Company shall, notwithstanding such assumption, remain liable and
responsible for the fulfillment of its obligations under this Agreement.
8. ARBITRATION.
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a. Subject to Sections 5.c. and 6.i. hereof, the Company and Mr.
Baughman agree that any dispute, controversy or claim which may arise
out of or relate to this Agreement (including, but not limited to, any
claim relating to the purported validity, interpretation,
enforceability or breach of any portion of this Agreement) or any other
claim, dispute or controversy arising out of the relationship between
Mr. Baughman and the Company, which is not settled by agreement between
the parties, shall be settled by arbitration of three arbitrators. One
arbitrator shall be selected by Mr. Baughman, one by the Company and
the third by the two persons so selected, all in accordance with the
labor arbitration rules of the American Arbitration Association then in
effect. In the event that the arbitrator selected by Mr. Baughman and
the arbitrator selected by the Company are unable to agree upon a third
arbitrator, then the third arbitrator shall be selected from a list of
seven provided by the office of the American
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Arbitration Association nearest to Mr.
Baughman's residence with the parties striking names in order and the
party striking first to be determined by the flip of a coin. The
arbitration shall be held in a location to be mutually agreed upon by
the parties.
b. In consideration of the parties' agreement under Section 9.a.
hereof, and in further consideration of the anticipated expedition and
minimization of expense of the arbitration remedy, the arbitration
provisions of this Agreement shall provide the exclusive remedy for
settling disputes, controversies or claims hereunder or arising out of
the relationship between the Company and Mr. Baughman, and each party
expressly waives any right he or it may have to seek redress in any
other forum.
c. Any claim which either party has against the other which could be
submitted for resolution pursuant to this Section 8. must be presented
in writing by the claiming party to the other within one year of the
date the claiming party knew or should have known of the facts giving
rise to the claim, except that claims arising out of or related to the
termination of Mr. Baughman's employment must be presented by him
within one (1) year of the date of termination. Unless the party
against whom any claim is asserted waives the time limits set forth
above, any claim not brought within the time periods specified shall
be waived and forever barred.
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d. Each party shall bear the cost of its own legal fees and related
expenses (including the cost of experts, evidence and counsel)
incurred in connection with any arbitration, but the Company and Mr.
Baughman shall bear equally the cost of the arbitrators' fees and
expenses.
e. Any decision and award or order of the majority of the arbitrators
shall be binding upon the parties hereto and judgment thereon may be
entered in any court having jurisdiction.
f. Each of the above terms and conditions of this Section 8. shall
have separate validity, and the invalidity of any part thereof shall
not affect the remaining parts.
g. Any decision and award or order of the majority of the arbitrators
shall be final and binding between the parties as to all claims which
were or could have been raised in connection with the dispute to the
fullest extent permitted by law.
9. INVALIDITY. The invalidity or unenforceability of any provision of
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this Agreement shall in no way affect the validity or enforceability of any
other provision.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
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among the parties respecting the subject matter hereof and supersedes any prior
agreement respecting the subject matter hereof. No amendment to this Agreement
shall be deemed valid unless in writing and signed by the parties, and no
discharge of the terms of this Agreement shall be deemed valid unless by full
performance by the parties or by a writing signed by the parties. No waiver by a
party of any provisions or conditions of
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this Agreement shall be deemed a waiver of similar or dissimilar provisions and
conditions at the same time or any prior or subsequent time.
11. NOTICE. Any notice, statement, report, request or demand required or
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permitted to be given by this Agreement shall be effective only if in writing,
delivered personally against receipt therefor or mailed by certified or
registered mail, return receipt requested, to the parties at the addresses
hereinafter set forth, or at such other places that either party may designate
by notice to the other.
Notice to the Company shall be addressed to:
Tyco Toys, Inc.
6000 Midlantic Drive
Mt. Laurel, New Jersey 08054
Attn: R. Michael Kennedy, Jr., Esq.
Notice to Mr. Baughman shall be addressed to him at the executive offices
of the Company, with a copy to his home address at:
2094 Sampson Circle
Hudson, Ohio 44236
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and with an additional copy to:
Stanley E. Everett
Brouse & MacDowell
500 First National Tower
Akron, Ohio 44308-1471
Such notice shall be deemed effectively given five (5) days after the same
has been deposited in a post box under the exclusive control of the United
States Postal Service.
12. GOVERNING LAW. This Agreement has been made in and shall be
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interpreted according to the laws of the State of New York without any reference
to the conflicts of laws rules thereof. Subject to Section 8. hereof, the
parties hereto submit to the jurisdiction of the courts of the State of New York
for the purpose of any actions or proceedings which may be required to enforce
the provisions of this Agreement or an award made in any arbitration proceeding
initiated.
13. DEFINITIONS. For purposes of this Agreement:
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a. "Board" means the Board of Directors of the Company.
b. "Cause" means Mr. Baughman's (i) intentional failure to perform
his assigned duties hereunder, (ii) willful misconduct in the
performance of such duties or (iii) willful violation of any law, rule
or regulation in connection with the performance of such duties (other
than a misdemeanor) or a violation of any law, rule or regulation
involving matters of moral turpitude, including any such violation or
misdemeanor.
c. "Change of Control" means the occurrence during the Term of:
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(1) An acquisition (other than directly from the Company) of any
voting securities of the Company (the "Voting Securities") by any
'Person' (as the term person is used for purposes of Section 13(d) or
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), other than the Company or any of its affiliates, immediately
after which such Person has 'Beneficial Ownership' (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of more than fifty
percent (50%) of the combined voting power of the Company's then
outstanding Voting Securities; provided, however, in determining
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whether a Change of Control has occurred, Voting Securities which are
acquired in a 'Non-Control Acquisition' (as hereinafter defined) shall
not constitute an acquisition which would cause a Change of Control. A
'Non-Control Acquisition' shall mean an acquisition by (i) an employee
benefit plan (or a trust forming a part thereof) maintained by (A) the
Company or (B) any corporation or other Person of which a majority of
its voting power or its voting equity securities or equity interest is
owned, directly or indirectly, by the Company (for purposes of this
definition, a 'Subsidiary') (ii) the Company or its Subsidiaries, or
(iii) any Person in connection with a 'Non-Control Transaction' (as
hereinafter defined);
(2) The individuals who, as of January 1, 1995, are members of
the Board of Directors of the Company (the "Incumbent Board") cease for
any reason to constitute at least two-thirds of the members of the
Board; provided, however, that if the election, or nomination for
election by the Company's common stockholders, of any new director was
approved by a vote of at least two-thirds of the Incumbent Board, such
new director shall,
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for purposes of this Agreement, be considered as a member of the
Incumbent Board; provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened 'Election
Contest' (as described in Rule 14a-11 promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board (a "Proxy Contest"),
including by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
(3) Approval by stockholders of the Company of:
(i) A merger, consolidation or reorganization involving the
Company, unless
(A) the stockholders of the Company immediately before such
merger, consolidation or reorganization own, directly or
indirectly immediately following such merger, consolidation or
reorganization, at least sixty percent (60%) of the combined
voting power of the outstanding Voting Securities of the
corporation resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in substantially the
same proportion as their ownership of the Voting Securities
immediately before such merger, consolidation or reorganization,
and
(B) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for
such merger, consolidation or reorganization constitute at least
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two-thirds of the members of the board of directors of the
Surviving Corporation, and
(C) no Person (other than the Company, any Subsidiary, any
employee benefit plan (or any trust forming a part thereof)
maintained by the Company, the Surviving Corporation, or any
Subsidiary, or any Person who, immediately prior to such merger,
consolidation or reorganization had Beneficial Ownership of more
than fifty percent (50%) of the then outstanding Voting
Securities) has Beneficial Ownership of more than fifty percent
(50%) of the combined voting power of the Surviving Corporation's
then outstanding voting securities.
A transaction described in clauses (A) through (C) shall
herein be referred to as a 'Non-Control Transaction';
(ii) A complete liquidation or dissolution of the Company; or
(iii) The sale or other disposition of 50% or more of the net
assets of the Company to any Person (other than a transfer to a
Subsidiary).
Notwithstanding the foregoing, a Change of Control shall not be deemed
to occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the outstanding Voting Securities
as a result of the acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities outstanding, increases the proportional
number of shares Beneficially Owned by the Subject.
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Person, provided that if a Change of Control would occur (but for the operation
of this sentence) as a result of the acquisition of Voting Securities by the
Company, and after such share acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional Voting Securities which increases
the percentage of the then outstanding Voting Securities Beneficially Owned by
the Subject Person, then a Change of Control shall occur.
d. "Common Stock" means the common stock of the Company, par value
$.01 per share.
e. "Compensation Committee" means the compensation committee of the
Board of Directors of the Company, which shall consist solely of two or
more persons each of whom are "outside directors" within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended.
f. "Competing Enterprise" means any entity which is, or has an
affiliate which is, engaged primarily in the design, development,
manufacture or distribution of toy products.
g. "Good Reason" means a significant demotion in Mr. Baughman's
status, title or position, or the regular assignment to Mr. Baughman of
duties or responsibilities which are significantly inconsistent with
such status, title or position.
h. "Term" means the period from _________, 1994 through the close
of business on December 31, 1998, or if this Agreement is renewed and
extended pursuant to Section 2. hereof, December 31, 1999.
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IN WITNESS WHEREOF, the parties have executed these presents as of the day
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and year first above written.
TYCO TOYS, INC.
By:______________________________
_________________________________
Gary Baughman
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