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EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into this 5th day of
April, 1999, by and between The Xxxxxx Entertainment Company, a California
corporation (the "Company"), and Xxxxx X. Xxxxxxx (the "Employee").
Whereas, the Company desires to assure that the Company retains the
services of Employee, whose experience, knowledge and abilities with respect to
the business and affairs of the Company are extremely valuable to the Company.
Now, therefore, the Company and Employee agree as follows:
1. Positions and Duties.
a. The Company hereby employs Employee as Chief Executive Officer
of the Company during the term of this Agreement, with powers and duties
consistent with such position. Employee shall, during the term of this
Agreement, perform such additional or different duties, and accept the election
or appointment to such other offices or positions, as may mutually be agreeable
to Employee and the Board of Directors of the Company. Employee shall report to
the Board of Directors of the Company. Employee shall also be appointed to the
Board of Directors of the Company (and shall be elected Chairman of the Board)
as soon as practicable after the date hereof and shall thereafter be included in
management's state of directors nominated for approval by the Company's
shareholders.
b. Employee shall devote his full working time to the promotion
of the Company's business and welfare; provided, however, that Employee may
engage in other business activities with the Company's prior written consent
which consent shall not be unreasonably withheld provided that such other
business activities shall not constitute a Competitive Business (as defined
below) and shall not adversely affect the performance of Employee's services
hereunder. The Company hereby consents to Employee's activities as provided on
Schedule II hereof. Employee shall perform such duties and responsibilities
incidental to his employment as may from time to time be requested by the Board
of Directors of the Company, consistent with Employee's position, stature and
experience, and shall faithfully observe the Company's policies and procedures
consistent with the provisions hereof. Employee shall have the authority to
select and employ all staff necessary to conduct the business of the Company
and each of its subsidiaries, and all such staff shall ultimately report to, and
be subject to the control and direction of, Employee.
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c. During the term of this Agreement, Employee shall not,
directly or indirectly, (i) engage in any business for his own account which is
competitive with the businesses of the Company or the Company's subsidiaries or
affiliates (collectively, "Competitive Business") so long as the Company or the
Company's subsidiaries or affiliates (as the case may be) continue to engage in
such business; (ii) enter the employ of, or render any services to, any person
engaged in a Competitive Business; or (iii) become interested in a Competitive
Business in any capacity, including, without limitation, as an individual,
partner, shareholder, officer, director, principal, agent, trustee or
consultant. In addition, during the term of this Agreement and during the one
year period following termination of his employment hereunder, Employee shall
not, directly or indirectly (i) induce any customer or supplier of the Company
or the Company's subsidiaries or affiliates to terminate its relationship with
the Company or the Company's subsidiaries or affiliates (as the case may be); or
(ii) solicit or induce any of the Company's employees to terminate their
employment with the Company, or hire or cause any of the then current employees
of the Company to be hired by any other company (except companies controlled by
the Company). Notwithstanding anything to the contrary, Employee may acquire
and/or retain, solely as an investment, and take customary actions to maintain
and preserve Employee's ownership of:
(1) securities of any corporation which are registered under
Sections 12(b) or 12(g) of the Securities Exchange Act of 1934, as
amended, and which are publicly traded, as long as Employee is not part
of any control group of such corporation (the Company is aware that
Employee holds options in Trimark Holdings, Inc. and such holdings are
not in conflict with this Section 1 (c)); and
(2) any securities of a partnership, trust, corporation or
other person so long as Employee remains a passive investor in that
entity and does not become part of any control group thereof (except in
a passive capacity) and so long as such entity is not, directly or
indirectly, in competition with the Company or its subsidiaries or
affiliates.
2. (a) Salary. During the term of his employment hereunder, the Company
shall pay to Employee a salary, in equal installments not less frequently than
monthly, at the rate of $500,000 per year subject to review annually by the
Board of Directors for increase in the Board's discretion (however, the annual
increase shall be no less than 7-1/2% per year).
(b) Incentive Compensation. Employee shall be eligible to receive
an annual bonus based on the Company's performance, which bonus (if any) shall
be determined by the Board of Directors in its sole discretion.
3. Warrants to Purchase Common Stock. Employee shall be granted
Warrants to purchase 400,000 shares of common stock, no par value per share
("Common Stock"), of the Company ("Warrants") on the effective date hereof
pursuant to the terms of the Warrant Agreement dated as of April 5, 1999, among
the Company, the Employee and the other signatories thereto (the "Warrant
Agreement"). The Warrants granted to Employee shall consist equally of Series A
Warrants, Series B Warrants and Series C Warrants. In addition, Employee
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shall have the right within one year after the effective date hereof to direct
the award of Warrants (consisting equally of Series A Warrants, Series B
Warrants and Series C Warrants) to purchase an additional 800,000 shares of
Common Stock pursuant to the Warrant Agreement to management, directors or
consultants to Xxxxxx (of which Warrants up to 200,000 shares may be directed to
Employee). In other words, the Warrants referred to above shall constitute
1,200,000 of the 2,400,000 shares covered by the Warrant Agreement. If the
employment of Employee hereunder is terminated by the Company for Cause (as
defined in section 6(a) below) or if Employee terminates his employment
hereunder without Cause, the portion of the Warrants which have not theretofore
vested as of the date of termination, as specified on Schedule I hereto, shall
be immediately canceled, and all of Employee's rights under the Warrants that
are canceled shall revert back to the Company.
4. Expenses. The Company will reimburse or pay Employee for all usual,
reasonable and necessary expenses paid or incurred by Employee in the
performance of his duties hereunder, consistent with the Company's expense
reimbursement policies and subject to receipt by the Company of appropriate
documentary proof of all expenditures for which reimbursement is sought.
Employee will be entitled to first-class air transportation and accommodations
whenever he travels in connection with the business of the Company and shall
have the right, up to two times per year, to have his wife accompany him on such
trips at the Company's expense.
5. Employee Benefits. a. During the term of his employment hereunder,
Employee shall be entitled to participate in and receive all other benefits of
employment generally available to other currently existing officers of the
Company, including, among other things, participation in any stock option and
stock incentive plans, retirement plans, medical, dental and accidental benefit
plans, life insurance and disability insurance benefits and vacation, if and to
the extent that Employee is eligible to participate in accordance with the
provisions of any such plans or benefits. In the event Employee chooses primary
medical coverage pursuant to his wife's plan, the Company will provide a wrap
around policy providing excess medical coverage and benefits up to the level
otherwise available to Company officers. The Company will also reimburse
Employee for the cost of monthly membership dues and other charges for the
business use of his current local country club for the term hereof, up to $7,500
per year.
b. Without limiting any other provision hereof, Employee shall be
entitled to participate to the full extent of the participation by any other
senior executive employee of the Company in any profit-sharing, pension, health,
vacation, insurance or other plans, benefits or policies available to the senior
executive employees of the Company established by the Company in its sole and
absolute discretion from time to time and not duplicative of those provided
herein.
6. Term.
a. The term of Employee's employment by the Company under this
Agreement shall commence on the effective date hereof and shall terminate upon
the first to occur of the following events: (i) April 30, 2003, (ii) the death
of Employee, (iii) at the option of
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the Company upon 20 days prior written notice to Employee, in the event of the
inability of Employee to perform his duties hereunder, whether by reason of
injury, illness (physical or mental) or otherwise, for a period of six (6)
consecutive months ("disability"), or (iv) the discharge of Employee for Cause.
Cause shall mean, and be limited to, (i) acts of deliberate dishonesty
constituting either the commission of a felony or the misappropriation of
substantial corporate assets for personal benefit, (ii) willful failure to
observe or follow reasonable and explicit instructions or directives of the
Board of Directors of the Company, or (iii) willful malfeasance or willful
failure to act involving material nonfeasance, if in either case such
malfeasance or nonfeasance would have a material adverse effect on the Company.
The Company agrees to give written notice to Employee specifying the claimed
Cause and, provided such Cause is curable, to permit Employee to correct the
claimed Cause as soon as practical thereafter but no later than thirty (30) days
after receipt of the applicable notice prior to termination. However, in no
event shall the occurrence of Cause within clause (i) be subject to cure. Upon
the termination of Employee's employment pursuant to this Section 6G3 (a), the
Company shall have no further liability or obligation of any kind or nature
whatsoever to Employee under this Agreement, except that any salary or other
benefits accrued or earned by Employee to the date of termination but not paid
shall be paid by the Company to Employee or his estate, and Employee shall be
entitled to such benefits, if any, under Sections 4 and 5 hereof to which he has
become entitled prior to the date of his termination of employment.
b. If, without Cause, the Board of Directors of the Company
without Employee's consent determines to remove Employee from the office of the
Chief Executive Officer of the Company, Employee shall have the right to elect
to treat such event as a termination of his employment by the Company without
Cause with the consequences provided in this paragraph 6(b). In the event the
Company shall be merged or consolidated with another corporation and as a result
of such merger or consolidation, Employee's position is eliminated or Employee
is not the chief executive officer of the surviving or resulting corporation,
Employee shall be entitled to terminate his employment within three (3) months
of such merger or consolidation, and such termination shall be deemed to be a
termination by the Company without Cause hereunder. If Employee's employment is
terminated by the Company without Cause, Employee shall be entitled to receive
from the Company until the ending date of the period of employment hereunder
(determined as provided in paragraph 6(a) hereof) the salary, benefits and
emoluments in effect at the date of such termination. Upon the payment of the
amounts provided in this paragraph 6(b), the Company shall have no further
liability or obligation of any kind or nature whatsoever to Employee under this
Agreement, except that Employee shall be entitled to such benefits, if any,
under Section 4 hereof to which he has become entitled prior to the date of his
termination of employment.
c. In the event that the term of Employee's employment by the
Company terminates at the end of the term on April 30, 2003, Employee shall be
entitled to maintain an office and secretary at the Company for an additional
three year period, at the Company's expense. Employee shall provide such
continuing services, in such capacity and for such compensation as the parties
mutually agree in good faith.
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7. Mitigation. Employee shall not be obligated to mitigate the damages
he may incur in the event of termination by the Company without Cause. Employee
agrees that if Employee furnishes his services for other engagements or
employment after termination hereunder, fifty percent (50%) of the total
compensation actually earned by Employee together with any other benefits earned
by Employee shall reduce any amounts and benefits which Company would otherwise
be required to pay or provide to Employee. In no event, however, shall
activities to the extent permitted on Schedule II hereof be considered for such
offset purposes. Employee agrees that he shall give written notice to the
Company (promptly after accepting employment or furnishing his services after
termination of his employment with the Company) of any amounts earned (or to be
earned) by Employee and any benefits provided (or to be provided) to Employee
pursuant to his new employment arrangement.
8. Nondisclosure of Confidential Information.
a. "Confidential Information" shall include, but not be limited
to, all of the Company's and its subsidiaries' and affiliates' performance,
sales, financial, pricing, cost, manufacturing, contractual and marketing
information, ideas, knowledge and data, and all processes, products, formulae,
designs, practices, techniques, trade secrets, research, know-how, merchandising
agreements, licensing agreements, distribution agreements, customer lists,
technical requirements of customers and identity and purchasing terms of
suppliers.
b. Employee acknowledges that the Company, and its subsidiaries
and affiliates, have exclusive property rights to all of their respective
Confidential Information and agrees to assign all rights he might otherwise
possess in any Confidential Information to the Company. Except as required in
the performance of his duties hereunder, Employee shall not at any time during
or after the term of his employment, directly or indirectly use, communicate,
disclose or disseminate, lecture upon/publish articles or otherwise put in the
public domain, any Confidential Information or any other information of a
secret, proprietary, confidential or generally undisclosed nature relating to
the Company, or its subsidiaries or affiliates, or their products, operations
and activities until such Confidential Information becomes generally available
to the public by independent discovery, development or publication or generally
known within the industry other than as a result of Employee's breach hereof.
c. All documents, records, notebooks, notes, memoranda, computer
records and other repositories of or containing Confidential Information or any
other information of a secret, proprietary, confidential or generally
undisclosed nature relating to the Company, or its subsidiaries or affiliates,
or to its products, operations and activities made or compiled by Employee at
any time or made available to Employee prior to or during the term of his
employment by the Company, including any and all copies thereof shall be the
property of the Company, shall be held by Employee in trust solely for the
benefit of the Company, and shall be delivered to the Company by Employee on the
termination of Employee's employment or at any other time on the request of the
Company.
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9. Right to Injunction. Employee acknowledges that any remedy at law
for a breach by him of the provisions of Section 1 or 9 hereof will be
inadequate. Accordingly, in the event of the breach or threatened breach by
Employee of Section 1 or 9 hereof, the Company shall be entitled to seek
injunctive relief in addition to any other remedy it may have.
10. Entire Agreement. This Agreement constitutes the entire agreement
of the parties and supersedes all prior agreements of the parties with respect
to the subject matter hereof. This Agreement may not be changed or amended
except in writing signed by the parties.
11. Governing Law. This Agreement shall be subject to, and be governed
by, the laws of the State of California .
12. Assignment. Employee may not assign, transfer or convey this
Agreement or any interest therein. This Agreement and all of the Company's
rights and obligations hereunder may be assigned or transferred by it, in whole
but not in part, to and shall be binding upon and inure to the benefit of any
successor of the Company, but any such assignment shall not relieve the Company
of any of its obligations. The term successors shall mean only any corporation
or other business entity which by merger, consolidation, purchase of assets or
otherwise succeeds to or otherwise acquires all or substantially all of the
assets of the Company; provided that nothing herein shall limit the provisions
of the second sentence of Section 6(b) hereof.
13. Arbitration. a. Without limiting the Company's right to seek
injunctive relief as described in Section 9, in the event of a disagreement or
dispute between the Company and Employee related to this Agreement, the matter
will be finally settled in Los Angeles, California by arbitration by a single
arbitrator (unless the parties cannot agree on such arbitrator in which case
each party will select an arbitrator and the two arbitrators so selected shall
select the third arbitrator) in a proceeding conducted under the rules of the
American Arbitration Association or any similar successor body, the arbitrator
also apportioning the costs of the arbitration. The decision of the
arbitrator(s) in writing shall be final and binding upon the parties and will
not be subject to appeal. If either party fails to abide by such decision, the
other party may seek the order of any federal or state court having jurisdiction
thereof which shall enter judgment on the decision of the arbitrator(s), and the
party so failing to abide shall be responsible for the payment of the expenses
of the court proceeding and all resulting enforcement expenses, including actual
attorneys' fees.
b. The prevailing party in any arbitration shall be entitled to
be reimbursed for attorneys fees and costs in connection with the pursuit of
such arbitration, subject to the following limitation: such reimbursement shall
not exceed the total attorneys fees and costs incurred by whichever of the two
parties to such arbitration has the lesser aggregate attorneys fees and costs.
By way of example, if Employee brings an arbitration against the Company and the
Company prevails in such arbitration, (thus entitling the Company to
reimbursement of attorneys fees and costs), and if Employee's legal fees and
costs amount to $50,000 and the Company's legal fees and costs amount to
$85,000, Company's recovery of legal fees and costs against Employee in such
instance shall be limited to $50,000.
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14. Indemnification. Employee shall be entitled to the benefit of
indemnification to the fullest extent permitted by applicable law at the time of
assertion of any liability against Employee, and, in any event, to the most
favorable indemnification provisions or agreements available to any other senior
executive of the Company. The Company represents that it currently has
directors' and officers' liability insurance with coverage up to $5,000,000.
15. Waiver. Waiver by either party of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach.
16. Counterparts. This Agreement shall be executed in a number of
identical counterparts, each of which shall be construed as an original for all
purposes, but all of which taken together shall constitute one and the same
Agreement.
17. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and delivered in person or sent by registered or
certified United States mail, postage and fees prepaid, to the addresses of the
parties set forth below, or such other address as shall be furnished by notice
hereunder by any such party:
If to the Company: The Xxxxxx Entertainment Company
1999 Avenue of the Stars, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Chairman of the Board
with copy to: Xxxx, Scholer, Fierman, Xxxx & Handler, LLP
0000 Xxxxxx xx xxx Xxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
If to Employee: Xxxxx X. Xxxxxxx
0000 X. Xxxxxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Home Fax: (000) 000-0000
with a copy to: Xxxxxxxxx Xxxxx Xxxxx Brubin & Cuddy
0000 Xxxxxxx Xxxx Xxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx Xxxxxxxxx, Esq.
Fax: (000) 000-0000
18. Effective Date. This Employment Agreement shall become effective
(the "effective date") on the closing of the Stock Purchase Agreement dated as
of even date herewith
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(the "SPA") between the Company, Employee, Xxxxxxx X. Xxxxx, The Xxxxxxx-Xxxxx
Company and the other parties thereto. If the acquisition of shares of Series A
Convertible Preferred Stock under the SPA is not consummated, or if the SPA is
terminated in accordance with its terms, this Employment Agreement shall be null
and void.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
EMPLOYEE THE XXXXXX ENTERTAINMENT COMPANY
/s/ XXXXX X. XXXXXXX By: /s/ XXXXXXX X. HOPE
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Xxxxx X. Xxxxxxx Xxxxxxx X. Hope
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Schedule I
Employee's right to exercise the Warrants will proportionally vest based upon
his length of employment with the Company pursuant to the terms of this
Agreement. One-half (50%) of the warrants will be immediately vested. The
balance of the warrants will vest as follows:
Percentage of Employee's
Length of Employment Warrants That Vest
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one year 25%
two years 12.5%
three years 12.5%
Notwithstanding anything to the contrary herein or in the Warrant Agreement, in
the event of the termination of Employee's employment by the Company without
Cause or as a result of Employee's death or disability during the term of and
pursuant to the attached Employment Agreement, all unvested Warrants held
individually by Employee shall immediately vest and shall remain exercisable for
a period equal to the then balance of the term of the Warrants (i.e. the balance
of the six year, seven year or eight year term depending on the relevant
Warrants).
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Schedule II
Additional Activities
1. Employee consults with various other entertainment companies, including
without limitation Trimark Holdings Inc. through his company Roch
Enterprises Inc. These activities will be immediately limited to
current clients and will be phased out over a period of six months from
the effective date of the attached Employment Agreement. Employee is a
member of the Board of Directors of Trimark Holdings Inc. and shall
resign from such position as soon as practical and in any event within
three months from the effective date.
2. Employee is a partner of Xxxxxxx/Xxxxx Productions, Inc., a television
and theatrical motion picture and development company which also acts
as a consultant to Trimark Holdings Inc. After the closing and subject
to a six-month maximum phase-out period, Employee will turn over all
management functions to his partner Xxxxxx Xxxxxxxx Xxxxx or other
third party. Following the closing, Employee shall promptly offer the
Company a customary "first look" deal on all new projects (subject to
existing deals in place) in exchange for a general overhead
housekeeping/ deal on terms to be negotiated with the Company (which
the Company can enter into or not enter into in its sole discretion and
as to which deliberations Employee shall recuse himself).
3. Employee is a founding shareholder and chief executive officer of
Heartland Entertainment, Inc., formed in 1998 for the purpose of
producing filmed entertainment product, primarily for worldwide
theatrical and television audiences. Heartland is currently negotiating
with Universal Pictures to distribute a slate of a minimum of twelve
feature films, to be financed by a line of credit from Chase Manhattan
Bank backed by an insurance program. Employee shall either arrange for
Xxxxxx to acquire all or a controlling stake in Heartland, on terms
satisfactory to Xxxxxx, or he will resign as CEO, while retaining his
economic stake on a passive basis (in which case, Employee may consult
with Heartland on a part-time basis in such manner as does not conflict
with the Company or Employee's obligations under the attached
Employment Agreement).
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