EMPLOYMENT AGREEMENT
This Agreement is made effective as of this first day of January 1999
between Xxxxxxx Electronics, Inc., a Minnesota corporation (the "Corporation"),
and Xxxxx X. Xxxxxxx ("Employee").
R E C I T A L S:
A. Employee is presently employed by the Corporation as President and
Chief Operating Officer of the Corporation.
B. The Corporation believes Employee is valuable to the future growth
of the Corporation and its business.
C. Employee and the Corporation desire to enter into an agreement to
set forth the relationship between the parties.
D. The Corporation has agreed to grant to Employee a stock option for
the purchase of 10,000 shares of the Corporation's Common Stock which shall be
set forth in a separate stock option agreement executed by Employee and
Corporation as consideration for entering into this Agreement and in particular
the noncompetition and other restrictions contained in provisions of Article 5.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE 1
EMPLOYMENT; TERM OF EMPLOYMENT
1.1) Employment. The Corporation hereby employs Employee and Employee
hereby accepts employment upon the terms and conditions hereinafter set forth.
1.2) Term. The term (the "Initial Term") of Employee's employment under
this Agreement shall commence on January 1, 1999, and continue thereafter until
December 31, 2003, unless sooner terminated in accordance with the provisions of
this Agreement. Either party may terminate this Agreement at the end of the
Initial Term (or any Additional Term) by giving to the other party sixty (60)
days written notice (the "Nonrenewal Notice"). If the Nonrenewal Notice is not
given, the Initial Term or Term, as applicable, shall be extended for an
additional period of one (l) year (an "Additional Term"), upon the terms and
conditions provided herein. "Term" shall mean the Initial Term and any
Additional Terms.
ARTICLE 2
DUTIES; EXTENT OF SERVICES
2.1) Duties. During the Initial Term, Employee shall be employed as
President and Chief Operating Officer of the Corporation and/or such other
positions to which the Board of Directors of the Corporation may appoint
Employee. During the Additional Terms, Employee agrees to be employed in such
position(s) determined by the Board of Directors of the Corporation for each
Additional Term. Employee shall have such responsibilities as the Bylaws of the
Corporation may assign to the person serving in such position subject to the
authority of the Board of Directors of the Corporation or such other person(s)
as such Board of Directors may designate from time to time. Employee further
agrees to abide by reasonable rules, regulations, policies and programs
established by the Board of Directors of the Corporation in performance of his
duties.
2.2) Extent of Service. Employee shall devote his full time and
attention and energies to the business of the Corporation and its subsidiaries,
perform such services as shall be from time to time designated by the Board of
Directors and use his best efforts to promote the interests of the Corporation
and its subsidiaries.
ARTICLE 3
COMPENSATION
3.1) Base Salary. For each fiscal year of the Corporation during the
Term, the Corporation shall pay Employee an annual base salary ("Base Salary")
in the amount determined by the Compensation Committee of the Corporation's
Board of Directors, provided that such amount shall not be less than the Base
Salary for the immediately preceding fiscal year without the consent of the
Employee. The Base Salary shall be payable in accordance with the Corporation's
normal payroll schedule and shall be less any applicable withholding taxes and
FICA contributions.
3.2) Bonus. During the Term, the Corporation may, but is not obligated
to, pay Employee an annual bonus (the "Annual Bonus") consisting of stock
options or a cash payment or both, the amounts of which, if any, shall be
determined by the Compensation Committee of the Board of Directors. If any
Annual Bonus is earned by Employee, it shall be paid within ninety (90) days
after the end of the Corporation's applicable fiscal year, less applicable
withholding taxes and FICA contributions.
3.3) Benefits. During the Term, Employee shall be eligible, at the
Corporation's expense, to participate in and to be covered by, each life
insurance, accident insurance, health insurance, disability insurance,
hospitalization or other plan, effective with respect to other officers of the
Corporation when Employee is eligible under the terms of any such plan, on the
same basis as shall be available to other officers of the Corporation. The
Corporation shall have the right to change the terms of, or eliminate, any such
plan in its discretion from time to time, provided it does so on an equal basis
for all covered employees. The Corporation shall provide Employee with such
increases, if any, to such benefits as are given to other officers of the
Corporation. Upon termination of this Agreement, Employee shall have the right
to purchase at fair market value all policies of insurance which insure his life
and are owned by the Corporation or any subsidiary of the Corporation.
3.4) Business Expenses. During the Term, the Corporation shall
reimburse Employee for all ordinary and necessary business expenses incurred by
Employee in connection with the business of the Corporation and its subsidiaries
and consistent with the Corporation's policies in effect from time to time with
respect to travel, entertainment and other business expenses. Payment or
reimbursement to Employee shall be made upon submission by Employee of vouchers,
receipts or other evidence and documentation of such expense in a form
reasonably satisfactory to the Corporation and in compliance with applicable
requirements of taxing authorities. In the event the Board of Directors of the
Corporation requests the services of Employee outside the Mankato area, the
Corporation shall reimburse Employee for his reasonable transportation, lodging,
and meal expense incurred in compliance with such request.
ARTICLE 4
TERMINATION
4.1) Termination. Subject to the provisions of Article 6, Employee's
employment under this Agreement may be terminated:
(a) By mutual written agreement of the parties;
(b) Upon the death of Employee;
(c) By the Corporation upon fifteen (15) days written notice
to Employee in the event that Employee, with reasonable accommodation,
cannot perform the essential functions of his job as a result of a
physical or mental disability. Nothing herein shall limit the right of
either party to terminate Employee's employment under one of the other
sections of Article 4 of this Agreement. For purposes hereof,
"disability" shall mean any condition(s), physical or mental, that
results in Employee's inability to fulfill the essential functions of
his job, with reasonable accommodation, where such inability continues
for at least twenty-six consecutive weeks.
(d) By the Corporation, upon ten (10) days written notice to
Employee, "for cause." The term "for cause" shall include but not be
limited to neglect of Employee's duties, conduct materially detrimental
to the business reputation or goodwill of the Corporation or its
subsidiaries, dishonesty in any dealings between Employee and the
Corporation or between Employee and vendors or customers of the
Corporation or any of its subsidiaries, conviction of any crime
punishable as a felony or involving moral turpitude or immoral conduct,
being under the influence of alcohol or illegal drugs while on the job,
refusal or failure to comply with directives, rules, regulations or
policies of the Corporation or its Board of Directors, or violation of
any term of this Agreement.
(e) By either party, with or without cause, upon delivery of
the Nonrenewal Notice as provided in Section 1.2.
4.2) Termination of Compensation. If Employee's employment is
terminated pursuant to Section 4.1 hereof, then Employee shall not be entitled
to any further compensation or benefits under Article 3, except for compensation
and benefits applicable to period prior to the date of termination or as
determined by the Board of Directors.
4.3) Continuation of Insurance Benefits. The insurance benefits
provided to Employee by the Corporation pursuant to Section 3.3 may be continued
at Employee's expense for (1) the period of time during which the law requires
continuation coverage, if applicable, or (2) ninety (90) days after the
termination date or for the period of time required by the policy, whichever is
less.
4.4) Delivery of Documents. Upon the end of the Term, whether voluntary
or involuntary, Employee agrees to promptly return to the Corporation all
originals and copies of business records, documents, other tangible property or
information relating in any way to the business of the Corporation or its
subsidiaries which have been received or generated by Employee or which came
into his possession during his employment by the Corporation.
ARTICLE 5
RESTRICTION AGAINST COMPETITION; CONFIDENTIALITY
5.1) Restriction Against Competition. Employee acknowledges that he is
being employed in a position of trust and confidence and will have access to and
become familiar with the unique methods, services and procedures used by the
Corporation and that as part of Employee's duties, he will develop and maintain
close working relationships with vendors, customers and employees of the
Corporation and its subsidiaries. Employee further acknowledges that the
Corporation and its subsidiaries, over the years, through goodwill, advertising,
honest business methods and aggressive promotion, have built a lucrative
business and obtained loyal vendors and customers. Employee further acknowledges
that disclosure or use of any of the Corporation's confidential or proprietary
information, trade secrets or other information relating to the operation of the
business of the Corporation or its subsidiaries could have a serious detrimental
effect upon the Corporation, the monetary loss from which would be difficult, if
not impossible, to measure. In consequence of the foregoing, Employee agrees:
(a) Noncompetition. During Employee's employment and for a
period of two (2) years after termination of Employee's employment,
except if such termination is pursuant to Article 6, Employee agrees to
not directly or indirectly plan, organize, participate in or engage in
any business competitive with any product or service marketed by the
Corporation or any of its subsidiaries, or conspire with others to do
so, in the State of Minnesota or any other state in which the
Corporation or its subsidiaries are located or have plans on the
termination date to open a location. Employee acknowledges that he
shall be prevented from engaging in the business as an individual,
shareholder, owner, partner, director, officer, employee, agent,
consultant or salesman for any person, corporation, partnership or
other entity and agrees that he will not finance, facilitate, promote
or encourage any person to initiate or continue in the prohibited
business for the period provided.
(b) Nonsolicitation of Customers. Employee agrees he will not,
during his employment and for a two-year period immediately following
termination of his employment hereunder, except if such termination is
pursuant to Article 6, attempt to divert any business of the
Corporation or its subsidiaries by soliciting, contacting, or
communicating with any customers of the Corporation or its subsidiaries
with whom Employee, or employees under his supervision, had contacts
during the year preceding termination of his employment or any persons
or entities who might reasonably be considered within the class of
customers actively solicited by the Corporation or its subsidiaries.
(c) Nonsolicitation of Employees. Employee agrees he will not,
during his employment and for a two-year period immediately following
termination of his employment, except if such termination is pursuant
to Article 6, solicit any present or future employee of the Corporation
or its subsidiaries for any purpose of hiring or attempting to hire
such employee, nor will Employee in any manner attempt to persuade or
encourage any of the employees of the Corporation or its subsidiaries
to discontinue their employment with the Corporation or its
subsidiaries.
(d) Specific Performance and Injunctive Relief. Employee
acknowledges that the restrictions and covenants contained in this
Article 5 are reasonable and necessary to protect the legitimate
interests of the Corporation. Employee understands and agrees that the
remedies at law for any violation of the restrictions or covenants by
this Article may be inadequate, that such violations may cause
irreparable injury within a short period of time and that the
Corporation shall be entitled to preliminary injunctive relief and
other injunctive relief against such violation or threatened violation
without the necessity of proving actual damages. Such injunctive relief
shall be in addition to and not in limitation of any and all other
remedies the Corporation shall have in law and at equity for the
enforcement of such restrictions and covenants. Nothing herein provided
shall be construed as prohibiting the Corporation or Employee from
pursuing any other remedies available in the event of breach or
threatened breach, including the recovery of damages. And, in that
regard, in the event that either the Corporation or Employee shall
violate any of the foregoing provisions of this Article, the successful
party shall have the right to collect a reasonable attorney's fee for
bringing such legal or equitable action or otherwise enforcing the
terms and conditions of this Article.
(e) Confidential Information. Employee will not, during or
after the Term of this Agreement, directly or indirectly, use or
disclose any of the Corporation's confidential or proprietary
information, trade secrets or other information relating to the
operation of the business of the Corporation or its subsidiaries to any
person, firm, corporation, association, or other entity for any reason
or purpose whatsoever except the furtherance of the interests of the
Corporation or its subsidiaries, provided such information is, through
no fault of Employee, not otherwise in the public domain or otherwise
made known by the Corporation.
ARTICLE 6
CHANGE IN CONTROL
6.1) Change of Control Right. For a period of two (2) years following a
Change in Control, as defined in Section 6.6(b), Employee shall have the right,
at any time and within Employee's sole discretion, to terminate employment with
the Corporation for Good Reason, as defined in Section 6.6(d). Such termination
shall be accomplished by, and effective upon, Employee giving written notice to
the Corporation of Employee's decision to terminate. Except as otherwise
expressly provided in this Agreement, upon exercise of said right, all
obligations and duties of Employee under this Agreement shall be of no further
force and effect.
6.2) Change of Control Termination Payment. In the event of a Change in
Control Termination, as defined in Section 6.6(c), then, and without further
action by the Board of Directors, the Compensation Committee of the Board of
Directors, if any, or otherwise, the Corporation shall pay to Employee an amount
equal to Employee's compensation (including (i) Base Salary, (ii) Annual
Bonuses, and (iii) the total of lease payments paid by the Company for any
vehicle used by Employee, but excluding non-cash fringe benefits such as
insurance) for the two fiscal years preceding such termination, which amount
shall be paid by the Company in 24 equal monthly installments beginning on the
first day of the month following the month in which such termination occurs with
the remaining payments made on the first day of each of the succeeding 23
months. Notwithstanding the foregoing, in no event shall the payments under this
Section 6.2, when combined with any other payments or benefits received or to be
received, exceed the maximum amount payable to Employee under section 280G of
the Internal Revenue Code without being treated as an "excess parachute payment"
that is subject to limitations on deductibility by the Company.
6.3) Waiver of Non-Competition and Non-Recruitment Provisions.
Notwithstanding any other provision or language in this Agreement or any other
agreement or undertaking by Employee, in the event of a Change of Control
Termination, there shall be no contractual prohibition or restriction with
respect to Employee's subsequent activities and Employee shall be free to pursue
any commercial activity, including any which is directly or indirectly
competitive with, or involves any recruitment with respect to, any part of the
Corporation's business, including but not limited to the Corporation's
customers, vendors, suppliers and employees, provided, however, that Employee
shall continue to be bound by paragraph 5.1(e).
6.4) Interest. In the event the Corporation does not make timely
payment of the Change of Control Termination amounts described in Section 6.2,
Employee shall be entitled to receive interest on any unpaid amount at the prime
rate of interest (or such comparable index as may be adopted) established from
time to time by the Norwest Bank Minnesota, N.A., Minneapolis, Minnesota.
6.5) Attorneys' Fees. In the event Employee prevails in an action
against the Corporation to enforce or defend his rights under Article 6 of this
Agreement, or to recover damages for breach thereof, Employee shall be entitled
to recover from the Corporation any reasonable expenses for attorneys' fees and
disbursements incurred.
6.6) Definitions. For purposes of this Article 6, the following
definitions shall be applied:
(a) "Continuing Directors" shall mean the directors of the
Corporation as of the date of execution of this Agreement and any new
director whose election to the Board of Directors or nomination for
election to the Board of Directors is approved by a vote of at least
two-thirds (2/3) of the directors as of the date of execution of this
Agreement who are then still in office.
(b) "Change of Control" shall mean any of the following events
unless approved in advance by a majority of the Continuing Directors:
(i) the acquisition of direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) in the aggregate of securities of the
Corporation representing twenty percent (20%) or more of the
total combined voting power of the Corporation's then issued
and outstanding securities by any person or entity, or group
of associated persons or entities acting in concert, except
for the officers and directors of the Company as of the date
this agreement is executed; or
(ii) a merger or consolidation to which the
Corporation is a party if the individuals and entities who
were shareholders of the Corporation immediately prior to the
effective date of such merger or consolidation have beneficial
ownership (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of less than fifty percent (50%) of the
total combined voting power for election of directors of the
surviving corporation following the effective date of such
merger or consolidation; or
(iii) the sale of the properties and assets of the
Corporation, substantially as an entirety, to any person or
entity which is not a wholly-owned subsidiary of the
Corporation; or
(iv) the consummation of a plan of complete
liquidation of the Corporation or of an agreement for the sale
or disposition by the Corporation of all or substantially all
of the Corporation's business or assets; or
(v) a change in the composition of the Corporation's
Board of Directors at any time after the execution of this
Agreement such that the Continuing Directors cease for any
reason to constitute at least a seventy percent (70%) majority
of the Board.
(c) "Change of Control Termination" shall mean with respect to
Employee, any of the following events occurring within two (2) years
after a Change of Control:
(i) Termination of Employee's employment by the
Corporation for any reason, other than pursuant to Section
4.1(a) or (c), except for conduct by Employee constituting a
felony; or
(ii) Termination of employment with the Corporation
by Employee pursuant to Section 6.1. A Change of Control
Termination by Employee shall not include termination by
reason of death.
(d) "Good Reason" shall mean a good faith determination by
Employee, in Employee's sole and absolute judgment, that one or more of
the following events has occurred, without Employee's express written
consent, after a Change of Control:
(i) A change in Employee's reporting
responsibilities, titles or offices as in effect immediately
prior to the Change of Control, or any removal of Employee
from, or any failure to re-elect Employee to, any of such
positions, which has the effect of materially diminishing
Employee's responsibility or authority;
(ii) A reduction by the Corporation in Employee's
Base Salary or Annual Bonus as in effect immediately prior to
the Change of Control or as the same may be increased from
time to time;
(iii) The Corporation requiring Employee to be based
anywhere other than within twenty-five (25) miles of
Employee's job location at the time of the Change of Control;
(iv) Without replacement by a plan, program, or
arrangement providing benefits to Employee of the Corporation
and its subsidiaries equal to or greater than those
discontinued or adversely affected, the failure by the
Corporation to continue in effect, within its maximum stated
term, any pension, bonus, incentive, stock ownership,
purchase, option, life insurance, health, accident,
disability, or any other employee compensation or benefit
plan, program or arrangement, in which Employee is
participating immediately prior to a Change of Control or the
taking of any action by the Corporation that would adversely
affect Employee's participation or materially reduce
Employee's benefits under any of such plans, programs or
arrangements;
(v) The taking of any action by the Corporation that
would materially and adversely affect the workplace
environment existing at the time of the Change of Control in
or under which Employee performs his employment duties;
(vi) The taking of any action by the Corporation that
would materially change the Corporation's business strategies
or practices existing at the time of the Change of Control,
including but not limited to changes in the types and brands
of products offered, advertising and promotion programs,
employment policies, and the segment to which the Corporation
markets its products; or
(vii) Termination of employment by the Corporation of
any of the officers of the Corporation or any of its
subsidiaries who held such positions at the time of the Change
of Control.
ARTICLE 7
MISCELLANEOUS
7.1) Severability. If any term or provision of this Agreement shall be
held to be invalid or unenforceable for any reason, such term or provision shall
be ineffective to the extent of such invalidity or unenforceability without
invalidating the remaining terms or provisions of this Agreement. Without in any
way limiting the generality of the foregoing, if any provision of Article 5
shall be determined by any court of competent jurisdiction to be unenforceable
by reason of its extending for too long a period of time or over too great a
geographical area, such provision shall be interpreted to extend over only the
maximum period of time during which it may be enforced and to apply only to the
maximum geographical area in which it may be enforced, as the case may be.
7.2) Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient, if given in person or if in writing, sent by
certified mail, return receipt requested, to the last known residence address in
the case of Employee or to its principal office in the case of the Corporation.
7.3) Waiver of Breach. The failure of either party hereto to enforce
its rights under any provision of this Agreement shall not operate or be
construed as a waiver of such breach or of any subsequent breach by any party.
7.4) Entire Agreement. This Agreement contains the entire agreement of
the parties concerning the employment of Employee by the Corporation. This
Agreement may not be changed orally, but only by an agreement in writing signed
by the parties against whom enforcement of any waiver, change, modification,
extension or discharge is sought.
7.5) Governing Law. This Agreement shall be construed and interpreted
according to the laws of the State of Minnesota.
7.6) Headings. The captions set forth in this Agreement are for
convenience only and shall not be considered a part of this Agreement or in any
way limiting or amplifying the terms or provisions hereof.
7.7) Obligations Which Survive Termination. The obligations and
remedies of Sections 4.2, 4.3, 6.2 and Article 5 of this Agreement shall survive
the execution and termination of this Agreement, except as expressly otherwise
provided for in this Agreement.
7.8) Assignment. The Corporation may assign its rights and delegate its
responsibilities under this Agreement to any person or entity which acquires all
or substantially all of the operating assets of the Corporation by merger,
consolidation, dissolution, liquidation, combination, sale or transfer of assets
or otherwise. Employee may not assign any of his rights or obligations under
this Agreement.
7.9) Counterparts. This Agreement may be executed simultaneously into
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
XXXXXXX ELECTRONICS, INC.
By /s/ W. Xxxx Xxxxxxx
Its Chief Executive Officer
/s/ Xxxxx X. Xxxxxxx
Xxxxx X. Xxxxxxx
