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Exhibit 10.11
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (the "Agreement") is
entered into between Service Merchandise Company, Inc., a Tennessee corporation
(the "Company"), and Gary M. Witkin, a resident of Brentwood, Tennessee (the
"Executive"), originally effective as of November 1, 1994, with the effective
date of this amendment and restatement being December 16, 1998. 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 Executive
Officer or in any other comparable position as the Board of Directors may from
time to time determine, shall report directly to the Chairman 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
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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 7.5 of this
Agreement.
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 Annual Base 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:
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(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.
(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
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(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
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
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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 NonQualified Stock Option to the Executive, such
grant shall be subject to the following terms and conditions:
(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.
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(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
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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,
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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.
(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
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(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 therefore,
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.
(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).
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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 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.
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(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"), with one half of such salary continuation
payment payable in equal monthly
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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:
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(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 all purposes of this Agreement, "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
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 executive 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 Executive Officer of the Company;
or (III) any material diminution by the Company in the
nature of the Executive's responsibilities as President
and Chief Executive 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);
(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; or
(E) following a Change of Control (as defined in
Section 5.2),
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(I) a reduction by the Company in Executive's
annual base salary as is effective immediately prior
to a Change of Control,
(II) the relocation of Executive's principal
office to a location outside a 35 mile radius from
Executive's principal office immediately prior to
such Change of Control, except for required travel
on the Company's business to an extent
substantially consistent with Executive's business
travel obligations immediately prior to such Change
of Control, or
(III) the failure by the Company to continue
in effect any benefit or compensation plan in which
Executive participates immediately prior to the
Change of Control which is material to Executive's
total compensation, including but not limited to any
stock or stock option, employee stock ownership,
bonus, insurance, disability and vacation plans
which the Company currently has or any substitute
or additional plans adopted prior to the Change of
Control, unless an equitable arrangement (embodied
in an ongoing substitute or alternative plan or
plans) has been made with respect to such plan, or
the failure by the Company to continue Executive's
participation therein (or in such substitute
or alternative plan) on a basis not materially less
favorable, both in terms of the amount of benefits
provided and the level of Executive's participation
relative to other participants, as in existence
immediately prior to such Change of Control.
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 7.5 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
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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.
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.
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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:
(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,
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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.
ARTICLE V
OTHER COMPENSATION
5.1 Compensation on Termination of Employment Within Two Years
Following A Change of Control. This Article 5 shall apply to termination of
Executive's employment during the "Change of Control Period" (as defined in
Section 5.2). This Article 5 shall not apply to termination of Executive's
employment prior to a Change of Control or more than two (2) years following a
Change of Control.
5.2 Certain Definitions.
(a) A "Change of Control" shall be deemed to have taken place
if (i) any person or entity, including a "group" as defined in Section
13(d)(3) of the Securities and Exchange Act of 1934, other than the
Company or a wholly-owned subsidiary thereof or any employee benefit
plan of the Company or any of its it subsidiaries, becomes the
beneficial owner of the Company's securities having 20% or more of the
combined voting power of the then outstanding securities of the Company
that may be cast for the election of directors of the Company (other
than as a result of an in issuance of securities initiated by the
Company in the ordinary course of business); or (ii) as the result of,
or in connection with, any cash tender
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or exchange offer, merger or other business combination, sale of assets
or contested election, or any combination of the foregoing transactions
less than a majority of the combined voting power of the then
outstanding securities of the Company or any successor corporation or
entity entitled to vote generally in the election of the directors of
the Company or such other corporation or entity after such transaction
are held in the aggregate by the holders of the Company's securities
entitled to vote generally in the election of directors of the Company
immediately prior to such transaction; or (iii) during any period of
two consecutive years, individuals who at the beginning of any such
period constitute the Board of Directors of the Company cease for any
reason to constitute at least a majority thereof, unless the election,
or the nomination for election by the Company's shareholders, of each
director of the Company first elected during such period was approved
by a vote of at least two-thirds of the directors of the Company then
still in office who were directors of the Company at the beginning of
any such period.
(b) "Change of Control Period" shall mean the two (2) year
period following a Change of Control.
(c) "Change of Control Severance Benefits" shall mean all of
the following benefits:
1. any other benefits to which Executive is otherwise
entitled by virtue of this Agreement, including the Standard
Termination Amount and any benefits described in Section
4.2; and
2. the Special Termination Payment.
(d) "Special Termination Payment" shall mean an amount payable
in a single lump sum equal to the Executive's maximum annual salary
paid during the five (5) year period preceding the date of termination
(inclusive of bonuses paid to Executive during the 12-month period
preceding the date of termination, but excluding unearned bonuses
negotiated by Executive at the time of Executive's employment with the
Company).
5.3 Termination Not Giving Rive To Change of Control Severance
Benefits. If Executive's employment is terminated during the Change of Control
Period for Cause (as defined in Section 4.3), or on account of Disability (as
defined in Section 4.3), or if Executive dies during the Change of Control
Period, or if Executive terminates Executive's employment during the Change of
Control Period without Good Reason, no Special Termination Payment shall be due
or payable and Executive shall receive only the Standard Termination Amounts.
5.4 Termination Giving Rise to Special Termination Payment. If the
Executive's employment is terminated by the Company during the Change of Control
Period for any reason other than Cause, death of the Executive or Disability, or
if the Executive terminates his employment during the Change of Control Period
for Good Reason (as defined in Section 4.2(b)(ii)), then Executive shall be
entitled to receive the Change of Control Severance Benefits, all of which
(except
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the medical benefits described in Section 4.2(a)(ii)(B))shall be paid to
Executive within ten (10) days following the date of termination, provided,
however, that the Executive's right to any such benefits is expressly
conditioned upon his compliance in all respects with Section 4.5 and Section 4.6
of this Agreement.
5.5 Notice of Termination. Any termination of Executive's employment by
the Company or by Executive pursuant to this Article 5 shall be pursuant to a
written Notice of Termination delivered to the other party in accordance with
Section 7.5 of this Agreement. For purposes of this Section 5.5, a "Notice of
Termination" shall mean a notice which shall expressly indicate the specific
termination provision in the Agreement relied upon; shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provisions so indicated; and
shall state the date of termination.
5.6 Sole Remedy. The Executive hereby agrees that the Change of Control
Severance Benefits shall be Executive's sole and exclusive remedy against the
Company or any successor on account of termination of employment during the
Change of Control Period under the circumstances described in Section 5.4 of
this Agreement.
ARTICLE SIX
CERTAIN REDUCTIONS IN PAYMENTS BY THE COMPANY
6.1 Certain Reduction in Payments by the Company.
(a) Definition of Certain Terms.
(1) A "Payment" shall mean any payment or distribution in the
nature of compensation to or for the benefit of the Executive,
whether paid or payable pursuant to this Agreement or otherwise.
(2) An "Agreement Payment" shall mean a Payment paid or payable
on account of termination of employment during the Change in
Control Period pursuant to Article 5 of this Agreement
(disregarding the reduction provided by Section 6.2).
(3) "Net After Tax Receipts" shall mean the Present Value (as
defined below) of all Payments that are contingent on a Change of
Control within the meaning of Section 280G of the Code, net
of all taxes imposed on the Executive with respect thereto
under Sections 1 and 4999 of the Code, determined by applying the
highest marginal rate under Section 1 of the Code which applied to
the Executive's taxable income for the immediately preceding
taxable year.
(4) "Present Value" shall mean such value determined in
accordance with Section 280G(d)(4) of the Code.
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(5) "Reduced Amount" shall mean the smallest aggregate amount
of Agreement Payments which (a) is less than the sum of all
Agreement Payments and (b) results in aggregate Net After Tax
Receipts which are equal to or greater than the Net After Tax
Receipts which would result if the aggregate Agreement Payments
were any other amount less than the sum of all Agreement Payments.
6.2 Limitation on Agreement Payments. It is intended that all Agreement
Payments hereunder, together with all other Payments to the Executive contingent
upon or in connection with a Change of Control, are reasonable compensation for
the Executive's service to the Company and its subsidiaries. Notwithstanding the
foregoing, should the Company determine, based upon the opinion of the
independent accounting advisors of the Company immediately prior to the Change
of Control ("Accounting Firm"), that the Agreement Payments and other Payments,
together with any other amounts received by the Executive that must be included
in such determination, would result in the payment of an "excess parachute
payment" as defined in Section 280G of the Code, then the Company will reduce
the Agreement Payments to a Reduced Amount which cannot be less than the maximum
amount that would permit a determination that the Executive has not received an
excess parachute payment under the foregoing Code provision. Such reduction will
be made if, but only if, the amount payable to the Executive hereunder without
regard for the foregoing reduction would result in Net After Tax Receipts which
are less than the Net After Tax Receipts that would result after taking into
account any such reduction.
6.3 Opinion of Accounting Firm. The Company may reduce the Agreement
Payments pursuant to this Section 6 only if within thirty (30) days of the
Executive's termination it provides Executive with an opinion of the Accounting
Firm that the Executive will be considered to have received "excess parachute
payments" as defined in Section 280G of the Code if the Executive were to
receive the full amounts owing pursuant to the terms of this Agreement and that
the Reduced Amount proposed to be paid by the Company will result in Net After
Tax Receipts that are equal to or greater than the Net After Tax Receipts which
would result from reduction in the Agreement Payments by any other amount.
ARTICLE VII
MISCELLANEOUS
7.1 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.
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7.2 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.
7.3 Governing Law. The validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of
Tennessee.
7.4 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.
7.5 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
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7.6 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 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
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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.
7.7 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.
7.8 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.
7.9 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.
7.10 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.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the
dates indicated below.
SERVICE MERCHANDISE COMPANY
Date: 12/16/98 By: /s/ C. Steven Moore
-------------------- -----------------------------
Name:
Title:
EXECUTIVE
Date: 12/16/98 /s/ Gary M. Witkin
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Gary M. Witkin
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