Exhibit 10.2
EMPLOYMENT LETTER
This EMPLOYMENT LETTER, dated as of May 13, 2009 (the “Employment Letter”), is
between A.C. Moore Arts & Crafts, Inc., a Pennsylvania corporation (“Company”),
and David Stern (“Executive”).
NOW, THEREFORE, in consideration of the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the parties agree
as follows:
1. Employment; Change of Control.
(a) The Company is pleased to offer Executive employment with the Company as set
forth in this Employment Letter, subject to the completion of the internal
review and hiring process consistent with the Company’s practices.
(b) The Board of Directors of the Company (the “Board”) has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined in
Appendix I) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal uncertainties
and risks created by a pending or threatened Change of Control and to encourage
the Executive’s full attention and dedication to the Company currently and in
the event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives if a Change of Control
occurs, paragraphs 2 through 12 of this Employment Letter (except paragraph 10
which shall continue) shall be superseded by Appendix I.
2. Effectiveness. This Employment Letter shall be effective as of the date
hereof.
3. Position; Start Date. Executive’s title will be Executive Vice President and
Chief Financial Officer. Executive will report directly to the Chief Executive
Officer. Executive’s employment with the Company will begin on or about June 8,
2009 (the “Start Date”).
4. Base Salary. Executive’s annual base salary will be $275,000, payable in
regular installments in accordance with the Company’s general payroll practices.
Executive’s base salary will be subject to review annually. Executive’s first
performance and salary review is currently anticipated to be in May 2010 and
thereafter performance and base salary will be reviewed annually on a schedule
consistent with the Company’s practice for officers (such schedule currently
contemplated to be May of each year).

 

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5. Sign-on Bonus. On the Start Date, Executive will receive a cash lump sum
sign-on bonus in the amount of $75,000 (the “Sign-on Bonus”). Each month (or any
portion of such month) that Executive remains employed by the Company, Executive
will earn one-twenty-fourth (1/24th) of the Sign-on Bonus. If Executive resigns
his employment with the Company for any reason or is terminated by the Company
for cause (as defined below in paragraph 11) within twenty-four (24) months of
the Effective Date, Executive will repay the unearned portion of the Sign-on
Bonus to the Company.
If Executive’s employment is terminated by the Company for cause (as defined
below) or by Executive without Good Reason, Executive shall repay the unearned
portion of the Sign-on Bonus to Company. In the event that the Executive’s
employment is terminated by the Company without cause (as defined below) or by
Executive with Good Reason after the payment of the sign-on bonus, Executive
shall be deemed to have earned One Hundred Percent (100%) of the Sign-on Bonus
as of the effective date of the termination of his employment, and Executive
shall not be required to repay any portion of the Sign-on Bonus. Notwithstanding
anything to the foregoing in this paragraph or in paragraph 9 below relating to
relocation, Executive shall only have the right to terminate his employment with
Good Reason after the one-year anniversary of his Start Date. For purposes
solely of this Employment Agreement, and without reference or relation to, or
otherwise superseding the definition of Good Reason in Appendix I, Good Reason
shall mean the occurrence of any one or more of the following events without
Executive’s prior written consent, unless Company fully cures the circumstances
constituting Good Reason (provided such circumstances are capable of cure)
within thirty (30) business days of receipt of written notice of such
circumstances by Company from Executive: (i) A material reduction in Executive’s
titles, duties, authority and responsibilities, or the assignment to Executive
of any duties materially inconsistent with Executive’s position, authority,
duties or responsibilities without the written consent of Executive;
(ii) Company’s reduction of Executive’s annual base salary or bonus opportunity
under the Annual Incentive Plan (as defined below), each as in effect on the
date hereof or as the same may be increased from time to time; (iii) the
relocation of Company’s headquarters to a location more than thirty-five (35)
miles from Company’s current headquarters in which Executive is employed, as
contemplated by this Employment Agreement; or (iv) Company’s failure to cure a
material breach of its obligations under this Employment Agreement within thirty
(30) days after written notice is delivered to the Board by Executive which
specifically identifies the manner in which Executive believes that Company has
breached its obligations under the Agreement.
6. Annual Incentive Plan. During each fiscal year beginning in 2009 in which
Executive continues to be employed by the Company, he will be entitled to
participate in the Company’s annual incentive bonus plan (the “Annual Incentive
Plan”) as administered and determined by the Compensation Committee of the Board
of Directors. In 2007 and 2008, executive vice presidents were eligible to
receive 75% of base salary at target. The Compensation Committee of the Board of
Directors restructured the 2009 Annual Incentive Plan as a discretionary plan.
If the Board or the Compensation Committee modifies such Annual Incentive Plan
in subsequent years, Executive shall continue to participate at a level no lower
than the highest level established for any Executive Vice President of the
Company as administered and determined by the Compensation Committee of the
Board of Directors.
7. Long-Term Incentive Compensation. Executive will be eligible to participate
in the Company’s long-term incentive plan as administered and determined by the
Compensation Committee of the Board of Directors. Pursuant to the Company’s 2007
Stock Incentive Plan (the “2007 Plan”), Executive will be granted 26,000 stock
appreciation rights (“SARs”) and 35,000 shares of performance accelerated
restricted stock (“PARS”) on the Start Date. Pursuant to the 2007 Plan, the
grant of the PARS and SARs will be evidenced by, respectively, a Restricted
Stock Agreement and a Stock Appreciation Rights Agreement entered into between
Executive and the Company.

 

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8. Benefits. Executive will be entitled to receive benefits generally provided
to officers of the Company consistent with the Company’s practices, including
without limitation, the following:

  •   Medical, dental and prescription benefits.     •   Life insurance equal to
1.5 times his annual base salary, with a maximum amount of $450,000; optional
voluntary life insurance.     •   Long-term disability benefits; New Jersey
short-term disability benefits.     •   Participation in the Company’s 401(k)
plan.     •   Vacation (three (3) weeks in 2009).     •   Cell phone/blackberry.
    •   Reimbursement for business expenses/use of a corporate credit card.

9. Relocation. The Company will provide Executive with the following relocation
benefits: (a) payment for temporary housing for the one hundred twenty (120) day
period beginning on the Start Date (the “Relocation Period”); (b) weekly meal
allowance reimbursement of up to $150.00 during the Relocation Period;
(c) payment for bi-weekly round trip travel for either Executive or his spouse
for the purpose of relocation investigation and house hunting during the
Relocation Period; (d) arrangement and payment for the services of a moving firm
in accordance with the Company’s relocation policy for a relocation that takes
place within 16 months of the Start Date; (e) closing costs in an amount not to
exceed $3,000 for the purchase of a new house/residence within 16 months of the
Start Date; and (f) reimbursement of the commission costs on the sale of his
house in Idaho (the foregoing (a), (b), (c), (d), (e) and (f) are collectively
referred to as the “Relocation Benefits”). All Relocation Benefit payments or
in-kind benefit shall be provided during the Relocation Period and all
reimbursements and in-kind benefits shall comply with the requirements of
paragraph 16. For each month (or any portion of such month) that Executive
remains employed by the Company, Executive will earn one-twenty-fourth (1/24th)
of the Relocation Benefits. If his employment is terminated by Executive for any
reason or by the Company for cause (as defined below in paragraph 11) within
twenty-four (24) months of the Effective Date, Executive will repay the unearned
portion of the Relocation Benefits to the Company. If Executive’s employment is
terminated by the Company for cause (as defined below) or by Executive without
good reason (as described below), Executive shall repay the unearned portion of
the Relocation Benefits to Company. In the event that the Executive is
terminated by the company without cause (as defined below) or by Executive with
Good Reason after the payment of the Relocation Benefits, Executive shall be
deemed to have earned One Hundred Percent (100%) of the Relocation Benefits as
of the effective date of the termination of his employment, and Executive shall
not be required to repay any portion of the Relocation Benefits. The Relocation
Period may be extended for an additional sixty (60) days in the event his house
is not sold during the initial 120-day period.

 

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10. Covenants.
(a) In consideration of the compensation to be paid to Executive as set forth in
this Employment Letter, the sufficiency of which Executive hereby acknowledges,
Executive agrees that for a period of twelve (12) months after termination of
his employment (the “Non-Compete Period”), Executive will not directly or
indirectly own any interest in, manage, control, participate in, consult with,
render services for, or in any manner engage in any business competing with the
businesses of the Company or its subsidiaries (such businesses being the retail
sale of arts and crafts and related products), as such businesses exist or are
in process on the date of the termination of his employment, within a fifty
(50) mile radius of any geographic location in which the Company or its
subsidiaries engage in such businesses or actively plan to engage in such
businesses. Nothing herein shall prohibit Executive from being a passive owner
of not more than 2% of the outstanding stock of any class of a corporation which
is publicly traded and which competes with the businesses of Company and its
subsidiaries, so long as Executive has no direct or indirect active
participation in the business of such corporation.
(b) During the Non-Compete Period, Executive shall not directly or indirectly
through another person or entity (i) induce or attempt to induce any employee of
the Company or any subsidiary to leave the employ of the Company or such
subsidiary, or in any way interfere with the relationship between the Company or
any subsidiary and any employee thereof, (ii) hire an employee of the Company or
any subsidiary, or (iii) induce or attempt to induce any customer, supplier,
licensee, licensor, franchisee or other business relation of the Company or any
subsidiary to cease doing business with the Company or such subsidiary, or in
any way interfere with the relationship between any such customer, supplier,
licensee, licensor, franchisee, or business relation and the Company or any
subsidiary (including, without limitation, making any negative statements or
communications about the Company or its subsidiaries).
(c) The provisions of this paragraph 10 will be enforced to the fullest extent
permitted by the law in the state in which Executive resides or is employed at
the time of the enforcement of the provision. If, at the time of enforcement of
this paragraph 10, a court shall hold that the duration, scope or area
restrictions stated herein are unreasonable under circumstances then existing,
the parties agree that the maximum duration, scope or area reasonable under such
circumstances shall be substituted for the stated duration, scope or area and
that the court shall be allowed to revise the restrictions contained herein to
cover the maximum period, scope and area permitted by law. Executive agrees that
the restrictions contained in this paragraph 10 are reasonable. In the event of
the breach or a threatened breach by Executive of any of the provisions of this
paragraph 10, the Company, in addition and supplementary to other rights and
remedies existing in its favor, may apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violations of the provisions hereof
(without posting a bond or other security). In addition, in the event of an
alleged breach or violation by Executive of this paragraph 10, the Non-Compete
Period shall be tolled until such breach or violation has been duly cured.

 

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11. Severance and Benefits Prior to a Change of Control. If Executive’s
employment is terminated at any time by the Company without cause (as defined
below) prior to a Change of Control, Executive will receive (i) severance
payments in the amount of six (6) months’ salary continuation at his then
current rate, less any required withholdings or authorized deductions, in equal
monthly installments, plus (ii) health insurance benefits pursuant to the
Company’s programs as in effect from time to time, to the extent Executive
participated immediately prior to the date of such termination (“Insurance
Benefits”) plus (iii) pro rata bonus (as defined below). Should Executive remain
continuously unemployed for six (6) months from the date of his termination, he
will receive an additional month of salary continuation at his then current rate
and Insurance Benefits for each month after the six (6) months that Executive
remains unemployed, up to a maximum of six (6) additional months of severance in
the form of salary continuation at his then current rate and Insurance Benefits.
The total amount of salary continuation severance benefit to be paid pursuant to
this paragraph 11 shall not equal more than twelve (12) months’ base salary at
Executive’s then current rate. Likewise, Insurance Benefits will be provided for
no more than twelve (12) months following the termination date. Severance
benefits in the form of salary continuation shall be paid at the same time the
Executive’s salary would have been paid based on the Company’s normal payroll
practices had the Executive continued employment through the severance term.
Severance in the form of pro rata bonus shall be paid within sixty (60) days of
the effective date of termination of employment. Executive agrees to
(a) actively seek employment in good faith and (b) notify the Company
immediately upon obtaining employment.
Cause shall mean the a determination in good faith by the Company of either
(i) failure of the Executive to perform substantially the Executive’s duties
with the Company or one of its affiliates (other than any such failure resulting
from incapacity due to physical or mental illness), after a written demand for
substantial performance is delivered to the Executive by the Chief Executive
Officer which specifically identifies the manner in which the Chief Executive
Officer believes that the Executive has not substantially performed the
Executive’s duties; provided however, that Executive shall have one opportunity
to cure the failure so identified for sixty days from the written demand, or
(ii) the engaging by the Executive in illegal conduct or gross misconduct, in
either case, in violation of the Company’s Code of Business. Any act, or failure
to act, based upon authority given pursuant to a resolution duly adopted by the
Board or upon the instructions of the Chief Executive Officer or based upon the
advice of counsel for the Company shall be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the best interests of
the Company. The cessation of employment of the Executive shall not be deemed to
be for Cause unless and until there shall have been delivered to the Executive a
written notice from the Chief Executive Officer, a copy of which notice has been
previously delivered to the Board of Directors, finding that, in the good faith
opinion of the Chief Executive Officer, the Executive is guilty of the conduct
described in subsection the aforementioned sections (i) or (ii) above, and
specifying the particulars thereof in detail.

 

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Pro rata bonus shall mean the pro rata portion (calculated as if the “target”
amount under such plan has been reached) under any current Annual Incentive Plan
from the first day of the Company’s fiscal year of the year of termination
through the termination date. No payment of any sum pursuant to this paragraph
11 will be made unless Executive shall have executed and delivered to the
Company a release of any and all claims against the Company and its subsidiaries
(and their respective present and former officers, directors, employees and
agents), all in form and substance as provided by counsel to the Company (the
“Release”) and any waiting period or revocation period provided by law for the
effectiveness of the Release shall have expired without Executive having revoked
the Release.
12. At Will. Executive may terminate his employment with the Company at any time
and for any reason whatsoever. Likewise, the Company may terminate his
employment at any time and for any reason whatsoever, with or without cause or
advance notice. This at-will employment relationship cannot be changed except in
writing signed by an officer of the Company so authorized.
13. No Confidences. During his employment, Executive shall not improperly use,
communicate, disclose, provide commentary regarding or make available any
proprietary information or trade secrets of any former employer or any other
person or entity to whom or to which Executive has any duty of confidentiality.
Further, Executive warrants that Executive shall not bring onto the Company’s
premises or transfer to the Company’s electronic media any documents or
information that is not generally known to the public, belonging to any former
employer or other person or entity to whom or to which Executive owes a duty of
confidentiality unless Executive has written consent from the former employer or
other person or entity. Executive acknowledges that Executive is taking
employment with the Company and is agreeing to all of the terms of this letter
voluntarily and without any coercion or restraint.
14. Other Agreements. Consistent with the Company’s practices, Executive will
enter into agreements relating to confidentiality and arbitration, along with
equity agreements from time to time, with the Company as a condition of his
employment. This Employment Letter replaces and supersedes any and all prior
discussions, offers, communications or agreements of any sort whatsoever
previously provided to Executive by the Company.
15. Counterparts. This Employment Letter may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same letter.
16. Code Section 409A. Unless otherwise expressly provided, any payment of
compensation by Company to the Executive, whether pursuant to this Agreement or
otherwise, shall be made within two and one-half months (21/2 months) after the
end of the later of the calendar year or the Company’s fiscal year in which the
Executive’s right to such payment vests (i.e., is not subject to a substantial
risk of forfeiture for purposes of Section 409A of the Internal Revenue Code of
1986, as amended (“Code Section 409A”)).
All payments of “nonqualified deferred compensation” (within the meaning of Code
Section 409A are intended to comply with the requirements of Code Section 409A,
and shall be interpreted in accordance therewith. Neither party individually or
in combination may accelerate, offset or assign any such deferred payment,
except in compliance with Code Section 409A, and no amount shall be paid prior
to the earliest date on which it is permitted to be paid under Code
Section 409A. In the event that an amount becomes payable to the Executive after

 

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termination of employment, the Company shall determine whether such payment is
subject to the requirements of Code Section 409A (a) (2)(A)(i) and Code
Section 409A (a)(2)(B)(i) (hereinafter referred to as the “Specified Employee
Rule”). The Company shall make such determination and provide written notice
thereof to the Executive prior to the earlier of the date that any such amounts
would be paid to the Executive without regard to Code Section 409A or within
thirty (30) days after his termination of employment. Upon the request of the
Executive, the Company agrees to promptly provide to him such information that
the Executive may reasonably request with regard to its determination. In the
event that the Company determines that an amount payable to the Executive after
his termination of employment is subject to the Specified Employee Rule, then no
distribution of such amount shall be made to the Executive on account of his
separation from service before the date which is six (6) months after the date
of his separation from service (or if earlier, the date of death of the
Executive) as and to the extent required under Code Section 409A. The aggregate
amount that would have been payable to the Executive but for the restrictions
imposed by the prior sentence shall be paid to the Executive as soon as
permitted by Code Section 409A, without the imposition of excise taxes.
All expense reimbursement or in-kind benefits provided under this Agreement or,
unless otherwise specified, under any Company program or policy subject to Code
Section 409A shall comply with the following rules: (i) the amount of expenses
eligible for reimbursement or in-kind benefits provided during one calendar year
may not affect the benefits provided during any other year; (ii) reimbursements
shall be paid no later than the end of the calendar year following the year in
which the Executive incurs such expenses, and the Executive shall take all
actions necessary to claim all such reimbursements on a timely basis to permit
the Company to make all such reimbursement payments prior to the end of said
period, and (iii) the right to reimbursement or in-kind benefits shall not be
subject to liquidation or exchange for another benefit.
IN WITNESS WHEREOF, the parties hereto have caused this Employment Letter to be
duly executed and delivered as of the date first written above.

                  /s/ David Stern       EXECUTIVE           

            A.C. MOORE ARTS & CRAFTS, INC.
      By:   /s/ Rick A. Lepley         Rick A. Lepley        President and Chief
Executive Officer     

 

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APPENDIX I
CHANGE OF CONTROL PROVISIONS
To Employment Letter of David Stern (“Executive”)
If a Change of Control (as defined in this Appendix I) of the Company occurs,
paragraphs 2 through 12 of the Employment Letter (except paragraph 10 which
shall continue) shall be superseded by this Appendix I.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date.
For the purpose of this Appendix I, the “Effective Date” shall mean the date on
which a Change of Control (as defined in Section 2 of this Appendix I) occurs.
Anything in the Employment Letter to the contrary notwithstanding, if a Change
of Control occurs and if the Executive’s employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of employment
(i) was at the request of a third party who has taken steps reasonably
calculated to effect a Change of Control or (ii) otherwise arose in connection
with or anticipation of a Change of Control, then for all purposes of the
Employment Letter and this Appendix I, the “Effective Date” shall mean the date
immediately prior to the date of such termination of employment.
2. Change of Control. For the purpose of this Appendix I and the Employment
Letter, a “Change of Control” shall mean:
(a) The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of more than 50% of either
(i) the then-outstanding shares of common stock of the Company (the “Outstanding
Company Common Stock”) or (ii) the combined voting power of the then-outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the “Outstanding Company Voting Securities”); provided, however, that
for purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the Company,
(ii) any acquisition by the Company, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i), (ii) and
(iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the “Incumbent
Board”) cease for any reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director subsequent to the
date hereof whose election, or nomination for election by the Company’s
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or

 

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(c) Consummation of a reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the Company (a
“Business Combination”), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then-outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company’s assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, more than 50% of, respectively, the then-outstanding shares of
common stock of the corporation resulting from such Business Combination, or the
combined voting power of the then-outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company.
3. Employment Term. The Company hereby agrees to continue the Executive in its
employ, and the Executive hereby agrees to remain in the employ of the Company
subject to the terms and conditions of the Employment Letter and this
Appendix I, for the period commencing on the Effective Date and ending on the
twelfth month anniversary of such date (the “Employment Term”). Such period may
be extended in writing by the mutual agreement of the Company and Executive at
any time prior to such anniversary.
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Term, (A) the Executive’s position, authority, duties
and responsibilities shall be at least commensurate in all material respects
with the most significant of those held, exercised and assigned to him at any
time during the 120-day period immediately preceding the Effective Date and
(B) the Executive’s services shall be performed at the location where the
Executive was employed immediately preceding the Effective Date or any office or
location less than 35 miles from such location.

 

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(ii) During the Employment Term, and excluding any periods of vacation and sick
leave to which the Executive is entitled, the Executive agrees to devote
Executive’s best efforts and Executive’s full business time and attention to the
business and affairs of the Company and its subsidiaries. During the Employment
Term it shall not be a violation of this Appendix I or the Employment Letter for
the Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach at
educational institutions, and (C) manage personal investments, so long as such
activities do not significantly interfere with the performance of the
Executive’s responsibilities as an employee of the Company in accordance with
this Appendix I and the Employment Letter. It is expressly understood and agreed
that to the extent that any such activities have been conducted by the Executive
prior to the Effective Date, the continued conduct of such activities (or the
conduct of activities similar in nature and scope thereto) subsequent to the
Effective Date shall not thereafter be deemed to interfere with the performance
of the Executive’s responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Term, the Executive shall receive an
annual base salary (“Annual Base Salary”), which shall be paid at a monthly
rate, at least equal to twelve times the highest monthly base salary paid or
payable, including any base salary which has been earned but deferred, to the
Executive by the Company and its affiliated companies in respect of the
twelve-month period immediately preceding the month in which the Effective Date
occurs. During the Employment Term, the Annual Base Salary shall be reviewed no
more than 12 months after the last salary increase awarded to the Executive
prior to the Effective Date. Any increase in Annual Base Salary shall not serve
to limit or reduce any other obligation to the Executive under the Employment
Letter and this Appendix I. Annual Base Salary shall not be reduced after any
such increase and the term Annual Base Salary as utilized in the Employment
Letter and this Appendix I shall refer to Annual Base Salary as so increased. As
used in this Appendix I, the term “affiliated companies” shall include any
company controlled by, controlling or under common control with the Company.
(ii) Annual Bonus; Long-term incentive plan; Benefits. In addition to Annual
Base Salary, the Executive shall be awarded, for each fiscal year ending during
the Employment Term, an annual bonus (the “Annual Bonus”) in cash at least equal
to the Executive’s bonus under the Company’s annual bonus plans or any
comparable bonus under any predecessor or successor plan or plans, for the last
full fiscal year prior to the Effective Date (annualized in the event that the
Executive was not employed by the Company for the whole of such fiscal year).
Each such Annual Bonus shall be paid no later than March 15th of the fiscal year
next following the fiscal year for which the Annual Bonus is awarded. Executive
will continue to be eligible to participate in the Company’s long-term incentive
plan as administered and determined by the Compensation Committee of the Board
of Directors and to be entitled to receive benefits generally provided to
officers of the Company consistent with the Company’s practices.

 

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5. Termination of Employment.
(a) Death or Disability. The Executive’s employment shall terminate
automatically upon the Executive’s death during the Employment Term. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Term (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
this Appendix I and the Employment Letter of its intention to terminate the
Executive’s employment. In such event, the Executive’s employment with the
Company shall terminate effective on the 30th day after receipt of such notice
by the Executive (the “Disability Effective Date”), provided that, within the
30 days after such receipt, the Executive shall not have returned to full-time
performance of the Executive’s duties. For purposes of this Appendix I and the
Employment Letter, “Disability” shall mean the absence of the Executive from the
Executive’s duties with the Company on a full-time basis for 90 consecutive days
as a result of incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by the Company or its insurers
and acceptable to the Executive or the Executive’s legal representative.
(b) Cause. The Company may terminate the Executive’s employment during the
Employment Term for Cause. For purposes of this Appendix I and the Employment
Letter, “Cause” shall mean:
(i) the failure of the Executive to perform substantially the Executive’s duties
with the Company or one of its affiliates (other than any such failure resulting
from incapacity due to physical or mental illness), after a written demand for
substantial performance is delivered to the Executive by the Chief Executive
Officer which specifically identifies the manner in which the Chief Executive
Officer believes that the Executive has not substantially performed the
Executive’s duties; provided however, that Executive shall have one opportunity
to cure the failure so identified for sixty days from the written demand, or
(ii) the engaging by the Executive in illegal conduct or gross misconduct, in
either case, in violation of the Company’s Code of Ethical Business Conduct.
Any act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or based upon the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The cessation of employment
of the Executive shall not be deemed to be for Cause unless and until there
shall have been delivered to the Executive a written notice from the Chief
Executive Officer, a copy of which notice has been previously delivered to the
Board of Directors, finding that, in the good faith opinion of the Chief
Executive Officer, the Executive is guilty of the conduct described in
subsection 5 (b)(i) or (ii) above, and specifying the particulars thereof in
detail.
(c) Good Reason. The Executive’s employment may be terminated by the Executive
for Good Reason. For purposes of this Appendix I and the Employment Letter,
“Good Reason” shall mean:

 

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(i) the assignment to the Executive of any duties inconsistent in any respect
with the Executive’s position, authority, duties or responsibilities as
contemplated by Section 4(a) of this Appendix I, or any other action by the
Company which results in a material diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the provisions of Section
4(b) of this Appendix I, other than an isolated, insubstantial and inadvertent
failure not occurring in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
(iii) the Company’s requiring the Executive to be based at any office or
location other than as provided in Section 4(a)(i)(B) of this Appendix I;
(iv) any purported termination by the Company of the Executive’s employment
otherwise than as expressly permitted by this Appendix I; or
(v) any failure by the Company to require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform the this Appendix I and the Employment Letter in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place.
(d) Date of Termination. “Date of Termination” means (i) if the Executive’s
employment is terminated by the Company for Cause, or by the Executive for Good
Reason, the date of receipt of the notice of termination, (ii) if the
Executive’s employment is terminated by the Company other than for Cause or
Disability, the date on which the Company notifies the Executive of such
termination and (iii) if the Executive’s employment is terminated by reason of
death or Disability, the date of death of the Executive or the Disability
Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If, during the
Employment Term, the Company shall terminate the Executive’s employment other
than for Cause, death or Disability or the Executive shall terminate Executive’s
employment for Good Reason:
(i) the Company shall pay to the Executive in a single lump sum payment in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
(A) the sum of (1) the Executive’s Annual Base Salary through the Date of
Termination to the extent not theretofore paid, plus (2) the product of (I) the
target Annual Bonus paid or payable, for the most recently completed fiscal year
during the Employment Term and (II) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination, and
the denominator of which is 365 (“Pro Rata Bonus”), plus (3) any compensation
previously deferred by the Executive and not theretofore previously paid shall
be paid in accordance with the terms of the plan pursuant to which deferral was
made and (4) the amount equal to the Executive’s Annual Base Salary through the
twelfth month anniversary of the Date of Termination.

 

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(ii) The Company shall provide all benefits as are, from time to time,
maintained for officers of the Company, including without limitation, medical
and other insurance plans to the Executive through the twelfth month anniversary
of the Date of the Termination of Executive’s employment pursuant to or, if not
pursuant to, which are substantially equal to the Company’s insurance programs
in effect and to the extent Executive participated immediately prior to the date
of such termination, provided that if the Consolidated Omnibus Reconciliation
Act of 1985 (“COBRA”) applies to the provision of health insurance benefits for
any part of the period of benefit continuation provided for by this paragraph,
Executive will make all necessary elections and such benefits will run
concurrently with and satisfy the continuation coverage requirements of this
paragraph for the period to which COBRA applies.
No payment of any sum nor the receipt of any benefit shall be due to Executive
under this Section 6(a) unless and until Executive shall have executed and
delivered to the Company a release of any and all claims against the Company and
its subsidiaries (and their respective present and former officers, directors,
employees and agents — collectively the “Released Parties”) and a covenant not
to sue the Released Parties, all in form and substance as provided by counsel to
the Company (the “Release”) and any waiting period or revocation period provided
by law for the effectiveness of such Release shall have expired without
Executive’s having revoked such Release. In the event Executive shall decline or
fail for any reason to execute and deliver such Release, the Executive shall be
entitled to receive only those amounts provided pursuant to Section 6(d)
provided for an Executive whose employment is terminated by the Company for
Cause or by Executive without Good Reason.
(b) Death. If the Executive’s employment is terminated by reason of the
Executive’s death during the Employment Term, this Appendix I and the Employment
Letter shall terminate without further obligations to the Executive’s legal
representatives under this Appendix I and the Employment Letter, except that
Executive, or Executive’s estate if applicable, shall be entitled to receive the
sum of (i) Executive’s Annual Base Salary through the Date of Termination, (ii)
Executive’s Pro Rata Bonus (as defined in Section 6(a)(i)(A)(2)) and (iii) the
timely payment or provision of any other amounts or benefits required to be paid
or provided or which the Executive is eligible to receive under any plan,
program, policy or practice or contract or agreement of the Company and its
affiliated companies. The amounts set forth in Section 6(b)(i) and (ii) shall be
paid to the Executive’s estate, as applicable, in a lump sum in cash within
30 days of the Date of Termination.
(c) Disability. If the Executive’s employment is terminated by reason of the
Executive’s Disability during the Employment Term, this Appendix I and the
Employment Letter shall terminate without further obligations to the Executive,
except that Executive shall be entitled to receive the sum of (i) Executive’s
Annual Base Salary through the Disability Effective Date and (ii) Executive’s
Pro Rata Bonus (as defined in Section 6(a)(i)(A)(2)) and (iii) the timely
payment or provision of other benefits required to be paid or provided to
Executive or which Executive is eligible to receive under any plan, program,
practices or policies relating to disability of the Company and its affiliated
Companies. The amounts set forth in Section 6(c)(i) and (ii) shall be paid to
the Executive in a lump sum in cash within 30 days of the Date of Termination.

 

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(d) Cause; Other than for Good Reason. If the Executive’s employment shall be
terminated for Cause or Executive voluntarily terminates employment without Good
Reason during the Employment Term, this Appendix I and the Employment Letter
shall terminate without further obligations to the Executive other than for the
Executive’s Annual Base Salary through the Date of Termination and timely
payment or provision of any other applicable benefits, in each case to the
extent theretofore unpaid.
7. Options, SARs and Restricted Stock. All options to purchase and stock
appreciation rights in common stock in the Company and the grants of common
stock in the Company with vesting restrictions held by Executive on the date of
a Change of Control shall immediately be deemed vested and the options and stock
appreciation rights shall immediately become exercisable on the date of the
Change in Control and Executive shall have until the end of the applicable
original term of each such option and stock appreciation right to exercise such
option and stock appreciation right; provided, however, that if Executive’s
employment with the Company is terminated for any reason (other than Cause)
after the Change in Control, Executive shall have until the earlier of (1) the
end of the applicable original term of each such option and stock appreciation
right and (2) 18 months after the Date of Termination to exercise each such
option and stock appreciation right post-termination. In the event that
Executive’s employment with the Company is terminated for Cause, all options,
stock appreciation rights and unvested restricted stock held by Executive shall
terminate immediately.
8. Nonexclusivity of Rights. Nothing in this Appendix I or the Employment Letter
shall prevent or limit the Executive’s continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
affiliated companies and amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the date of termination of employment
shall be payable in accordance with such plan, policy, practice or program or
contract or agreement except as explicitly modified by this Appendix I and the
Employment Letter.
9. Code Section 409A. Unless otherwise expressly provided, any payment of
compensation by Company to the Executive, whether pursuant to this Agreement or
otherwise, shall be made within two and one-half months (21/2 months) after the
end of the later of the calendar year or the Company’s fiscal year in which the
Executive’s right to such payment vests (i.e., is not subject to a substantial
risk of forfeiture for purposes of Section 409A of the Internal Revenue Code of
1986, as amended (“Code Section 409A”)).
All payments of “nonqualified deferred compensation” (within the meaning of Code
Section 409A are intended to comply with the requirements of Code Section 409A,
and shall be interpreted in accordance therewith. Neither party individually or
in combination may accelerate, offset or assign any such deferred payment,
except in compliance with Code Section 409A, and no amount shall be paid prior
to the earliest date on which it is permitted to be paid under Code
Section 409A. In the event that an amount becomes payable to the Executive upon

 

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termination of employment, the Company shall determine whether such payment is
subject to the requirements of Code Section 409A (a) (2)(A)(i) and Code
Section 409A (a)(2)(B)(i) (hereinafter referred to as the “Specified Employee
Rule”). The Company shall make such determination and provide written notice
thereof to the Executive prior to the earlier of the date that any such amounts
would be paid to the Executive without regard to Code Section 409A or within
thirty (30) days after his termination of employment. Upon the request of the
Executive, the Company agrees to promptly provide to him such information that
the Executive may reasonably request with regard to its determination. In the
event that the Company determines that an amount payable to the Executive after
his termination of employment is subject to the Specified Employee Rule, then no
distribution of such amount shall be made to the Executive on account of his
separation from service before the date which is six (6) months after the date
of his separation from service (or if earlier, the date of death of the
Executive) as and to the extent required under Code Section 409A. The aggregate
amount that would have been payable to the Executive but for the restrictions
imposed by Code Section 409A shall be paid to the Executive as soon as permitted
by Code Section 409A without the imposition of excise taxes.
All expense reimbursement or in-kind benefits provided under this Agreement or,
unless otherwise specified, under any Company program or policy subject to Code
Section 409A shall comply with the following rules: (i) the amount of expenses
eligible for reimbursement or in-kind benefits provided during one calendar year
may not affect the benefits provided during any other year; (ii) reimbursements
shall be paid no later than the end of the calendar year following the year in
which the Executive incurs such expenses, and the Executive shall take all
actions necessary to claim all such reimbursements on a timely basis to permit
the Company to make all such reimbursement payments prior to the end of said
period, and (iii) the right to reimbursement or in-kind benefits shall not be
subject to liquidation or exchange for another benefit.
10. Code Section 280G. If it shall be determined that any payment or
distribution by the Company to or for the benefit of the Employee under this
Agreement or any other arrangements between the parties would be subject to the
deduction limitations and excise tax imposed by Sections 280G and 4999 of the
Internal Revenue Code, (including any applicable interest and penalties, the
“Excise Tax”), then the parties agree that the Company shall reduce the
aggregate amount of all such payments or distributions or other arrangements as
may be necessary to avoid the application of any Excise Tax.

 

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