CEO Employment Agreement - Jeffrey P. Gannon

EMPLOYMENT AGREEMENT


THIS AGREEMENT, made and entered into as of January 12, 1998, by and between Jeffrey P. Gannon (the "Executive") and Zenith Electronics Corporation (the "Company");


WITNESSETH THAT:


WHEREAS, the parties desire to enter into this Agreement pertaining to the employment of the Executive by the Company;


NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, it is hereby covenanted and agreed by the Executive and the Company as follows:


1. Performance of Services. The Executive's employment with the Company shall be subject to the following:


(a) Subject to the terms of this Agreement, the Company hereby agrees to employ the Executive as its President and Chief Executive Officer during the Agreement Term (as defined below), and the Executive hereby agrees to remain in the employ of the Company during the Agreement Term.


(b) During the Agreement Term, while the Executive is employed by the Company, the Executive shall devote his full time, energies and talents to serving as its President and Chief Executive Officer. The Executive shall be elected to the Board of Directors of the Company (the "Board") at the Company's annual meeting to be held not later than May 30, 1998. Thereafter, he shall serve as a member of the Board during the Agreement Term, while he is employed by the Company. On and after the Effective Date (as described below), and prior to such election, the Executive shall be invited to attend all meetings of the Board.


(c) The Executive agrees that he shall perform his duties faithfully and efficiently subject to the directions of the Board. The Executive's duties may include providing services for both the Company and the Subsidiaries (as defined below), as determined by the Board; provided, that the Executive shall not, without his consent, be assigned tasks that would be inconsistent with those of President and Chief Executive Officer. The Executive will have such authority, power, responsibilities and duties as are inherent to his positions and necessary to carry out his responsibilities and the duties required of him hereunder.


(d) Notwithstanding the foregoing provisions of this paragraph 1, during the Agreement Term, the Executive may devote reasonable time to activities other than those required under this Agreement, including the supervision of his personal investments, and activities involving professional, charitable, educational, religious and similar types of organizations, speaking engagements, membership on the boards of directors of other organizations, and similar type activities, to the extent that such other activities do not, in the judgement of the Board, materially inhibit or prohibit the performance of the Executive's duties under this Agreement, or conflict in any material way with the business of the Company or any Subsidiary; provided, however, that the Executive shall not serve on the board of any business, or hold any other position with any business without the consent of the Board.


(e) Subject to the provisions of this Agreement, the Executive shall not be required to perform services under this Agreement during any period that he is Disabled. The Executive shall be considered "Disabled" during any period in which he has a physical or mental disability which renders him incapable, after reasonable accommodation, of performing his duties under this Agreement. In the event of a dispute as to whether the Executive is Disabled, the Company may refer the same to a mutually acceptable licensed practicing physician, and the Executive agrees to submit to such tests and examinations as such physician shall deem appropriate. During the period in which the Executive is Disabled, the Company may appoint a temporary replacement to assume the Executive's responsibilities.


(f) The "Agreement Term" shall be the three-year period beginning on January 19, 1998 (the "Effective Date") and ending on the third anniversary thereof.


(g) For purposes of this Agreement, the term "Subsidiary" shall mean any corporation, partnership, joint venture or other entity during any period in which at least a fifty percent interest in such entity is owned, directly or indirectly, by the Company (or a successor to the Company).


2. Compensation. Subject to the terms of this Agreement, during the Agreement Term, while the Executive is employed by the Company, the Company shall compensate him for his services as follows:


(a) One-Time Payment. To compensate the Executive for certain out-of-pocket relocation expenses and other costs incurred by the Executive in connection with the acceptance of employment under this Agreement, the Company shall make a one-time payment of $50,000 to the Executive upon the execution of this Agreement by the Company and the Executive.


(b) Salary. The Executive shall receive, in substantially equal monthly or more frequent installments, in accordance with the Company's regular payroll practices, an annual base salary at the rate of $600,000 per year (the "Salary").


(c) Annual Performance Bonus. The Executive shall be entitled to performance bonuses of $400,000 to $600,000 per annum, in accordance with the provisions of Exhibit 1, which is attached to and forms a part of this Agreement. The minimum performance bonus amount of $400,000 per annum shall be payable in four equal installments at the end of each calendar quarter.


(d) Special Bonus. The Executive shall be paid a special bonus of $500,000 for the calendar years 1998, 1999, and 2000, payable in four equal installments at the end of each calendar quarter.


(e) Stock Options. As provided in Exhibit 2, which is attached to and forms a part of this Agreement, the Executive shall be entitled to receive an award of options to purchase 300,000 shares of common stock of the Company ("Company Stock"). In addition, at the discretion of the Board, the Executive will also be eligible to receive annual stock option grants as a participant in any performance-based executive incentive program that may be adopted by the Company.


(f) Long-Term Incentive Award. As provided in Exhibit 3, which is attached to and forms a part of this Agreement, the Executive shall be eligible for the Long-Term Incentive Award in accordance with the provisions of Exhibit 3.


(g) Long Term Disability Insurance. The Company shall obtain long term disability income replacement coverage for the Executive, subject to such terms as are mutually agreed upon by the Company and the Executive; provided, however, that the Company shall endeavor to obtain coverage that provides that all or a portion of the benefits will continue until the Executive attains age 62 (if the Executive continues to be disabled until that time); and further provided that the amounts to be paid for such coverage by the Company (including both amounts paid directly to the insurance provider and amounts reimbursed to the Executive) may be equal to but not greater than $15,000 per annum. During any period while the Executive is Disabled and is otherwise entitled to receive Salary and bonus payments under this Agreement (including payment in lieu of Salary or bonus pursuant to paragraph 4(d)), any such Salary and bonus payments (or such payments in lieu of Salary and bonus) to the Executive shall be reduced by the amount of any benefits paid for the same period of time under the disability income replacement coverage. Life Insurance. The Company shall provide life insurance coverage subject to the following:


(i) Prior to the Effective Date, the Executive's prior employer maintained a whole life insurance policy covering the life of the Executive, and providing a total death benefit of $323,097, with such benefits to be paid to the beneficiary named by the Executive, except that the first $32,176.68 payable under the policy is to be paid to the Executive's former employer (the "employer portion"). Subject to the Company's right to receive the employer portion in the event of a cash-out of the policy prior to the Executive's death, the Executive shall be entitled to any cash value of the policy upon the occurrence of such a cash-out. The Executive shall arrange to have the right to receive such employer portion transferred from the Executive's prior employer to the Company, and the Company agrees to pay the prior employer $32,176.68 for such transfer. During the period of the Executive's employment with the Company, the life insurance coverage under such policy shall be continued, and for such period, beginning as of the Effective Date, the Company shall reimburse the Executive for the premiums for such coverage.


(ii) The Company shall obtain additional whole life insurance coverage on the Executive's life providing $676,903 in death benefits, under a policy that is similar to the policy described in paragraph (i) next above, but subject to the Executive's satisfactory completion of a physical examination and other aspects of the application process. Death benefits under such coverage shall be payable to the beneficiary named by the Executive. Subject to the Company's right to receive the employer portion in the event of a cash-out of the policy prior to the Executive's death, the Executive shall be entitled to any cash value of the policy in the event of such a cash-out. During the period of the Executive's employment with the Company, the Company shall pay the premiums with respect to such policy; provided, however, that the death benefits to be provided under such policy shall be reduced below $676,903 as necessary so that the annual premiums and costs due from the Company under this paragraph (ii) do not exceed $8,000.


(iii) The Company shall obtain term life insurance coverage on the Executive's life providing $3 million in death benefits, but subject to the Executive's satisfactory completion of a physical examination and other aspects of the application process. Death benefits under such coverage shall be payable to the beneficiary named by the Executive. During the period of the Executive's employment with the Company, the Company shall pay the premiums with respect to such policy; provided, however, that the death benefits to be provided under such policy shall be reduced below $3 million as necessary so that the annual premiums and costs due from the Company under this paragraph (iii) do not exceed $5,000.


(i) Make-Whole Retirement Plan Benefit. The Executive shall be eligible for a Make-Whole Retirement Plan Benefit determined in accordance with this paragraph (i):


(i) It is understood and agreed by the parties that the Make-Whole Retirement Plan Benefit is intended to replace deferred compensation benefits lost by the Executive by reason of his leaving his prior employer, and the Executive agrees to promptly provide documentation from his prior employer reflecting such benefits.


(ii) As of the Effective Date, the Company shall establish a book account in the name of the Executive, which shall reflect the Executive's Make-Whole Retirement Plan Benefit, and which shall be credited with an opening balance, as of the Effective Date, of $254,000.


(iii) Beginning as of the Effective Date, and continuing until the Executive's Date of Termination, the account balance for the Make-Whole Retirement Plan Benefit shall be subject to a reduction of $18,143 per annum.


(iv) Immediately prior to distribution with respect to such account balance for the Make-Whole Retirement Plan Benefit (if any), such account balance shall be credited with interest at the rate of 9.5% per annum for the period beginning with the Effective Date and ending with the Date of Termination.


(v) Distribution with respect to the account balance for the Make-Whole Retirement Plan Benefit shall be determined in accordance with paragraph 4.


(j) Benefit Plans. The Executive shall be entitled to participate in and receive benefits under all retirement, welfare, and fringe benefit plans of the Company to the same extent and on the same terms as those benefits are provided by the Company from time to time to the Company's other senior management employees. However, the Company shall not be required to provide a benefit under this paragraph (j) if such benefit would duplicate (or otherwise be of the same type as) a benefit specifically required to be provided under another provision of this Agreement. The Executive shall complete all forms and physical examinations, and otherwise take all other similar actions to secure coverage and benefits described in this paragraph 2, to the extent determined to be necessary or appropriate by the Company.


(k) Vacation. The Executive shall be entitled each year to four weeks vacation, during which time his compensation shall be paid in full. Vacations need not be taken over consecutive periods nor shall they be limited to any specific season of the year, but in scheduling vacations the Executive shall take into consideration the needs and activities of the Company and the vacation schedules of the Company's other executive personnel.


(l) Club Membership. The Company will reimburse the Executive for initiation and regular membership fees and dues for one country club (with initiation fees not to exceed $75,000, and annual regular membership fees to not exceed $20,000), and such membership may permit use by members of the Executive's family as well as by the Executive. The Company shall reimburse the Executive for the amount of any charges actually and reasonably incurred at such club in the conduct of the Company's business. If any such initiation fees are returned to the Executive upon termination of membership or any other reason, such fees shall be paid to the Company to the extent such return is attributable to amounts paid by the Company. If the Executive wishes to continue membership in the club after the Date of Termination, then, in lieu of agreeing to pay such returned fees to the Company, he shall, within 30 days of the Date of Termination, pay to the Company the amount of any such initiation fee refunds which he is expected to receive in the future. The Company, at its election, may, in lieu of paying the initiation and membership fees described in the preceding sentence, acquire a corporate membership in a country club, and assume responsibility for payment of initiation and membership fees, with use of such membership to be made available to the Executive (and his family) while he is employed by the Company.


(m) Indemnification. The Company shall maintain directors and officers liability insurance in commercially reasonable amounts (as reasonably determined by the Board), and the Executive shall be covered under such insurance to the same extent as other senior management employees of the Company. The Executive shall be eligible for indemnification by the Company under the Company by-laws as currently in effect. The Company agrees that it shall not take any action that would impair the Executive's rights to indemnification under the Company by-laws, as currently in effect.


(n) Expense Reimbursement. The Executive is authorized to incur reasonable expenses for entertainment, traveling, meals, lodging and similar items in promoting the Company's business. The Company will reimburse the Executive for all reasonable expenses so incurred. The Executive shall be eligible for benefits under the Company's relocation expense program applicable to senior executives of the Company; provided that the Executive shall not be eligible for reimbursement of costs for transporting or storage of household good, shall not be eligible for reimbursement of any travel costs to the extent such travel occurs outside the continental United States, shall not be eligible for reimbursement of costs or other payments with respect to the Executive's prior home (or other residence(s)), and shall not be eligible for the lump sum benefit under the program. However, the Executive shall be eligible for the tax gross-up payment under the program with respect to the reimbursement of the closing costs of his new home, and with respect to the payment under paragraph 2(a) but only with respect to $10,000 of such payment (which is the lump sum amount that would otherwise be payable under the program).


(o) Car Allowance. The Company shall pay to the Executive $900 each month to offset the cost of owning and maintaining an automobile for personal and business use and shall in addition reimburse the Executive for the costs of insurance, gasoline and routine maintenance for such automobile.


(p) Tax Preparation Services. The Company shall provide the Executive, at no cost to the Executive (other than the taxes associated with any compensation income attributable thereto), annual tax planning and tax return preparation services provided by Arthur Andersen (or such other firm selected by the Executive and reasonably acceptable to the Company, subject to the charges for such firm being reasonable).


3. Termination. The Executive's employment with the Company during the Agreement Term may be terminated by the Company or the Executive without any breach of this Agreement only under the circumstances described in paragraphs 3(a) through 3(f):


(a) Death. The Executive's employment hereunder will terminate upon his death.


(b) Disability. The Company may terminate the Executive's employment during any period in which he is Permanently Disabled. The Executive shall be considered "Permanently Disabled" during any period in which he is Disabled; provided, however, that the Executive shall not be considered to be "Permanently Disabled" until, for a period of 90 consecutive days, the Executive, as a result of a physical or mental disability, is incapable, after reasonable accommodation, of performing his duties under this Agreement on a permanent, full-time basis. In the event of a dispute as to whether the Executive is Permanently Disabled, the Company may refer the same to a mutually acceptable licensed practicing physician, and the Executive agrees to submit to such tests and examination as such physician shall deem appropriate.


(c) Cause. The Company may terminate the Executive's employment hereunder at any time for Cause. For purposes of this Agreement, the term "Cause" shall mean:


(i) the willful and continued failure by the Executive to substantially perform his duties with the Company (other than any such failure resulting from the Executive's being Disabled) within a reasonable period of time after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed his duties;


(ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise; or


(iii) the engaging by the Executive in egregious misconduct involving serious moral turpitude to the extent that, in the reasonable judgment of the Company's Board, the Executive's credibility and reputation no longer conform to the standard of the Company's executives; provided, however, that Cause shall exist under this paragraph (iii) only if the misconduct involves a violation of applicable laws.


For purposes of this Agreement, no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's action or omission was not contrary to the best interest of the Company.


(d) Constructive Discharge. If (i) the Company commits a material breach of the Agreement; (ii) the Executive provides written notice to the Company of the occurrence of such material breach, which specifically identifies the manner in which the Executive believes that the breach has occurred; (iii) the Company fails to correct such breach within a reasonable time (not to exceed 15 business days) after such notice is given; and (iv) the Executive resigns within the 60-calendar-day period following the Executive's discovery of such breach, then, for purposes of this paragraph 3(d), the Executive shall be considered to have been dismissed by the Company without Cause. For purposes of this paragraph 3(d), a "material breach" of the Agreement shall include (without limitation), in the absence of the Executive's express written consent, the occurrence of either of the following circumstances:


(A) The assignment to the Executive of any duties materially inconsistent with the Executive's position as President and Chief Executive Officer, or the removal from the Executive of the authority for any material responsibilities normally attendant to the office of the President and Chief Executive Officer.


(B) The failure of the Executive to be elected as a member of the Board in accordance with the provisions of paragraph 1(b).


(e) Termination by Executive. The Executive may terminate his employment hereunder at any time for any reason by giving the Company prior written Notice of Termination (as defined in paragraph 3(g)), which Notice of Termination shall be effective not less than 60 calendar days after it is given to the Company, provided that nothing in this Agreement shall require the Executive to specify a reason for any such termination. However, to the extent that the procedures specified in paragraph 3(d) are required, the procedures of this paragraph 3(e) may not be used in lieu of the procedures required under paragraph 3(d).


(f) Termination by Company. The Company may terminate the Executive's employment hereunder at any time for any reason, by giving the Executive prior written Notice of Termination, which Notice of Termination shall be effective immediately, or such later time as is specified in such notice. The Company shall not be required to specify a reason for the termination under this paragraph 3(f), provided that termination of the Executive's employment by the Company shall be deemed to have occurred under this paragraph 3(f) only if it is not for reasons described in paragraph 3(b), 3(c), 3(d) or 3(e).


(g) Notice of Termination. Any termination of the Executive's employment by the Company or the Executive (other than a termination pursuant to paragraph 3(a)) must be communicated by a written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" means a dated notice which indicates the specific termination provision in this Agreement relied on and which sets forth in reasonable detail the facts and circumstances, if any, claimed to provide a basis for termination of the Executive's employment under the provision so indicated.


(h) Date of Termination. "Date of Termination" means the last day the Executive is employed by the Company, provided that the Executive's employment is terminated in accordance with the foregoing provisions of this paragraph 3.


(i) Effect of Termination. If, on the Date of Termination, the Executive is a member of Board of Directors of the Company or any of the Subsidiaries, or holds any other position with the Company and the Subsidiaries (other than the position described in paragraph 1(a)), the Executive shall resign from all such positions as of the Date of Termination.


4. Rights Upon Termination. The Executive's right to payment and benefits under this Agreement for periods after his Date of Termination shall be determined in accordance with the following provisions of this paragraph 4:


(a) General. If the Executive's Date of Termination occurs during the Agreement Term for any reason, the Company shall pay to the Executive:


(i) The Executive's Salary for the period ending on the Date of Termination.


(ii) Payment for unused vacation days, which amounts shall be paid in accordance with the Company's regular payroll practices.


(iii) If the Date of Termination occurs after the end of a calendar quarter and prior to the payment of the performance bonus or special bonus (as described in paragraphs 2(c) and 2(d)) for the quarter, the Executive shall be paid such bonus amount at the regularly scheduled time.


(iv) Any other payments or benefits due to be provided to the Executive pursuant to any employee compensation or benefit plans or arrangements (as the terms of those compensation or benefit plans or arrangements may be modified by paragraph 2 of this Agreement), to the extent such payments and benefits are earned as of the Date of Termination. Except as may otherwise be expressly provided to the contrary in this Agreement, nothing in this Agreement shall be construed as requiring the Executive to be treated as employed by the Company for purposes of any employee benefit plan or arrangement following the date of the Executive's Date of Termination.


(v) Distribution of the Long-Term Incentive Award shall be determined in accordance with the provisions of Exhibit 3.


(b) Resignation and Termination for Cause. If the Executive's Date of Termination occurs during the Agreement Term under circumstances described in paragraph 3(c) (relating to the Executive's termination for Cause) or paragraph 3(e) (relating to the Executive's resignation), then, in addition to the amounts payable in accordance with paragraph 4(a):


(i) Within 15 days after the Executive's Date of Termination, he shall be entitled to a payment equal to the balance credited to the Make-Whole Retirement Plan Benefit as of the Date of Termination.


(ii) The Executive shall be entitled to the minimum quarterly performance bonus amount (as described in paragraph 2(c)) and the quarterly special bonus amount (as described in paragraph 2(d)) for the quarter in which the Date of Termination occurs, subject to a pro-rata reduction to reflect the portion of the quarter following the Date of Termination. No performance bonus or special bonus payments shall be made for quarters commencing after the Date of Termination.


Any unexercised stock options granted to the Executive shall be forfeited.


(c) Death. If the Executive's Date of Termination occurs during the Agreement Term because of the Executive's death, then, in addition to the amounts payable in accordance with paragraph 4(a):


(i) The Executive's estate shall be entitled to the minimum quarterly performance bonus amount (as described in paragraph 2(c)) and the quarterly special bonus amount (as described in paragraph 2(d)) for the quarter in which the Date of Termination occurs, subject to a pro-rata reduction to reflect the portion of the quarter following the Date of Termination. No performance bonus or special bonus payments shall be made for quarters commencing after the Date of Termination.


(ii) Any unexercised stock options granted to the Executive prior to the Executive's death (regardless of whether they are exercisable prior to the Date of Termination) shall be exercisable by the Executive's estate for the period expiring on the expiration date provided under the terms of the stock option agreements, determined without regard to the Executive's termination of employment.


(iii) Within 15 days after the Executive's Date of Termination, the Executive's estate shall be entitled to a payment equal to the balance credited to the Make- Whole Retirement Plan Benefit as of the Date of Termination.


(iv) To the extent provided in paragraph 3-3 of Exhibit 3, the Executive's estate shall be entitled to a cash award, and vesting in the shares of Restricted Stock.


By writing filed with the Company in accordance with the procedures established by it, the Executive may designate one or more beneficiaries to receive the benefits which would otherwise be provided to the Executive's estate under paragraph (a) next above, and under this paragraph (c).


(d) Disability. If the Executive's Date of Termination occurs during the Agreement Term under circumstances described in paragraph 3(b) (relating to the Executive's being Permanently Disabled), then, in addition to the amounts payable in accordance with paragraph 4(a):


(i) The Executive shall receive from the Company for a period of six months from the Date of Termination (provided the Executive continues to be Permanently Disabled during such period) the Salary amount described in paragraph 2(b) and the minimum guaranteed bonus amounts described in paragraphs 2(c) and 2(d), in monthly or more frequent installments in accordance with ...