EXHIBIT 10.5
XXXXXXX.XXX, INC.
EMPLOYMENT AGREEMENT
This employment agreement ("Agreement") is entered into as of the date specified
on the signature page ("Effective Date") by and between xxxxxxx.xxx, inc., a
Delaware corporation located at 000 Xxxxxxx Xxxxxx, 0xx Xxxxx, Xxx Xxxxxxxxx,
Xxxxxxxxxx 00000 ("Company") and the individual specified on the signature page
("Employee").
RECITALS
R1. The parties desire to memorialize the employment relationship of
Employee with the Company.
R2. The Board of Directors of the Company has approved and authorized the
entry into this Agreement with Employee.
R3. The parties hereby enter into this Agreement setting forth the terms
and conditions for the employment relationship of Employee with the
Company.
TERMS & CONDITIONS
1. EMPLOYMENT: From the Effective Date through the term of this Agreement,
Employee is employed as President of the Company and of any subsidiary
or other affiliate that it may acquire. Employee shall render
executive, policy and other management services to the Company and
subsidiaries/affiliates of the type customarily performed by persons
serving in similar executive officer capacities. Employee shall devote
substantially all of his working time and his best efforts to the
Company and his position, which shall include such duties as the
company's Board of Directors may from time to time reasonably direct
that are reasonably consistent with Employee's education, experience
and background. During the term of this Agreement, there shall be no
material increase or decrease in the duties and responsibilities of
Employee otherwise than as provided herein, unless the parties
otherwise agree in writing.
2. COMPENSATION
2.1 SALARY: The Company agrees to pay Employee from the Effective Date at
an annual rate equal to ONE HUNDRED SEVENTY FIVE THOUSAND dollars
($175,000) ("Salary"), with such subsequent increases in Salary during
the term of the Agreement as may be determined by the Compensation
Committee of the Board; provided, however, that during the first three
years following the effective date of the registration statement with
respect to the initial public offering of the Company's stock,
Employee's Salary hereunder shall not exceed ONE HUNDRED SEVENTY FIVE
THOUSAND dollars ($175,000) per annum without the approval of the
Compensation Committee. In determining Salary increases, the
Compensation Committee may compensate Employee for increases in the
cost of living and may also provide for performance or merit increases.
The Salary of Employee shall not be decreased at any time during the
term of this Agreement from the amount then in effect, unless Employee
otherwise agrees in writing. Participation in deferred compensation,
bonus, discretionary bonus, retirement and other employee benefit plans
shall not reduce the Salary payable to Employee under this Section 2.1.
The Salary under this Section 2.1 shall be payable to Employee not less
frequently than monthly. Employee shall not be entitled to receive fees
for serving as a director of the Company or of any subsidiary or
affiliate of the Company or for serving as a member of any committee of
any such board of directors.
2.2 ANNUAL BONUS: In addition to the Salary under Section 2.1 above, the
Company shall pay to Employee an annual bonus of FIFTY PERCENT (50%) of
the Salary under such Subsection. The annual bonus shall be payable in
January following each calendar year during the term of this Agreement
and shall be prorated for any partial years.
3. DISCRETIONARY & PERFORMANCE INCENTIVE BONUSES: During the term of this
Agreement, Employee shall be entitled to participate in an equitable
manner with all other executive employees of the Company in such
discretionary bonuses as may be authorized, declared and paid by the
Compensation Committee to its executive employees. The Company will
adopt an incentive bonus plan providing for the payment of annual
performance incentive bonuses to Employee and other executive officers
based upon the increase in the Company's operating profit or other
appropriate performance objectives. The incentive bonus arrangement
will provide Employee with an opportunity to earn additional incentive
compensation in an amount up to THREE PERCENT (3%) of the annual
increase in the Company's net income before taxes as reported in the
Company's audited annual financial statement. No other compensation
provided for in this Agreement shall be deemed a substitute for
Employee's right to participate in such bonuses.
4. INSURANCE, RETIREMENT AND EMPLOYEE BENEFIT PLANS, FRINGE BENEFITS;
BUSINESS EXPENSES
4.1 OTHER BENEFITS AND PREREQUISITES: Employee shall be entitled to
participate in any plan of the Company relating to stock options,
restricted stock, employee stock purchase or ownership, pension,
thrift, profit sharing, group life insurance, medical coverage,
education or other retirement or employee benefit plans or arrangements
that the Company has adopted or may adopt for the benefit of its
employees or executive officers. Employee shall also be entitled to
participate in, or enjoy the benefit of, any other fringe benefits or
prerequisites that are now or may be or become applicable to the
Company's executive employees.
4.2 BUSINESS EXPENSES: During the term of Employee's employment by the
Company, the Company shall promptly reimburse Employee for all
reasonable and customary expenses incurred by Employee in performing
services for the Company, including all living and travel expenses
while away from home on business or at the request of and in the
service of the Company, provided that such expenses are incurred and
accounted for in accordance with the policies and procedures
established by the Company. Employee shall be entitled to first or
business class for all business air travel. Employee shall be entitled
to parking expenses, excluding violations, when on the job, be it at
the office or while on business trips. Employee shall be entitled to a
reasonable per diem for living expenses while in San Francisco.
4.3 DIRECTOR & OFFICER INSURANCE: At all times during the term of this
Agreement the Company shall maintain in full force and effect a
director and officer insurance policy with a national insurance
underwriter insuring Employee for his acts and omissions in his
capacity as an Officer and Director of the Company, with coverage under
such policy of not less than ONE MILLION dollars ($1,000,000).
5. TERM: The initial term of employment under this Agreement shall begin
on or before November 1, 1999, and continue until December 31, 2001.
This Agreement shall be automatically renewed for an subsequent
three-year term, unless either Employee or the Company gives contrary
written notice to the other party hereto not less than 180 days before
the scheduled expiration of the initial term of this Agreement. Each
term and all such renewal terms are collectively referred to herein as
the term of this Agreement.
6. VOLUNTARY ABSENCES; VACATIONS: Employee shall be entitled, without loss
of pay, to be absent voluntarily for reasonable periods of time from
the performance of the duties and responsibilities under this
Agreement. All such voluntary absences shall count as paid vacation
time, unless the Board otherwise approves. Employee shall be entitled
to an annual paid vacation of at least six (6) weeks per year or such
longer period as the Board may approve. The timing of paid vacations
shall be scheduled in a reasonable manner by Employee.
7. TERMINATION OF EMPLOYMENT: Employee's employment may be terminated
without any breach of this Agreement only under the following
circumstances:
7.1 DEATH: Employee's employment shall terminate upon his death.
7.2 DISABILITY: The Company may terminate Employee's employment because of
disability. For this purpose, "disability" shall mean the inability of
Employee to perform his duties under this Agreement because of physical
or mental illness or incapacity for a continuous period of six months
during which Employee shall have been absent from his duties under this
Agreement on a substantially full-time basis.
7.3 CAUSE: The Company may terminate Employee's employment for cause. For
purposes of this Agreement, the Company shall have "cause" to terminate
Employee's employment only in the event of (a) the willful and
continued failure by Employee to substantially perform his duties
hereunder (other than any such failure resulting from Employee's
inability to perform such duties as a result of physical or mental
illness or incapacity or any such actual or anticipated failure after
the delivery of a Notice of Termination, as defined in Section 7.5, by
Employee for Good Reason, as defined in Section 7.4.2) after delivery
to Employee of a written demand for substantial performance that
specifically identifies the manner in which the Company believes that
Employee has not substantially performed his duties and a reasonable
opportunity to cure; (b) willful misconduct by Employee that causes
substantial and material injury to the business and operations of the
Company, the continuation of which, in the reasonable judgment of the
Board, will continue to substantially and materially injure the
business and operations of the Company in the future; or (c) conviction
of Employee of a felony. No act or failure to act shall
be considered "willful" for this purpose unless done, or omitted to be
done, by Employee other than in good faith and other than with a
reasonable belief that his action or omission was in the best interests
of the Company. Employee shall not be deemed to have been terminated
for cause unless Employee shall have been provided with (i) a
reasonable notice setting forth the reasons that the Company believes
constitute cause for the termination of his employment; (ii) a Notice
of Termination as defined in Section 7.5 from the Board finding that,
in the reasonable good faith opinion of the Board, cause for the
termination exists and specifying the particulars thereof in reasonable
detail.
7.4 TERMINATION BY EMPLOYEE: Employee may terminate his employment (a) for
good reason by giving ten days prior written notice to the Company or
(b) at any time by giving 120 days prior written notice to the Company.
7.4.1 GOOD REASON: For purposes of this Section, "good reason" shall mean (a)
the assignment to Employee of any duties inconsistent with
Employee's status or any substantial adverse alteration in the
nature or status of Employee's responsibilities; (b) any
change in Employee's reporting responsibility such that
Employee is required to report other than exclusively to the
Chief Executive Officer, (c) any purported termination of
Employee's employment by the Company that is not effected
pursuant to a Notice of Termination satisfying the
requirements of Section 7.5 hereof; (d) any other failure by
the Company to comply with any material provision of this
Agreement which failure continues for more than ten days after
written notice of such noncompliance from Employee; or (e) any
notices given by the Company to Employee under Section 5
hereof that this Agreement will not be renewed on any
anniversary date.
7.5 NOTICE OF TERMINATION: Any termination of Employee's employment by the
Company or by Employee (other than termination pursuant to Section 7.1
or 7.2 hereof) shall be communicated by the terminating party to the
other party by a written Notice of Termination. Any Notice of
Termination given by a party shall specify the particular termination
provision of this Agreement relied upon by such party and shall set
forth in reasonable detail the facts and circumstances relied upon as
providing a basis for the termination under the provision so specified.
7.6 TERMINATION DATE: The termination date shall mean (a) if Employee's
employment is terminated by his death, the date of his death; (b) if
Employee's employment is terminated pursuant to Section 7.2 hereof, the
date specified in the Notice of Termination, which shall be after the
expiration of the six-month period specified in that Subsection; (c) if
Employee's employment is terminated by the Company for cause, the date
specified in the Notice of Termination; or (d) if Employee's employment
is terminated for any other reason, sixty days following the date on
which the Notice of Termination is given.
8. COMPENSATION UPON TERMINATION OF EMPLOYMENT
8.1 TERMINATION BECAUSE OF DEATH, FOR CAUSE OR WITHOUT GOOD REASON: If
Employee's employment is terminated because of his death, by the
Company for cause, or by Employee other than for good reason, the
Company shall pay Employee his salary and a pro rata portion of
the bonus specified in Section 2(b) (based upon the bonus paid in
respect of the preceding year) through the Termination Date and the
Company shall have no further obligation to Employee hereunder.
8.2 TERMINATION BECAUSE OF DISABILITY: If Employee's employment is
terminated by the Company because of disability under Section 7.2
hereof, the Company shall pay Employee an annual disability benefit
equal to the excess of (a) sixty percent of his Salary at the rate in
effect under Section 2.1 hereof (based upon the bonus paid in respect
of the preceding year) over (b) the amount of the long term disability
benefit that is payable to Employee under any policy of disability
insurance provided for Employee by the Company at its expense. The
disability benefit shall be paid for such period as is determined by
the Board of Directors for the Company's senior executives but shall
not be less than the remainder of the scheduled term of employment.
8.3 TERMINATION WITHOUT CAUSE OR WITH GOOD REASON: If (a) in breach of this
Agreement, the Company shall terminate Employee's employment other than
for cause or because of disability or (b) Employee shall terminate his
employment for Good Reason; then:
8.3.1 The Company shall pay Employee his salary and a pro rata portion of the
bonus specified in Section 2.1 hereof (based upon the bonus
paid in respect of the preceding year) through the Termination
Date and all other unpaid and pro rata amounts to which
Employee is entitled as of the Termination Date under any
compensation plan or program of the Company, including,
without limitation, any incentive performance bonus and all
accrued vacation time;
8.3.2 The Company shall pay as liquidated damages to Employee, and in lieu of
any further salary payments hereunder for periods after the
Termination Date, Employee's then current Salary (payable in
installments in accordance with the Company's normal payroll
practices) for the remainder of the scheduled term of
employment and the product of (a) the sum of (i) Employee's
annual bonus specified in Section 2.1 hereof (based upon the
bonus paid in respect of the preceding year) and (ii) the
maximum annual bonus amount that could have been paid to
Employee under the Company's performance incentive bonus plan
for the year in which the Termination Date occurs, and (b) the
number of years (and any fraction of a year) remaining in the
term of this Agreement under Section 5 hereof as of the
Termination Date, which amount shall be payable in equal
monthly installments during the remainder of the scheduled
term of employment;
8.3.3 In addition to the liquidated amounts that are payable to Employee, the
following shall apply: (a) Employee shall continue to
participate in, and accrue benefits under, all retirement,
pension, profit sharing, employee stock ownership, thrift and
other deferred compensation plans of the Company for the
remaining term of this Agreement as if the termination of
employment of Employee had not occurred (with Employee being
deemed to receive annually for the purposes of such plans
Employee's then current Salary and bonus (at the time of his
termination) under Sections 2.1 and 2.2 of this Agreement),
except to the extent that such continued participation and
accrual is expressly prohibited
by law, or to the extent such plan constitutes a "qualified
plan" under Section 401 of the Internal Revenue Code of 1986,
as amended ("Code"), by the terms of the Plan, in which case
the Company shall provide Employee a substantially equivalent,
unfunded, non-qualified benefit; (b) Employee shall be
entitled to continue to receive all other employee benefits
and then existing fringe benefits referred to in Sections 4.1
and 4.2 hereof for the remaining term of this Agreement as if
the termination of employment had not occurred; and (c) all
insurance or other provisions for indemnification, defense or
hold-harmless of officers and directors of the Company that
are in effect on the date the Notice of Termination is sent to
Employee shall continue for the benefit of Employee with
respect to all of his acts and omissions while an officer or
director as fully and completely as if such termination had
not occurred, and until the final expiration or running of all
periods of limitation against action which may be applicable
to such acts or omissions; and,
8.3.4 The liquidated amount and other benefits provided for in this Section
8.3 shall not be reduced by any compensation or benefits that
Employee may receive for other employment with another
employer or through self-employment after termination of
employment with the Company.
8.4 COST OF ENFORCEMENT: In the event the employment of Employee is
terminated by the Company because of disability of without cause, or by
Employee for good reason, and the Company fails to make timely payment
of the amounts owed to Employee under this Agreement, Employee shall be
entitled to reimbursement for all reasonable costs, including
attorney's fees, incurred in Employee taking action to collect such
amounts or otherwise to enforce this Agreement, plus interest on such
amounts at the rate of one percent above prime rate (defined as the
base rate on corporate loans at large US money center commercial banks
as published by The Wall Street Journal), compounded monthly, for the
period from the date of employment termination until payment is made to
Employee. Such reimbursement and interest shall be in addition to all
rights to which Employee is otherwise entitled under this Agreement.
8.5 PARACHUTE PAYMENT LIMITATION: If any payment or benefit to Employee
under this Agreement would be considered a "parachute payment" within
the meaning of Section 280(g)(b)(2) of the Code and if, after reduction
for any applicable federal excise tax imposed by Section 4999 of the
Code ("Excise Tax") and federal income tax imposed by the Code,
Employee's net proceeds of the amounts payable and the benefits
provided under this Agreement would be less than the amount of
Employee's net proceeds resulting from the payment of the Reduced
Amount described below, after reduction for federal income taxes, then
the amount payable and the benefits provided under this Agreement shall
be the largest amount that could be received by Employee under this
Agreement such that no amount paid to Employee under this Agreement and
any other agreement, contract or understanding heretofore or hereafter
entered into between Employee and the Company ("Other Agreements") and
any formal or informal plan or other arrangement heretofore or
hereafter adopted by the Company for the direct or indirect provision
of compensation to Employee (including groups or classes or
participants or beneficiaries of which Employee is a member),
whether or not such compensation is deferred, is in cash, or is in the
form of a benefit to or for Employee ("Benefit Plan") would be subject
to the Excise Tax. In the event that the amount payable to Employee
shall be limited to the Reduced Amount, then Employee shall have the
right, in Employee's sole discretion, to designate those payments or
benefits under this Agreement, any Other Agreements, and/or Benefit
Plan, that should be reduced or eliminated so as to avoid having the
payment to Employee under this Agreement be subject to the Excise Tax.
9. CONFIDENTIALITY: In consideration of the willingness of the Company to
employ Employee and the compensation to be paid and benefits to be
received therefor, and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, Employee agrees
as follows:
9.1 THE COMPANY OWNS ALL OF EMPLOYEE'S WORK: All improvements, discoveries,
inventions, designs, documents, licenses and patents, software
programs, or other data devised, conceived, made, developed, obtained,
filed, perfected, acquired, or first reduced to practice, in whole or
in part, by Employee during the term of this Agreement, and related in
any way to the business, including research and development, of the
Company or any subsidiary of affiliate engaged in business
substantially similar to that of the Company, shall be promptly
disclosed to the Company. Employee hereby assigns and transfers to the
Company all his right, interest and title thereto, and such
improvements, discoveries, inventions, designs, documents, licenses and
patents, or other data shall become the property of the Company. During
the term of this Agreement and at any time thereafter, upon request of
the Company, Employee will join and render assistance in any
proceedings and execute any papers necessary to file and prosecute
applications for, and to acquire, maintain and enforce, letters,
patents, trademarks, registrations and/or copyrights, both domestic and
foreign, with respect to such improvements, discoveries, inventions,
designs, documents, licenses and patents, or other data as required for
vesting and maintaining title to same in the Company.
9.2 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION: Employee agrees and
acknowledges that the terms "Confidential and Proprietary Information"
shall mean any and all information not in the public domain, in any
form, emanating from or relating to the Company and its subsidiaries
and affiliates, including, but not limited to, trade secrets, technical
information, costs, designs, drawings, processes, systems, methods of
operation and procedures, formulae, test data, know-how, improvements,
price lists, financial data, code books, invoices and other financial
statements, computer programs, discs and printouts, sketches and plans
(engineering or otherwise), customer lists, telephone numbers, names,
addresses, information about equipment and processes (including
specifications and operating manuals), or any other compilation of
information written or unwritten that is used in the business of the
Company or any subsidiary or affiliate that gives the Company or any
subsidiary or affiliate any opportunity to obtain an advantage over
competitors of the Company who do not know or use such information.
Employee agrees and acknowledges that all Confidential and Proprietary
information, in any form, and all copies and extracts thereof, is and
are and shall remain the sole and exclusive property of the Company,
and upon termination of his employment with the Company, Employee
hereby agrees to return to
the Company the originals and all copies of any Confidential and
Proprietary Information provided to or acquired by Employee during the
term of his employment. Except as ordered by a court of competent
jurisdiction, Employee expressly agrees never to disclose to any person
(except to other Company employees, and then only on a "need to know"
basis) or entity any Confidential and Proprietary Information either
during the term of this Agreement or at any time after termination of
his employment, except with the express written authorization and
consent of the Company.
9.3 CUSTOMER & CLIENT INFORMATION: Employee understands and acknowledges
that each customer and client of the Company or its subsidiaries or
affiliates will disclose information that will be within the Company's
control in connection with the Company's furnishing of services to its
customers and clients. Employee covenants and agrees to hold such
information in the strictest confidence and shall treat such
information in the same manner and be obligated by the provisions of
this Agreement as if such information were Confidential and Proprietary
Information as defined in Section 9.2 hereof.
10. COVENANT NOT TO COMPETE: During the term of employment and for a period
of TWO (2) years after the termination of Employee's employment by the
Company, Employee shall not directly or indirectly own, manage,
operate, control or be employed by or participate in the ownership,
management, operation or control of any business in the area which is
the type and character engaged in and competitive with that of the
Company. Employee shall not, during the term of this Agreement, have
any other paid employment other than with a subsidiary or affiliate of
the Company, except with the prior approval of the Board.
11. AMENDMENTS OR ADDITIONS; ACTION BY BOARD: No amendments or additions to
the Agreement shall be binding unless in writing and signed by all
parties thereto. The prior approval by a majority affirmative vote of
the full Board shall be required in order for the Company to authorize
any amendments or additions to this Agreement, to give any consents or
waivers of provisions of this Agreement, or to take any other action
under this Agreement including any Notice of Termination.
12. MISCELLANEOUS
12.1 NOTICES: Any notice required or permitted hereunder shall be given in
writing and shall be personally delivered or mailed by first class
registered or certified mail, postage prepaid,
return-receipt-requested, or transmitted by facsimile, telegram or
telex, addressed to the Company or Employee at the address set forth in
this Agreement, or at such other addresses as such party may designate
by five business day advance written notice to the other party. Each
notice or communication that shall have been transmitted in the manner
described above, or that shall have been delivered to a telegraph
company, shall be deemed sufficiently given, served, sent or received
for purposes at such time as it is sent to the addressee (with the
return receipt, delivery receipt or (with respect to a telex) the
answer back being deemed conclusive, but not exclusive, evidence of
such sending) or at such time as delivery is refused by the addressee
upon presentation.
12.2 SEVERABILITY: Nothing in this Agreement shall be construed so as to
require the commission of any act contrary to law and wherever there is
any conflict between any provision of this Agreement and any law,
statute, ordinance, order or regulation, the latter shall prevail, but
in such event any necessary action will be taken to bring it within
applicable legal requirements. If any provision of this Agreement
should be held invalid or unenforceable, the remaining provisions shall
be unaffected by such a holding.
12.3 COMPLETE AGREEMENT: This Agreement contains the entire Agreement and
understanding between the parties relating to the subject matter
hereof, and supersedes any prior understandings, agreements or
representations by or between the parties, written or oral, relating to
the subject matter hereof.
12.4 SUCCESSORS OR ASSIGNS: This Agreement and the rights and obligations of
the parties hereto shall bind and inure to the benefit of any successor
or successors of the Company by way of reorganization, merger or
consolidation and any assignee of all or substantially all of its
business assets, but except as to any such successor or assignee of the
Company, neither this Agreement nor any rights or benefits hereunder
may be assigned by the Company or Employee. However, in the event of
death of Employee all rights to receive payments hereunder shall become
rights of Employee's estate.
12.5 SECTION HEADINGS: The section headings used in this Agreement are
included solely for convenience and shall not affect, or be used
in connection with, the interpretation of this Agreement.
12.6 GOVERNING LAW: This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware.
12.7 ARBITRATION: Any and all disputes between the parties arising under
this Agreement shall be finally decided through binding arbitration
before Judicial Arbitration & Mediation Services, Inc.
("JAMS/ENDISPUTE") in San Francisco, California, and judgment on any
arbitration award may be entered in any court having jurisdiction over
the parties or their assets.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
this date, October 18, 1999.
COMPANY: EMPLOYEE:
By: /s/ By: /s/
------------------------ ------------------------
Name: Xxxxxxx X. Grotto Name: Xxxxxx X. Xxxxxxx
Title: Chairman & Chief Executive Officer SSN:
