10. (xv)
March 6, 1998
Worthington W. Linen
300 Central Park West
New York, NY 10024
Dear Worth:
This document is the Employment Agreement between you and The Signature Group.
The terms of your Employment Agreement are as follows:
POSITION
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Your job title is Chairman & Chief Executive Officer, The Signature Group.
You will report to the Chairman and C.E.O. Montgomery Ward and be a member
of the Signature Group Board of Directors and Executive Committee.
BASE SALARY
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Your annual base salary is $700,000 and is paid semi-monthly. Any salary
adjustments will require approval of the Signature Board of Directors and
the Compensation Committee of the Montgomery Ward Board of Directors.
However, your compensation (both base and target bonus level) will be
reviewed for adjustment annually, and neither your base nor your target
bonus will be decreased without your written consent.
SHORT TERM BONUS
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Your short term incentive plan target bonus is $350,000 annually. Based
upon the achievement of specific goals conveyed to you in January of each
year beginning in 1999 as determined by the Chairman & CEO of Montgomery
Ward or his designee, subject to approval by the Compensation Committee of
the Montgomery Ward Board of Directors which approval will not be
unreasonably withheld, you may earn from zero up to 150% of your annual
target bonus amount. Your target bonus award for each year shall be
calculated and paid during the first fiscal quarter of the following year.
For 1998 your annual target bonus award of $350,000 is guaranteed.
EQUITY CONSIDERATION
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Due to Montgomery Ward's Chapter 11 filing and the Signature Group's
relationship with Montgomery Ward, the specifics of long term equity awards
to individual participants are not possible to announce at this time.
However, upon
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Montgomery Ward's emergence from bankruptcy or a Signature I.P.O., you will
be eligible for participation in any equity or equity-like compensation
plan(s) actually implemented, at a level consistent with your position with
Signature, provided that you are actively employed by Signature at such
time and Signature is still owned by Montgomery Ward. We will work with
you to develop any equity plan in a manner that will provide a mutually
beneficial tax consequence for all parties if possible.
SPECIAL LONG TERM BONUS PLAN
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For the period of fiscal 1998 through fiscal 2001, you will participate in
a one-time Special Long Term Bonus Plan as Signature's Chief Executive
Officer. This plan will reward you for your ability to increase the
Earnings Before Interest and Taxes without Admin. Fee (E.B.I.T.) for the
Signature Group.
Using year-end 1997 E.B.I.T. for Signature of $90.2 million as your base
line, you will receive a bonus award of 1.5% of the E.B.I.T. dollars over
$90.2 million for each year of 1998 and 1999 which will be paid in the
first quarter of 2000. A second bonus award of 1.5% of the EBIT dollars
over $90.2 million for each year of 2000 and 2001 will be paid in the first
quarter of 2002. These long term bonus awards will be paid as soon as
possible after the final numbers for 1999 and 2001 are finalized.
As an example, if you achieve the current forecasts for Signature's
E.B.I.T. dollars for each year through 2001, your Long Term Bonus Plan
would pay out as follows:
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First Two Second Two
Year Award Year Award
1998 1999 Total Increase 2000 2001 Total Increase
-------- -------- -------------- -------- -------- --------------
Forecast EBIT* $115.2MM $128.1MM $141.2MM $150.7MM
1997 Base Line 90.2MM 90.2MM 90.2MM 90.2MM
-------- -------- -------- --------
EBIT Increase 25.0MM 37.9MM $62.9MM 51.0MM 60.5MM $111.5MM
x .015 x .015
------- --------
$.944MM $1.673MM
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* Changes in accounting practices/rules will not negatively impact you or
the calculation of this bonus award. If such changes occur, your bonus
award will be calculated using the current methodology.
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BENEFITS & PERQUISITES
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In addition to all normal company benefit plans, you will participate in
the following Executive Benefits Plan:
. Annual Physical Examination
. Executive Accident Insurance
. Executive Medical Coverage
. Executive Vacation
RELOCATION PLAN
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Signature will provide you with a relocation plan, including movement of
household goods, househunting trips, home purchase plan at 100% of the
appraised value of your home, and payment of your closing costs, without
limitation, on your home purchase, plus up to two points on your financing
of a new home. Your temporary housing expenses in the Chicago area for the
first six months (or until relocation, if sooner) will be paid by
Signature. You will be paid for your airfare to New York City weekly
during your temporary living period. You will receive a gross up for the
taxes (35% Federal and 3% State) you incur as a result of your relocation
expenses.
Additionally, you will receive a relocation allowance of $50,000 to handle
incidental personal expenses in the move.
TERMINATION PLAN
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The term of this employment agreement is for April 1, 1998 until December
31, 2001. If your employment is terminated by Signature for any reason
other than "Cause" as defined below or your voluntary resignation, you will
receive within 30 days following your termination (with no mitigation
obligation), a lump sum payment equal to your base salary for a twenty-four
month period.
In addition, you will receive Executive Outplacement Services and continue
to participate in Executive Benefits Plans which includes the Health Care
Plan along with "Benefits and Perquisites" described above for the twenty-
four month period following your separation. In addition, you will receive
in the first quarter after the fiscal year end of the year in which you
were terminated, the portion of your Special Long Term Bonus Plan for the
period that you have worked. The calculation will include any year end
earnings for the year in which you are terminated.
You will be given six months written notice if this agreement is not going
to be renewed at the end of its term. If it is not renewed, you will
receive within thirty (30) days following the end of this agreement (with
no mitigation obligation) a lump sum payment equal to twenty-four months
base salary, as well as the outplacement and Executive Benefits, and any
award due under the Special Long Term Bonus Plan.
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"Cause" shall mean (i) your willful failure for reasons, other than an
illness or disability, to substantially perform your duties hereunder, (ii)
your willful failure to follow a written, lawful order or written directive
for the Board of Directors or Chief Executive Officer of Montgomery Ward,
or (iii) your conviction of any kind of felony or any misdemeanor involving
moral turpitude. For purposes of this paragraph, no act, or failure to
act, on your part will be considered "willful" unless such act, or failure
to act by you was not in good faith and was without reasonable belief that
your action or omission was in the best interest of the Company. No
termination under clause (i) or (ii) above shall be effective unless: (1)
within ten (10) business days of any action by you which causes the Board
of Directors to conclude that cause exists, the Board provides written
notice to you specifying in detail the nature of the claimed cause; and (2)
you, without conceding that cause exists, have the opportunity to cure the
alleged infraction as soon as practical but no later than thirty (30) days
after receipt of the applicable notice (or such longer time as may be
reasonably required by the nature of the alleged breach).
For purposes of this agreement, any diminution of your job title, executive
committee membership, board membership, base salary, target bonus, other
compensation or benefits, a reduction in your job responsibilities, or, if
Signature remains a subsidiary of Montgomery Ward, a change in your
reporting relationship, or, if there is a Change of Control event as
defined below, a substantial diminution in your reporting relationship
within the new organization, without your prior written approval during the
term of this agreement will allow you to elect the terms of this section as
if you were terminated without "Cause". However, such election must be
done in writing to the Chairman & CEO Montgomery Ward or his successor as
your supervisor within sixty (60) days of the triggering event and the
Company will have thirty (30) days to cure an action that caused your
election to separate under this section.
CHANGE OF CONTROL
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After a Change of Control Event as defined below, and for a period of four
years after such date, if you are separated from the Company under
provisions in the Termination Plan above (including any of the diminutions
provisions under which you may elect to leave the Company), the lump sum
severance payment payable within 30 days after your separation (with no
mitigation obligation) will be twenty-four months base salary, plus two
times your target bonus amount. Your Executive Benefits will continue for
two years from your separation date. If the Change of Control Event is
completed after December 31, 1998, you will also receive the portion of
your Special Long Term Bonus Plan for the period that you were employed
including any earnings for the year of your separation or $900,000,
whichever is greater.
A "Change of Control Event" shall mean any sale, lease, license, exchange,
or other transfer (in one transaction or a series of related transactions)
of all, or substantially all, of the business and assets of The Signature
Group or its Parent Company; a merger or consolidation in which Signature
is not the surviving entity; a sale or other transfer where more than fifty
percent (50%) of the voting
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stock of Signature is no longer owned by Montgomery Ward. However, this
provision does not apply to an internal reorganization of Signature within
Montgomery Ward so long as Signature remains a direct or indirect majority-
owned subsidiary of Montgomery Ward.
The Signature Group or its successor company will reimburse you for all
reasonable attorney fees needed to enforce your rights under this section
if the Company is found to be in breach of this Agreement.
Except as provided in the following sentence, payments pursuant to this
employment agreement ("Payments") shall not exceed the largest sum
("Parachute Limitation") which will not result, directly or indirectly, in
the treatment of any amount paid or payable by the Company or any successor
to you (whether or not pursuant to this employment agreement, and including
the Payments) as an Excess Parachute Payment. Notwithstanding the
preceding sentence, you shall receive the full amount of the Payments
without regard to the Parachute Limitation if you would realize a greater
aftertax amount receiving the full amount of the Payments without regard to
the Parachute Limitation than you would realize by receiving the Payments
limited to the Parachute Limitation as provided in the preceding sentence.
All computations and determinations required by the preceding paragraph
shall be made by your accountant, acting in good faith. The computations
and determinations made any time by your accountant shall affect only those
Payments not yet made pursuant to this employment agreement. For purposes
of this employment agreement, the term "Excess Parachute Payment" shall
have the same meaning as the term "excess parachute payment" has under
section 280G of the Internal Revenue Code of 1986, as amended and the
regulations thereunder.
NON-COMPETE
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In the event that you voluntarily leave The Signature Group, you will be
bound by a non-compete agreement that provides that you will not be
directly employed by nor perform work as director, officer, independent
contractor, partner, or consultant for Cendant, Sears, Discover,
Memberworks nor J. C. Penney or any of their affiliates for a period of one
(1) year following your termination date.
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This Agreement will be subject to the Laws of Illinois where applicable.
Each of the individuals signing this Agreement represents to the others that he
has the right, capacity, power and authority to sign this Agreement on his
behalf, or on behalf of Montgomery Ward and The Signature Group, as the case may
be. This Agreement may be signed in counterparts, and facsimile signatures are
deemed original signatures for purposes of executing this Agreement.
If you are in agreement with this letter, please sign for your acceptance below
and return it to me.
Agreed to and Accepted for
Montgomery Ward and
The Signature Group
/s/ Roger V. Goddu
- -------------------------------------------
Roger V. Goddu
Chairman & Chief
Executive Officer
Montgomery Ward & Co. Incorporated
/s/ Worthington Linen
- -------------------------------------------
Agreed to and Accepted by
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