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Exhibit 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into between
Service Merchandise Company, Inc., a Tennessee corporation (the "Company"), and
Gary M. Witkin, a resident of New Canaan, Connecticut (the "Executive"),
effective as of November 1, 1994. The Company and the Executive are sometimes
referred to herein as the "parties."
ARTICLE I
EMPLOYMENT
The Company hereby employs the Executive and the Executive hereby
accepts employment with the Company upon the terms and conditions set forth
herein.
ARTICLE II
DUTIES AND RESPONSIBILITIES
2.1 Scope of Service. The Executive shall, during the term of
this Agreement, devote all of his business time and attention and exert his
best efforts in the performance of his duties hereunder and, in performing such
duties, shall promote the profit, benefit and advantage of the Company and its
business. The Executive shall not, during the term of this Agreement, engage in
any other business activity (whether or not such business activity is pursued
for gain, profit or other pecuniary advantage) if such business activity would
impair the Executive's ability to carry out his duties hereunder; provided,
however, that this paragraph shall not be construed to prevent the Executive
from investing his personal assets as a passive investor.
2.2 Position and Duties. Subject to the power of the Board of
Directors of the Company (the "Board") to elect and remove officers, the
Executive shall, during the term of this Agreement, serve as President and
Chief Operating Officer or in any other comparable position as the Board of
Directors may from time to time determine, shall report directly to the
Chairman and Chief Executive Officer of the Company, and shall have such powers
and duties as may be prescribed by the Board. Subject to the power of the
Board to designate and define the powers and duties of officers of the Company,
the Executive's initial areas of responsibility at the Company shall include
responsibility for the following areas: Merchandising, Marketing, Advertising,
Store Operations and Human Resources. The Executive agrees to serve without
additional compensation in one or more offices or as a director of any of the
Company's subsidiaries or affiliates. The Executive shall faithfully and
diligently perform the services and functions relating to his office (or
reasonably incident thereto) as may be designated from time to time by the
Board. It is acknowledged that a condition to the effectiveness of this
Agreement is that, as of the Executive's Employment Date, the Board shall have
acted to create a vacancy on the Board of Directors and shall have appointed
the Executive to fill that vacancy.
2.3 Term of Employment. The Executive's employment with the
Company hereunder shall commence on the date of first employment indicated on
the records of the Company, but no later than November 21, 1994 (the
"Employment Date") and shall continue until terminated by either of the parties
upon ninety (90) days' written notice to the other in accordance with Section
5.5 of this Agreement.
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2.4 Resignation as Director. If the Executive's employment with
the Company is terminated for any reason, whether such termination is voluntary
or involuntary, the Executive shall resign his position as a director of the
Company, such resignation to be effective no later than the date of termination
of the Executive's employment with the Company.
ARTICLE III
COMPENSATION AND BENEFITS
3.1 Base Annual Salary. As compensation for services performed by
the Executive during the term of his employment hereunder, the Company agrees
to pay and the Executive agrees to accept an annual base salary ("Base
Salary"), payable in accordance with the then current payroll policies of the
Company (currently, on a weekly basis), of not less than seven hundred thousand
dollars ($700,000), subject to applicable withholding taxes. Such Base Salary
shall be subject to annual review by the Board of Directors (or by the
Compensation Committee or such other appropriate committee of the Board as the
Board may from time to time determine) at the meeting of the Board held in
April of each year, with the first such review to occur at the 1996 April Board
meeting. The Board (or the appropriate committee thereof) may determine, as a
result of any annual review, to provide an increase in the Executive's Base
Salary.
3.2 Incentive Compensation. During the term of his employment
hereunder, the Executive shall be entitled to receive the following incentive
compensation in addition to his Base Salary:
(a) Bonus Plan. The Executive shall be entitled to
participate in the Company's Key Management Incentive Plan (the
"Incentive Plan") (a copy of which is attached hereto as Exhibit A),
subject to shareholder approval of such Plan, under which the
Executive may receive an annual bonus amount, based upon a percentage
of the Executive's Base Salary and contingent upon the Company's
attainment of certain goals as described in the Incentive Plan. The
Executive's eligibility for such bonus shall be subject to, and
determined in accordance with, the terms and conditions of the
Incentive Plan, with the following exceptions:
(i) Substitution of Performance Grid. In
determining the Executive's bonus in any given year, the
following performance grid shall be substituted in lieu of the
performance grid provided in the Incentive Plan:
Company
Achievement 100% 110% 125% 140% 150%
Bonus Percentage
Base Pay 20% 25% 35% 50% 60%
(ii) Minimum Bonus. With respect to fiscal years
1994 through 1996, the Executive shall be entitled to a
minimum bonus of not less than fifteen percent (15%) of his
Base Salary for such year ("Minimum Bonus"), which Minimum
Bonus shall be payable to the Executive at such time as
bonuses are generally paid to executives of the Company. Any
bonus earned in accordance with the performance grid with
respect to any year for which a Minimum Bonus is payable shall
be offset by such Minimum Bonus.
(iii) No Proration for 1994 Bonus. The bonus payable
to the Executive with respect to the 1994 fiscal year shall
not be prorated to reflect only a partial year of service by
the Executive during such year.
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(b) Employee Stock Incentive Plan. The Executive shall
be entitled to participate in the Company's 1989 Employee Stock
Incentive Plan (the "Stock Incentive Plan") (a copy of which is
attached hereto as Exhibit B) and, pursuant to and in accordance with
the terms and conditions of the Stock Incentive Plan, the Company
shall grant to the Executive the awards described below:
(i) Restricted Stock.
(A) Grant of Stock. Pursuant to and in
accordance with the terms of the Stock Incentive
Plan, the Company shall grant to the Executive, on
the Executive's Employment Date, the following shares
of Restricted Stock (defined in the Stock Incentive
Plan as Common Stock, $.50 par value per share, of
the Company, that is subject to restrictions under
Section 7 of such Plan):
(I) Shares of Restricted Stock with
a market value of $2.1 million as of the date
of execution of this Agreement by the last
party to execute the Agreement. The
Executive shall make a current and timely
election under Section 83(b) of the Internal
Revenue Code of 1986, as amended (the
"Code"), with respect to the Restricted Stock
granted to the Executive under this
subparagraph (I); and
(II) One hundred twenty-five thousand
(125,000) shares of Restricted Stock.
(B) Terms and Conditions of Grant. In
addition to applicable terms and conditions of the
Stock Incentive Plan with respect to the Company's
grant of Restricted Stock to the Executive hereunder,
such grant shall be subject to the following terms
and conditions:
(I) The applicable "Restriction
Period" referenced in the Stock Incentive
Plan with respect to a grant of Restricted
Stock shall (1) with respect to the grant of
Restricted Stock to the Executive under
subparagraph (b)(i)(A)(I) above, commence on
the Executive's Employment Date and end on
the third anniversary thereof (the
"Three-Year Restriction Period"), at which
time the Restricted Stock shall immediately
vest in the Executive and the restrictions
thereon shall immediately lapse; and (2) with
respect to the grant of Restricted Stock to
the Executive under subparagraph
(b)(i)(A)(II) above, commence on the
Executive's Employment Date and end in
installments ("Installment Restriction
Periods"), as follows:
Expiration Date of Installment Restriction Period Number of Shares
------------------------------------------------- ----------------
First Anniversary of Executive's Employment Date 12,500 shares
Second Anniversary of Executive's Employment Date 12,500 shares
Third Anniversary of Executive's Employment Date 12,500 shares
Fourth Anniversary of Executive's Employment Date 17,500 shares
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Fifth Anniversary of Executive's Employment Date 25,000 shares
Sixth Anniversary of Executive's Employment Date 45,000 shares
At the end of each Installment Restriction
Period, the Restricted Stock subject to such
Period shall immediately vest in the
Executive and the restrictions thereon shall
immediately lapse.
(II) Upon the occurrence of a Trigger
Date (as defined in subparagraph (b) of
Section 4.2 of this Agreement) prior to
expiration of the Three-Year Restriction
Period, the Executive's Restricted Stock
described in subparagraph (b)(i)(A)(I) shall
immediately vest in the Executive and the
restrictions thereon shall immediately lapse.
If the Executive's employment with the Company
is terminated for any reason prior to
expiration of the Three-Year Restriction
Period, and such termination does not cause a
Trigger Date to occur, all rights to the
Executive's Restricted Stock described in
subparagraph (b)(i)(A)(I) shall be forfeited
by the Executive as of the date of termination
of his employment.
(III) If the Executive's employment
with the Company is terminated for any reason
prior to expiration of any Installment
Restriction Period, whether or not such
termination causes a Trigger Date (as defined
in subparagraph (b) of Section 4.2 of this
Agreement) to occur, all rights to the
Executive's Restricted Stock described in
subparagraph (b)(i)(A)(II) shall be forfeited
by the Executive as of the date of
termination of his employment.
(C) Payment of Taxes. In accordance
with and subject to the conditions provided in
subparagraph (a) of Section 3.7 of this Agreement,
the Company shall pay certain taxes actually payable
by the Executive with respect to the Restricted Stock
granted to the Executive pursuant to subparagraph
(b)(i)(A)(I) of this Section 3.2 but shall not pay
any taxes payable with respect to the Restricted
Stock granted to the Executive pursuant to
subparagraph (b)(i)(A)(II) of this Section 3.2.
(ii) Non-Qualified Stock Options.
(A) Grant of Option. Pursuant to and in
accordance with the terms of the Stock Incentive
Plan, the Company shall grant to the Executive, as of
the Executive's Employment Date, a Non-Qualified
Stock Option (as that term is defined in the Stock
Incentive Plan) to purchase one hundred twenty-five
thousand (125,000) shares of Common Stock, $.50 par
value per share, of the Company.
(B) Terms and Conditions of Grant. In
addition to applicable terms and conditions of the
Stock Incentive Plan with respect to the Company's
grant of a Non-Qualified Stock Option to the
Executive, such grant shall be subject to the
following terms and conditions:
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(I) The Option Price (as defined in
the Stock Incentive Plan) per share of the
Common Stock purchasable under the
Executive's Non-Qualified Stock Option shall
be the Fair Market Value (defined in the
Stock Incentive Plan) of such stock as of the
date of execution of this Agreement by the
last party to execute the Agreement.
(II) Except as provided in
subparagraph (III) below, the Executive's
Non-Qualified Stock Option shall be
exercisable in installments, as follows:
Earliest Date Exercisable Number of Shares
------------------------- ----------------
First Anniversary of Executive's Employment Date 12,500 shares
Second Anniversary of Executive's Employment Date 12,500 shares
Third Anniversary of Executive's Employment Date 12,500 shares
Fourth Anniversary of Executive's Employment Date 17,500 shares
Fifth Anniversary of Executive's Employment Date 25,000 shares
Sixth Anniversary of Executive's Employment Date 45,000 shares
(III) No portion of the Executive's
Non-Qualified Stock Option shall be
exercisable more than ten (10) years after
the date such option was granted to the
Executive.
3.3 Other Compensation. The Company shall pay the Executive
additional compensation in the amount of thirty thousand dollars ($30,000)
during each year of his employment hereunder, which amount shall be treated as
paid under a "nonaccountable plan" pursuant to Section 1.62-2(c)(3) of the
Treasury Regulations.
3.4 Other Benefits.
(a) Standard Benefit Plans. During the term of his
employment hereunder, the Executive shall be entitled to participate
in all standard benefit plans of the Company (including without
limitation any life, accident, medical, hospitalization, disability,
pension or profit sharing plan afforded by the Company to its
employees generally), if and to the extent that the Executive is
eligible to so participate in accordance with the terms of any such
plan, provided, however, that both parties understand and agree that
the termination benefits provided under the terms of this Agreement
are in lieu of any severance benefits to which the Executive may
otherwise be entitled under the Company's Severance Pay Plan.
Notwithstanding any of the above, nothing herein is intended, or shall
be construed, to affect the Company's right to amend or terminate any
of its standard benefit plans or to require the Company to institute
any particular plan or benefit except as otherwise specifically
required in this Agreement. The benefit plans that the Company
currently provides for its employees generally and in which the
Executive shall be entitled to participate include, without
limitation, the following:
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SMC Health Care Plan
Business Travel Accident Plan
Group Life Insurance Plan (currently provides life
insurance equal to two (2) times Base Salary)
Long-Term Disability Plan
Restated Retirement Plan
Savings and Investment Plan (which is a 401(k) plan)
(b) Additional Benefits. In addition to participation in
the benefit plans described in subparagraph (a) above, the Company
shall provide the Executive with the following benefits during the
term of the Executive's employment hereunder:
(i) Participation in the Company's Executive
Medical Plan, subject to and in accordance with the terms of
such Plan (which, generally, provides an annual ten thousand
dollar ($10,000) family benefit to cover deductibles and
co-payments under the SMC Health Care Plan referenced in
subparagraph (a) above and any other medical, dental or vision
expenses that are not covered by the SMC Health Care Plan or
any other health plan sponsored by the Company, but only to
the extent any such expenses are deductible under Section 213
of the Code);
(ii) Payment of all premiums for individual and
dependent coverage under the SMC Health Care Plan;
(iii) Reimbursement of any premiums payable by the
Executive for coverage of the Executive and/or his eligible
dependents pursuant to the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), to the
extent such coverage is required in order to continue the
Executive's prior health care coverage from the date of the
Executive's termination of employment with his current
employer through the first ninety (90) days of his employment
with the Company hereunder;
(iv) In accordance with and subject to the
conditions provided in subparagraph (a) of Section 3.7 of this
Agreement, payment by the Company of certain taxes actually
payable by the Executive with respect to any premium payment
or reimbursement provided to the Executive under subparagraphs
(ii) and (iii) above;
(v) Four weeks' paid vacation granted on the
Employment Date, and accrued thereafter at the rate of four
(4) weeks per year, subject to the terms of the Company's
currently existing vacation policy, as from time to time
amended; and
(vi) The use of a vehicle to be provided by the
Company, which vehicle shall be an American brand of the
Executive's choice with a fair market value no greater than
forty-five thousand dollars ($45,000), subject to and in
accordance with the terms of the Company's currently existing
policy, as from time to time amended, with respect to
executive use of Company vehicles, including without
limitation the terms of such policy relating to the Company's
periodic replacement of such vehicles with new vehicles.
3.5 Reimbursement of Relocation Expenses. The Company shall
reimburse the Executive for expenses in connection with the Executive's move
from Connecticut to Tennessee as described below, with the exception that
certain real estate expenses may be provided through the services of a third
party relocation service, the cost of which shall be borne by the Company. The
choice between the foregoing alternatives as to certain real estate expenses
shall be at the sole option of the Company.
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(a) Temporary Housing. The Company shall provide the
Executive with a two-bedroom condominium of the Executive's choice,
with maid service, for a period beginning on the Employment Date and
ending no later than nine (9) months thereafter, provided, however,
that the amount paid by the Company for any temporary housing provided
hereunder (including any amount paid for maid service) shall not
exceed three thousand dollars ($3,000) per month.
(b) Duplicate Mortgage Payments. In the event that and
so long as the Executive owns both a new residence and his old
residence during the transition period following his Employment Date,
the Company shall reimburse the Executive for the lesser of (i) his
monthly mortgage payment for his new residence in Tennessee or (ii)
his monthly mortgage payment for his former residence in Connecticut,
provided, however, that the Company shall reimburse the Executive only
for one such mortgage payment each month during the transition period,
which period shall commence with the first month during which the
Executive is required to make duplicate mortgage payments (one for his
new residence in Tennessee and one for his old residence in
Connecticut) and shall end with the earlier of (i) the month during
which the Executive sells his old residence in Connecticut or (ii) the
fourth month during which the Executive is required to make the
duplicate mortgage payments described above.
(c) Real Estate Expenses. The Company shall reimburse
the Executive for the following real estate expenses associated with
the sale of his current residence and the acquisition of a new
residence:
(i) Normal and customary closing costs, up to one
percent (1%) of the sale price, on the sale of the Executive's
current residence and also on his acquisition of a new
residence;
(ii) Any sales commission paid by the Executive, up
to five percent (5%) of the sale price, upon the sale of the
Executive's current residence; and
(iii) The excess, if any, of
(A) the original purchase price plus capital
improvements for the Executive's current residence
(subject to a maximum amount of $1.85 million), over
(B) the amount received by the Executive upon
the sale of such residence as the gross sale price
therefor,
such excess amount to be paid to the Executive as soon as
reasonably practicable after the closing of the sale of such
residence; provided, however, that receipt of such amount by
the Executive from the Company is contingent upon receipt by
the Company from the Executive of documentation, satisfactory
to the Company, substantiating the amount of the original
purchase price and capital improvements for such residence,
and is subject to the right of the Company to approve any
sales contract for the sale of such residence and to elect to
purchase such residence itself or to provide a third party
buyer (approved by the Company) to purchase such residence.
Notwithstanding any of the above, nothing in this subparagraph
(c) shall be construed to require the Company to purchase, or
to provide a third party purchaser for, the Executive's
current residence.
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(d) Moving Expenses. The Company shall reimburse the
Executive for all reasonable expenses related to moving the
Executive's household and personal items, including any expenses
incurred to move antique cars, boats or other collectibles.
(e) Commuting Expenses. The Company shall reimburse the
Executive for reasonable travel expenses consistent with current
Company policy necessary for the Executive to return to his home in
Connecticut each weekend until his relocation is complete, for a
period beginning on the Employment Date and ending as soon as his
relocation is complete (but, in any event, no later than nine (9)
months after his Employment Date).
(f) Payment of Taxes. In accordance with and subject to
the conditions provided in subparagraph (a) of Section 3.7 of this
Agreement, the Company shall pay certain taxes actually payable by the
Executive with respect to any reimbursed relocation expenses provided
to the Executive under this Section 3.5, if and to the extent such
relocation expenses are considered to be taxable income.
3.6 Legal Fees. The Company shall reimburse the Executive for any
reasonable legal fees incurred by the Executive for review and negotiation of
this Agreement, provided, however, that such reimbursement is contingent upon
receipt by the Company from the Executive (or his attorney) of documentation,
satisfactory to the Company, substantiating such fees and itemizing the
services rendered therefor, and provided further, that such reimbursement shall
not exceed five thousand dollars ($5,000).
3.7 Payment of Taxes.
(a) In accordance with and subject to the following terms
and conditions, the Company shall pay certain taxes actually payable
by the Executive with respect to certain amounts paid to the Executive
under this Agreement:
(i) Provided that the Executive makes a current
and timely election under Section 83(b) of the Code, the
Company shall pay any federal income and payroll withholding
taxes and, provided that the Executive complies with
subparagraph (v) below, any Connecticut state and local income
taxes, to the extent such federal and state and local taxes
are actually payable by the Executive with respect to the
Restricted Stock granted to the Executive pursuant to
subparagraph (b)(i)(A)(I) of Section 3.2 of this Agreement
and also with respect to the amount of taxes paid hereunder,
computed in the manner described in subparagraph (iv) below.
(ii) The Company shall pay any federal income and
payroll withholding taxes and, provided that the Executive
complies with subparagraph (v) below, any Connecticut state
and local income taxes, to the extent such federal and state
and local taxes are actually payable by the Executive with
respect to any premium payment or reimbursement provided to
the Executive under subparagraphs (b)(ii) and (b)(iii) of
Section 3.4 of this Agreement and also with respect to the
amount of taxes paid hereunder, computed in the manner
described in subparagraph (iv) below.
(iii) The Company shall pay any federal income and
payroll withholding taxes and, provided that the Executive
complies with subparagraph (v) below, any Connecticut state
and local income taxes, to the extent such federal and state
and local taxes are actually payable by the Executive with
respect to any reimbursed relocation expenses provided to the
Executive under Section 3.5 of
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this Agreement and also with respect to the amount of taxes
paid hereunder, if and to the extent such relocation expenses
are considered to be taxable income, computed in the manner
described in subparagraph (iv) below.
(iv) Any calculation of taxes payable by the
Company under this Agreement shall be computed at the marginal
rate of tax applicable to the Executive (currently 39.6% for
federal income tax on taxable income in excess of $250,000,
1.45% for payroll tax on wages in excess of $135,000, and 4.5%
for Connecticut state and local income tax on all taxable
income); provided, however, that any calculation of taxes
payable by the Company under this Agreement shall assume the
full deductibility of state and local income taxes for
purposes of computing federal income tax liability.
(v) The Executive shall take such reasonable
steps as may be necessary to minimize the applicability of
Connecticut state and local income taxes to any amounts
payable to the Executive under this Agreement, including
without limitation such reasonable steps as may be necessary
to enable the Executive to claim Tennessee residency for the
Executive and his family as promptly as practicable following
his termination of employment with his current employer. The
Executive shall also permit the Company to review any
Connecticut state or local tax return, prior to the time it is
filed by the Executive, to the extent such return relates to
any amounts paid to the Executive under this Agreement.
(b) To the extent required by law, federal, state and
local income and payroll withholding taxes shall be withheld on all
cash and in-kind payments made by the Company to the Executive.
ARTICLE IV
TERMINATION OF EMPLOYMENT
4.1 Termination of Agreement. All of the terms of this Agreement
shall cease upon termination of the Executive's employment, except to the
extent otherwise provided by the terms of this Agreement or any benefit plan
documents and policies described herein.
4.2 Rights of Executive Upon a Trigger Date.
(a) Upon the occurrence of a Trigger Date (as defined in
subparagraph (b) below), in addition to any Standard Termination
Amounts (as defined in subparagraph (c) below), the Executive shall be
entitled to the following termination benefits, provided, however,
that the Executive's right to any such benefits is expressly
conditioned upon his compliance in all respects with Section 4.5
(Non-Competition) and Section 4.6 (Unauthorized Disclosure; Adverse
Statements) of this Agreement at all times prior to each payment of a
benefit (or, in the case of the vesting of Restricted Stock, at all
times prior to the Trigger Date):
(i) as salary continuation, payment of (A) an
amount equal to two (2) times the Executive's Base Salary in
effect immediately prior to the Trigger Date, plus (B) an
amount equal to any unpaid Minimum Bonus that would otherwise
be payable to the Executive pursuant to and in accordance with
subparagraph (a)(ii) of Section 3.2 of this Agreement (in the
aggregate, the "salary continuation payment"), which salary
continuation payment shall be payable, at the Company's
option, either in a lump sum or over a thirteen (13) month
period commencing on the Trigger Date and ending on the
thirteenth monthly anniversary thereof (the "severance
period"),
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with one half of such salary continuation payment payable in
equal monthly installments over the first twelve (12) months
of the severance period, and the remaining one half payable
on the thirteenth monthly anniversary of the Trigger Date;
(ii) reimbursement for the premium paid by the
Executive for continued coverage for the Executive (and any
dependents of the Executive covered by the Company's health
care plans as of the Trigger Date) under the Company's health
care plan pursuant to COBRA (or any other mandatory health
care continuation law then in effect), such coverage then
being substantially similar to that provided by the Company to
its senior executives and their eligible dependents, subject
to the following terms and conditions:
(A) The Executive will be entitled to
the reimbursement provided hereunder for the period
commencing with the Trigger Date and ending on the
earlier of (I) the second anniversary of the Trigger
Date, or (II) the date the Executive becomes eligible
to receive any health care coverage from another
employer of the Executive or his spouse that does not
contain any exclusion or limitation with respect to
any pre-existing condition of the Executive or his
covered dependents;
(B) If the Executive (or his dependents
covered by the Company's health care plans as of the
Trigger Date) elects not to continue coverage under
COBRA (or any other mandatory health care
continuation law then in effect) or is not eligible
to continue coverage under such law and is otherwise
eligible for the benefits provided under this
subparagraph (a)(ii), the Company will reimburse the
Executive for the cost of purchasing substantially
similar coverage or a supplement required to achieve
substantially similar coverage under another
arrangement approved by the Company for the period
described in subparagraph (A) above; provided,
however, that such reimbursement shall be limited to
the then current premium charged by the Company to
others for substantially similar coverage under COBRA
(or any other mandatory health care continuation law
then in effect); and
(C) Any amount payable to the Executive
hereunder shall be subject to withholding of
applicable taxes as provided in Section 3.7 of this
Agreement; and
(iii) the immediate vesting of, and the lapse of any
restrictions on, any Restricted Stock granted to the Executive
in accordance with subparagraph (b)(i)(A)(I) of Section 3.2 of
this Agreement.
(b) For purposes of this Agreement, "Trigger Date" shall
be the date upon which any of the following events occurs:
(i) termination of the Executive's employment
hereunder by the Company for any reason other than for Cause
or Disability (each of which is defined in Section 4.3 below)
or as a result of the Executive's death; or
(ii) termination of the Executive's employment
hereunder by the Executive for Good Reason (as hereinafter
defined) pursuant to a Notice of Termination (as hereinafter
defined). For purposes of this subparagraph (ii), "Good
Reason" shall mean the occurrence, without the Executive's
express written consent, of any of the following circumstances
unless, in the case of subparagraph (A) or (B), such
circumstances are fully corrected prior to the Date of
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Termination (as defined below) specified in the Notice of
Termination (defined below) given in respect thereof:
(A) other than for Cause or Disability
(each of which is defined in Section 4.3 below), or
by reason of his election as Chief Executive Officer
of the Company, (I) assignment by the Company to the
Executive of any duties that are materially
inconsistent with the customary powers and duties of
a president and chief operating officer of a company
of the size, type and nature of the Company; (II) the
Company's removal of the Executive from his position
as President and Chief Operating Officer of the
Company; or (III) any material diminution by the
Company in the nature of the Executive's
responsibilities as President and Chief Operating
Officer of the Company;
(B) failure of the Company, prior to the
effectiveness of any acquisition of the Company or
substantially all of the Company's assets, to obtain
an agreement from the successor to 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 acquisition had taken place;
(C) any material breach of this Agreement by
the Company which is not cured within thirty (30)
days after delivery to the Company of the Notice of
Termination (as defined below); or
(D) failure of the Board of Directors to
elect the Executive as its Chief Executive Officer
within ninety (90) days following the earlier of the
following dates:
(I) the date of resignation,
retirement or termination of Raymond
Zimmerman from his position as Chief
Executive Officer of the Company, or
(II) April 30, 1998.
Any purported termination of the Executive's employment
hereunder by the Executive for Good Reason (as defined above)
shall be pursuant to a written Notice of Termination delivered
to the Company in accordance with Section 5.5 of this
Agreement. For purposes of this subparagraph (ii), a "Notice
of Termination" shall mean a notice which shall expressly
indicate the specific termination provisions in this Agreement
upon which the Executive is relying; shall set forth in
reasonable detail the facts and circumstances claimed by the
Executive to provide a basis for termination of the
Executive's employment under the provisions so indicated; and
shall specify a Date of Termination (which shall not be less
than ninety (90) days from the date such Notice of Termination
is given).
(c) For purposes of this Agreement, "Standard Termination
Amounts" shall mean, as of the date of termination of the Executive's
employment hereunder, prorated as appropriate, the following: (i) any
earned but unpaid installments of the Executive's Base Salary (as then
in effect) that would otherwise be due through the date of his
termination; (ii) any earned but unpaid installments of the additional
compensation provided under Section 3.3 of this Agreement to the
extent such installments would otherwise be due through the
Executive's date of termination; and (iii) any payments or benefits
otherwise due to the Executive under and in accordance with the terms
of any benefit plan documents and policies described in this Agreement.
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4.3 Rights of Executive Upon Other Voluntary Termination or
Termination for Cause, Disability or Death.
(a) Except as otherwise provided in Section 4.2, above,
if (i) the Company terminates the Executive's employment hereunder for
Cause or Disability (each of which is defined below), (ii) the
Executive voluntarily resigns for any reason (other than termination
under subparagraph (b)(ii) of Section 4.2 above), or (iii) the
Executive dies, then, in each case, the Executive (or his estate or
beneficiaries, as the case may be) shall be entitled to receive only
any Standard Termination Amounts (as defined in subparagraph (c) of
Section 4.2 above) payable to the Executive. The Company shall then
have no further obligations to the Executive under this Agreement.
(b) For purposes of this Agreement, the following
definitions of "Cause" and "Disability" shall apply:
(i) "Cause" shall include the following:
(A) a felony conviction of the
Executive, the failure of the Executive to contest
prosecution for a felony, or the Executive's willful
misconduct or dishonesty, any of which is directly
and materially harmful to the business or reputation
of the Company or its Subsidiaries or Affiliates (as
defined in the Stock Incentive Plan); for this
purpose, no act, or failure to act, on the part of
the Executive shall be considered "willful" unless
done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that such
action or omission was in the best interest of the
Company;
(B) any violation by the Executive of
Section 4.5 (Non-Competition) of this Agreement; or
(C) any material breach of this
Agreement by the Executive which is not cured within
thirty (30) days after delivery to the Executive of
written notice of such breach provided in accordance
with Section 5.5 of this Agreement, which notice
shall set forth in reasonable detail the facts and
circumstances claimed by the Company to constitute a
material breach of this Agreement by the Executive.
(ii) "Disability" shall have the same meaning as
is provided under the Company's long-term disability plan.
4.4 Employment Rights. Nothing expressed or implied in this
Agreement shall create any right or duty on the part of the Company or the
Executive to employ the Executive or to have the Executive remain in the
employment of the Company. If this Agreement or the employment of the
Executive is terminated under circumstances in which the Executive is not
entitled to the termination benefits provided in Section 4.2 of this Agreement,
and except for any right or employee benefit that the Executive may have
pursuant to the terms of any other agreement, policy, plan, program or
arrangement of the Company, including any right to indemnification provided by
contract, state law or the charter or by-laws of the Company, neither the
Company nor the Executive shall have any further obligation or liability to
the other hereunder or otherwise with respect to the Executive's prior or
future employment by the Company.
4.5 Non-Competition. During the period in which the Executive is
employed by the Company hereunder and during the severance period (as defined
in subparagraph (a)(i) of Section 4.2 above), the Executive will not:
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(a) directly or indirectly own, manage, operate, control or
participate in the ownership, management, operation or control of, or
be connected as an officer, employee, partner, director or otherwise
with, or have any financial interest in, or aid or assist anyone else
in the conduct of, any of the following types of businesses: catalog
showroom retail business, national jewelry-only specialty business,
national electronics-only specialty business, or national
houseware/giftware-only retail business, in any area where such
business is being conducted at the time of such termination (provided
that ownership of five percent (5%) or less of the voting stock of any
publicly held corporation shall not constitute a violation hereof); or
(b) directly or indirectly employ, solicit for employment, or
advise or recommend to any other persons that they employ or solicit
for employment, any person who, at the time of such employment,
solicitation, advice or recommendation, is an employee of the Company
or any of its subsidiaries or affiliates, provided, however, that this
subparagraph (b) shall not be construed to prevent the Executive from
engaging in generic nontargeted advertising for employees generally.
4.6 Unauthorized Disclosure; Adverse Statements.
(a) During the period in which the Executive is employed
by the Company hereunder, the Executive shall not, without the prior
written consent of the Board of Directors, or a person authorized
thereby, disclose to any person, other than a person to whom
disclosure is necessary or appropriate in connection with the
performance by the Executive of his duties as an officer of the
Company, or its subsidiaries or its affiliates, any confidential
information obtained by him while in the employ of the Company with
respect to any of the Company's products, improvements, formulae,
designs or styles, processes, customers, methods of marketing or
distribution, systems, procedures, plans, proposals, policies or
methods of manufacture, the disclosure of which he knows, or should
have reason to know, will be damaging to the Company or its
subsidiaries or its affiliates; provided, however, that confidential
information shall not include any information known generally to the
public (other than as a result of unauthorized disclosures by the
Executive) or any information of a type not otherwise considered
confidential by persons engaged in the same business or a business
similar to that conducted by the Company. Following the termination
of the Executive's employment with the Company for any reason, the
Executive shall not disclose any confidential information of the type
described above except as may be required in the opinion of the
Executive's counsel in connection with any judicial or administrative
proceeding or inquiry.
(b) During the period in which the Executive is employed
by the Company hereunder and thereafter, the Executive shall not make
any false statements regarding the Company or its subsidiaries or its
affiliates, or make any statement or take any other action which he
knows, or should have reason to know, will be damaging to the Company
or its subsidiaries or its affiliates.
(c) The provisions of this Section 4.6 shall be binding
upon the Executive's heirs, successors and legal representatives.
4.7 Specific Performance. The Executive acknowledges and agrees
that, in the event of a breach of Section 4.5 or Section 4.6 hereof by the
Executive, the Company would be irreparably harmed and that monetary damages
would be an inadequate remedy in favor of the Company. Accordingly, the
Executive and the Company agree that, in the event of such a breach, the
Company shall be entitled to injunctive relief against the Executive.
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ARTICLE V
MISCELLANEOUS
5.1 Construction and Amendment. This Agreement contains all the
material terms and conditions governing the Company's continued employment of
the Executive, and shall supersede any and all prior oral and written
understandings and agreements and all contemporaneous oral understandings and
agreements between the Company and the Executive. In this respect, the
Executive acknowledges and agrees that the Company's sole obligations to the
Executive with respect to the future termination of the Executive's employment
by the Company (for whatever reason and under whatever circumstances) are set
forth in this Agreement. No amendment of the terms and conditions of this
Agreement shall be effective unless agreed to in writing by the Company and the
Executive.
5.2 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
5.3 Governing Law. The validity, interpretation, construction,
and performance of this Agreement shall be governed by the laws of the State of
Tennessee.
5.4 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company and its successors and assigns, and the
Executive and his heirs, executors, administrators and legal representatives.
The Executive's rights and benefits under this Agreement are personal and,
except as otherwise provided herein, no such right or benefit shall be subject
to voluntary or involuntary alienation, assignment or transfer without the
prior written consent of the Company.
5.5 Notice. Any notice or other communication required or
permitted under, or given by reason of, this Agreement shall be in writing and
shall be deemed to have been duly given when delivered in person or when
mailed, by certified mail (return receipt requested), postage prepaid,
addressed as follows (or to such other address as the party may specify by
notice pursuant to this provision, except that notices of change of address
shall be effective only upon receipt):
(a) To the Company:
Service Merchandise Company
7100 Service Merchandise Drive
Brentwood, Tennessee 37027
(b) To the Executive:
Gary M. Witkin
416 Greenley Road
New Canaan, CT 06840
5.6 Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled by arbitration in Nashville,
Tennessee. In the proceeding, the Executive shall select one arbitrator, the
Company shall select one arbitrator, and the two arbitrators so selected shall
select a third arbitrator. The decision of a majority of the arbitrators shall
be binding on the Executive and on the Company. Should one party fail to select
an arbitrator within five days after notice of the appointment of an arbitrator
by the other party or should the two arbitrators selected by the Executive and
the Company fail to select a third arbitrator within ten days after the date of
the appointment of the last of such two arbitrators, any person sitting as a
judge of the United States District Court for the Middle District of Tennessee,
Nashville Division, upon application of the Executive or the Company, shall
appoint an arbitrator to fill such space with the same
15
force and effect as though such arbitrator had been appointed in accordance
with the first sentence of this paragraph. Any arbitration proceeding
pursuant to this paragraph shall be conducted in accordance with the rules of
the American Arbitration Association. Judgment may be entered on the
arbitrators' award in any court having jurisdiction. Each of the parties
hereto shall pay its own expenses of arbitration and one half of the expenses
of the arbitrators. If any position by either party hereunder, or any defense
or objection thereto, is deemed by the arbitrators to have been unreasonable,
the arbitrators shall assess, as part of their award against the unreasonable
party or reduce the award to the unreasonable party, all or part of the
arbitration expenses (including reasonable attorneys' fees) of the other party
and of the arbitrators.
5.7 Additional Instruments. The parties shall execute and deliver
any and all additional instruments and agreements that may be necessary or
proper to carry out the purposes of this Agreement.
5.8 Execution. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument.
5.9 Waiver of Breach. No waiver at any time by either party
hereto of any breach by the other of, or compliance by the other with, any
condition or provision of this Agreement to be performed by such other party
shall operate or be construed as a waiver of similar or dissimilar provisions
at the same or at any prior or subsequent time.
5.10 Condition Subsequent. Within ten (10) days following
execution of this Agreement by both the Executive and the Company, (a) the
Company shall have the opportunity to obtain certain background information
about the Executive, including without limitation information from the
Executive's former and current employers; and (b) if the Company discovers any
material adverse information about the Executive of which the Company was not
aware prior to its execution of this Agreement and which adverse information
relates to activities of the Executive while an employee or director of Saks &
Company ("Saks") constituting one or more of the following:
(i) conduct in violation of law reasonably related to the
Executive's ability to perform his duties to Saks; or
(ii) gross negligence or gross misconduct in the performance of
the Executive's duties, or a documented record of
incompetent performance, as an employee or director of
Saks;
the Company shall have the right, at its sole option, to rescind this Agreement
and, if so rescinded by the Company, this Agreement shall have no force or
effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
dates indicated below.
SERVICE MERCHANDISE COMPANY
Date: 11/2/94 By: /s/ Raymond Zimmerman
--------------------- -----------------------
Raymond Zimmerman
Name:
Title:
EXECUTIVE
Date: 11/2/94 /s/ Gary M. Witkin
--------------------- ---------------------
Gary M. Witkin