CHANGE OF CONTROL, CONFIDENTIALITY AND NONCOMPETE AGREEMENT
-oOo-
This Change of Control, Confidentiality and Noncompete Agreement is
entered into as of March 2, 1998, between DAMARK INTERNATIONAL, INC., a
Minnesota corporation (including its subsidiaries, the "Company"), located in
Minneapolis, Minnesota, and Xxxxxx X. Xxxxx, an individual residing at 00000
Xxxxxx Xxxx Xxxxx, Xxxxx Xxxxx, Xxxxxxxxx 00000 ("Executive").
RECITALS:
A. The Executive is now and has been the Vice President -
Information Systems of the Company and, as such, is a key executive of the
Company.
B. The Board of Directors of the Company believes that it is
imperative to diminish the inevitable distraction to the Executive that arises
by virtue of the personal uncertainties and risks created by any pending or
threatened Change in Control (as defined herein) of the Company.
C. The Company believes that it is important that it receive certain
assurances with respect to its Confidential Information and the Executive's Work
Product (each as defined herein) and that the Company receive certain
protections with respect to the Executive's activities following termination of
his employment.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Executive agree as follows:
1. DEFINITIONS. The following terms as used herein shall have the
following meanings:
(a) "Annual Bonus" means the cash annual bonus based on the
achievement by the Company of performance goals or any other short-term
incentive or bonus plan established by the Board of Directors or the
Compensation Committee of the Board of Directors from time to time.
(b) "Base Salary" means the base salary payable to the
Executive as determined by the Company from time to time, including
modifications by the Compensation Committee prior to any Change in Control.
(c) "Cause" means termination of the Executive in the event
that the Executive: (i) has repeatedly failed to perform the material duties
specified for the position to which the Executive has been elected, which
failure is willful and deliberate; (ii) has engaged in an act or acts of
dishonesty which is or are intended to result in substantial personal
enrichment for the Executive; (iii) has knowingly engaged in conduct which is
materially injurious to the Company; (iv) is convicted of, or pleads NOLO
CONTENDERE to (A) any felony (other than any felony arising out of
negligence), or (B) any crime or offense involving dishonesty with respect to
the Company; (v) has failed to comply with the covenants contained in
paragraphs 7, 9 or 10 of this Agreement as determined in accordance with
paragraph 12 hereof; or (vi) knowingly provides materially misleading
information concerning the Company to the Board of Directors of the Company,
any governmental body or regulatory agency or any lender or other financing
source or proposed financing source of the Company.
(d) A "Change in Control" shall be deemed to have occurred if:
(i) any "Person" or "Persons" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) (other than
the Company, any employee benefit plan of the Company, Xxxx X. Xxxx or any
entity which reports beneficial ownership of the Company's outstanding
securities on Schedule 13G pursuant to Regulation Section 240.13d-1
promulgated under the Securities Exchange Act of 1934) becomes a beneficial
owner, directly or indirectly, of securities of the Company representing 35%
or more of the voting power of all of the Company's then outstanding
securities; or
(ii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of the Company (the "Incumbent Directors") together with any
director (the "New Incumbent Director") whose nomination or election was
approved by at least two-thirds of the Incumbent Directors and any New
Incumbent Director who was previously elected, cease for any reason to
constitute at least a majority of the Board of Directors of the Company; or
(iii) the shareholders of the Company approve the sale
of all, or substantially all, of the business or assets of the Company or the
liquidation or dissolution of the Company, or the shareholders of the Company
approve the merger, consolidation or other corporate reorganization of the
Company under circumstances in which the Company will not be the surviving
party.
(e) "Confidential Information" means any information which
is proprietary or unique to the Company of the Company, including but not
limited to trade secret information, matters of a technical nature such as
processes, devices, techniques, data and formulas, research subjects and
results, marketing methods, plans and strategies, operations, products,
revenues, expenses, profits, sales, key personnel, customers, suppliers,
pricing policies, any information concerning the marketing and other business
affairs and methods of the Company which is not readily available in the
Company's industry, and any information the Company has indicated is
confidential.
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(f) "Good Reason" means termination by the Executive in the
event that (i) the Executive is not at all times the duly elected to the
position held by the Executive immediately prior to a Change in Control (or
comparable position); (ii) there is any material reduction in the scope of
the Executive's authority and responsibility; (iii) there is a reduction in
the Executive's Base Salary, a material reduction in the amount of Annual
Bonus for which the Executive is eligible, an amendment to any Stock
Incentives or employee retirement plan applicable to the Executive which is
materially adverse to the Executive, or a material reduction in the other
benefits to which the Executive is entitled; (iv) the Company requires the
Executive's principal place of employment to be anywhere other than the
Company's principal executive offices, or there is a relocation of the
Company's principal executive offices outside of Minneapolis/St. Xxxx,
Minnesota metropolitan area; (v) the Company otherwise fails to perform its
obligations under this Agreement; (vi) a Change in Control has occurred and
the Executive either (x) dies or becomes permanently disabled (as determined
by reference to the Company's long-term disability plan) prior to the first
anniversary of the Change of Control, or (y) elects to terminate employment
with the Company, regardless of the reason therefor, by giving the Company
written notice thereof within the 60-day period immediately following the
first anniversary of the Change in Control or (vii) the Company fails to
obtain the agreement of a successor referred by paragraph 16 hereof prior to
the effectiveness of any succession (unless the opinion described in
paragraph 16 hereof is rendered to the Executive).
(g) "Stock Incentives" means stock options, restricted
stock, stock appreciation rights, stock performance units or other stock
incentives granted to the Executive by the Compensation Committee of the
Board of Directors under any stock-based plan from time to time adopted by
the Company.
(h) "Termination Date" means the date on which the Executive
ceases to be an employee of the Company.
(i) "Work Product" means all inventions, creations,
innovations, improvements, technical information, systems, software
developments, methods, designs, analyses, drawings, reports, service marks,
trademarks, tradenames, logos and all similar or related information (whether
patentable or unpatentable) which relate to the Company's actual or
anticipated business, research and development or existing or future products
or services which are conceived, developed or made by the Executive (whether
or not during usual business hours and whether or not alone or in conjunction
with any other person) while employed by the Company (including those
conceived, developed or made prior to the date of this Agreement), together
with all patent applications, letters patent, trademark, tradename and
service xxxx applications or registrations, copyrights and reissues thereof
that may be granted for or upon any of the foregoing.
2. TERMINATION FOLLOWING A CHANGE IN CONTROL OF THE COMPANY. In the
event of a Change in Control and if, either upon or within (and including) 24
months after such Change in Control, the following provisions shall apply:
(a) TERMINATION FOR CAUSE BY THE COMPANY. By following the
procedure set forth in paragraph 2(d)(i), the Company shall have the right to
terminate the employment of the Executive for Cause. If the employment of the
Executive is terminated by the Company for Cause,
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the Executive's rights to compensation and benefits shall be determined under
the Company's benefit plans and policies applicable to executives of the
Company then in effect.
(b) TERMINATION FOR GOOD REASON BY THE EXECUTIVE. By following
the procedure set forth in paragraph 2(d)(ii), the Executive shall have the
right to terminate the Executive's employment with the Company for Good Reason
and shall be entitled to the severance benefits set forth in paragraph 2(e).
(c) TERMINATION WITHOUT CAUSE; VOLUNTARY RESIGNATION. If
the Company terminates the Executive's employment without Cause upon or
within (and including) 24 months after a Change in Control, the Executive
shall be entitled to the severance benefits set forth in paragraph 2(e). The
Executive may voluntarily terminate his employment without Good Reason, and
in such event the Executive's right to further Base Salary payments and
Annual Bonus (except Annual Bonus prorated to the Termination Date) shall
terminate on the effective date of such resignation, the Executive's rights
to other compensation and benefits shall be determined under the benefit
plans and policies applicable to the Company's executives as then in effect,
and the Executive shall continue to be obligated under paragraph 7, 9 and 10
hereof.
(d) NOTICE AND RIGHT TO CURE.
(i) TERMINATION BY COMPANY FOR CAUSE. If the Company
proposes to terminate the employment of the Executive for Cause under
paragraph 2(a), the Company shall give written notice to the Executive
specifying the reasons for such proposed termination with particularity and,
in the case of a termination for Cause under clauses (i), (ii), (iii) and
(vi) of the definition thereof, the Executive shall have a reasonable
opportunity to correct any curable situation to the reasonable satisfaction
of the Board of Directors of the Company, which period shall be no less than
30 days from the Executive's receipt of the notice of proposed termination
nor longer than the period specified in such notice. Notwithstanding the
foregoing, the Executive's employment shall not be terminated for Cause
unless and until there shall be delivered to the Executive a copy of the
resolution duly adopted by the affirmative vote of not less than the majority
of the members of the Board of Directors of the Company at a meeting called
and held for the purpose (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's legal counsel,
to be heard before the Board of Directors) finding that, in the opinion of
the Company's Board of Directors, the Executive has engaged in conduct
justifying a termination for Cause.
(ii) TERMINATION BY EXECUTIVE FOR GOOD REASON. If the
Executive proposes to terminate the Executive's employment for Good Reason under
paragraph 2(b) (other than a termination for Good Reason under clause (vi) of
the definition thereof, the Executive shall give written notice to the Company,
specifying the reason therefor with particularity. In the event the Executive
proposes to terminate employment for Good Reason under clauses (i), (ii), (iii),
(iv) or (vii) of the definition thereof, the Termination Date shall be the date
of such notice. In the event the Executive proposes to terminate under clause
(vi) of the definition of "Good Cause," the Termination Date shall be the tenth
calendar day following such notice or, in the case of disability or death, the
date on which the Executive dies or becomes disabled. In the event the
Executive proposes to terminate employment for Good Reason under clause (v) of
the definition thereof, the
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Company will have an opportunity to correct any curable situation to the
reasonable satisfaction of the Executive within the period of time specified
in the Executive's notice which shall not be less than 30 days. If such
correction is not so made or the circumstances or situation is such that it
is not curable, within 30 days after the expiration of the time so fixed
within which to correct such situation, the Executive may give written notice
to the Company that the Executive's employment is terminated for Good Reason
and the Termination Date shall be the date of such notice.
(e) SEVERANCE BENEFITS FOR CHANGE IN CONTROL.
(i) BASE SALARY. The Company shall pay the Executive a
lump sum cash payment, no later than 10 days after the Termination Date, in an
amount equal to the Executive's Base Salary multiplied by two.
(ii) ANNUAL BONUS. The Company shall pay the
Executive a lump sum cash payment, no later than 10 days after the
Termination Date, in an amount equal to (a) the greater of (x) the quotient
obtained by dividing the sum of the Annual Bonuses, if any, paid to the
Executive during the three calendar years immediately preceding the
Termination Date by three (the "Prior Bonus Amount"), and (y) the Executive's
target Annual Bonus for the current calendar year, assuming achievement of
performance permitting payment of 100% of the target Annual Bonus, PLUS (b)
the Executive's target Annual Bonus for the current calendar year, assuming
achievement of performance permitting payment of 100% of the target Annual
Bonus, pro rated for the number of calendar months (including any partial
month as a full calendar month) preceding the Termination Date. If the
Annual Bonus for the calendar year immediately preceding the Termination Date
has not been determined, the Company shall pay the Executive the target
Annual Bonus for the current calendar year, calculate the Prior Bonus Amount
as soon as practicable, and pay the Executive the Prior Bonus Amount promptly
following calculation.
(iii) DISABILITY, LIFE INSURANCE AND MEDICAL/DENTAL
COVERAGE; NO UNPAID VACATION OR SICK LEAVE. The Company shall continue the
disability, life insurance and medical/dental coverage provided to the
Executive immediately prior to the Termination Date. Such coverage shall be
provided by the Company at its sole cost until the second anniversary of the
Termination Date. If and to the extent additional benefits are available,
the Executive has the right to continue health and life insurance benefits
under COBRA laws in effect on the Termination Date. The Executive
acknowledges that the number of months of health and life insurance benefits
available under this Agreement exceed by six months the number of required
months under current law. The Executive shall not be deemed to have and
shall not be paid for any unpaid vacation or sick leave.
(iv) STOCK INCENTIVES. Not later than 30 days after
the Termination Date, the Company shall pay the Executive a lump sum cash
payment equal to the amount by which the fair market value (determined as of
the Termination Date) of the number of shares of stock subject to any Stock
Incentive granted to the Executive is in excess of the exercise price or
other amount of payment required to be made by the Executive thereunder, but
only to the extent that the Executive is not entitled to exercise his Stock
Incentives after the Termination Date under the provisions of the Executive's
Stock Incentive agreements.
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(v) OTHER DEFERRED BENEFITS. Not later than 30 days
after the Termination Date, the Company shall pay the Executive a lump sum
cash payment in an amount equal to the sum of the unvested portion of all
other deferred benefits, including without limitation deferred compensation,
retirement and profit-sharing plans, but only to the extent that the
Executive is not entitled to receive such benefits immediately following the
Termination Date under the provisions of the applicable agreements.
(vi) OUTPLACEMENT SERVICES. The Company shall pay
reasonable fees and expenses, in an amount equal to 15% of the Executive's
Base Salary, for the Executive's use of a qualified outplacement service,
provided that the use of such outplacement counseling is initiated within 180
days of the Termination Date.
(vii) WITHHOLDING. Notwithstanding anything to the
contrary herein, the Company shall withhold from all severance benefits payable
hereunder the sum of federal, state and local taxes and other amounts which the
Company is required by law or believes appropriate to withhold.
3. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) GROSS-UP PAYMENT. Anything to the contrary
notwithstanding, in the event it shall be determined that any payment,
distribution or benefit made or provided by the Company to or for the benefit
of the Executive (whether pursuant to this Agreement or otherwise) (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), or any interest or
penalties with respect to such excise tax (such excise tax, together with any
such interest and penalties, being collectively referred to as the "Excise
Tax"), then the Company shall pay the Executive in cash an amount (the
"Gross-Up Payment") such that, after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including but not limited to income taxes (and any interest and penalties
imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed on the Payments. An example of the calculation of the
Gross-Up Payment is attached hereto as Exhibit A.
(b) DETERMINATION OF GROSS-UP PAYMENT. Subject to paragraph
3(c), all determinations required to be made under this paragraph 3,
including whether a Gross-Up Payment is required and the amount of the
Gross-Up Payment, shall be made by the firm of independent public accountants
selected by the Company to audit its financial statements for the year
immediately preceding the Change in Control (the "Accounting Firm") which
shall provide detailed supporting calculations to the Company and the
Executive within 30 days after the Termination Date. In the event that the
Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, the Executive may appoint
another nationally recognized accounting firm to make the determinations
required under this paragraph 3 (which accounting firm shall then be referred
to as the "Accounting Firm"). All fees and expenses of the Accounting Firm
in connection with the work it performs pursuant to this paragraph 3 shall be
promptly paid by the Company. Any Gross-Up Payment (as determined pursuant
to this paragraph 3) shall be paid by the Company to the Executive within 5
days of the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by the
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Executive, it shall furnish the Executive with a written opinion that failure
to report the Excise Tax on the Executive's applicable federal income tax
return would not result in the imposition of a negligence or a similar
penalty. Any determination by the Accounting Firm shall be binding upon the
Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm, it is possible that Gross-Up Payments which will not have
been made by the Company should have been made ("Underpayment"). In the
event that the Company exhausts its remedies pursuant to paragraph 3(c), and
the Executive is thereafter required to make a payment of Excise Tax, the
Accounting Firm shall promptly determine the amount of the Underpayment that
has occurred and any such Underpayment shall be paid by the Company to the
Executive within 5 days after such determination.
(c) CONTEST. The Executive shall notify the Company in
writing of any claim made by the Internal Revenue Service that, if
successful, would require the Company to pay a Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than 10
business days after the Executive knows of such claim and shall apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim prior to the
expiration of the 30-day period following the date on which the Executive
gives such notice to the Company (or such shorter period ending on the date
that any payment of taxes with respect to such claim is due). If the Company
notifies the Executive in writing prior to the expiration of such period that
it desires to contest such claim, the Employee shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim;
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
without limitation, accepting legal representation with respect to such claim by
an attorney selected by the Company and reasonably acceptable to the Executive;
(iii) cooperate with the Company in good faith in order to
effectively contest such claim;
(iv) permit the Company to participate in any proceedings
relating to such claim, provided that the Company shall bear and pay directly
all costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax, including
interest and penalties with respect thereto, imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this paragraph 3(c), the Company shall control all
proceedings taken in connection with such contest. At its sole option, the
Company may pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim and
may either direct the Executive to pay the tax claimed and xxx for a refund or
contest the claim in any permissible manner. The Executive agrees to prosecute
such contest to a determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts, as the Company
shall determine, provided that if the Company directs the Executive to pay such
claim and xxx for a refund, the
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Company shall advance the amount of such payment to the Executive, on an
interest-free basis, from any Excise Tax or income tax, including interest or
penalties with respect thereto, imposed with respect to such advance or with
respect to any imputed income with respect to such advance, and further
provided that any extension of the statute of limitations relating to payment
of taxes for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited
to issues with respect to which a Gross-Up Payment would be payable
hereunder, and the Executive shall be entitled to settle or contest, as the
case may be, any other issue raised by the Internal Revenue Service or any
other taxing authority.
(d) REFUND. If, after the receipt by the Executive of an
amount advanced by the Company pursuant to paragraph 3(c), the Executive
becomes entitled to receive any refund with respect to such claim, the
Executive shall (subject to the Company's complying with the requirements of
paragraph 3(c)) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount advanced by
the Company pursuant to paragraph 3(c), a determination is made that the
Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required
to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
4. BENEFITS IN LIEU OF SEVERANCE PAY POLICY. The severance
benefits provided for in paragraphs 2 and 3 hereof are in lieu of any
benefits that would otherwise be provided to the Executive under any
severance arrangements or agreement between the Company and the Executive or
under any other Company severance pay policy, and the Executive shall not be
entitled to any such benefits.
5. NO FUNDING OF SEVERANCE. Nothing contained in this Agreement
or otherwise shall require the Company to segregate, earmark or otherwise set
aside any funds or other assets to provide for any payments required to be
made under paragraphs 2 and 3 hereof, and the rights of the Executive to any
benefits hereunder shall be solely those of a general, unsecured creditor of
the Company.
6. BENEFICIARIES. In the event of the Executive's death, any
amount or benefit payable or distributable to him pursuant to this Agreement
shall be paid to the beneficiary designated by the Executive for such purpose
in the last written instrument received by the Company prior to the
Executive's death, if any, or, if no beneficiary has been designated, to the
Executive's estate, but such designation shall not be deemed to supersede any
beneficiary designation under any benefit plan of the Company. Whenever this
Agreement provides for the written designation of a beneficiary or
beneficiaries of the Executive, the Executive shall have the right to revoke
such designation and to redesignate a beneficiary or beneficiaries by written
notice to the Company, except to the extent, if any, restricted by law.
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7. COVENANT TO PROTECT CONFIDENTIAL INFORMATION. The Executive
acknowledges that in connection with the Executive's employment by the
Company, the Executive will be brought into contact with Confidential
Information, and the Executive agrees that:
(a) The Executive will not disclose to any Person or entity
any Confidential Information, either during or after the term of his
employment, except to designated employees of the Company (only as such
employees need such information and are designated by the Company as needing
such information), and attorneys, accountants or other representatives of the
Company as may be necessary or appropriate in the ordinary course of
performing the Executive's duties as an executive of the Company, or
otherwise with the Company's express prior written consent.
(b) The Executive will not disclose or transfer any
Confidential Information to any third party without the express prior written
consent of the Company.
(c) The Executive will deliver to the Company promptly upon
termination of employment, or at any other time that the Company may so
request, all memoranda, notes, records (including electronic data records),
reports and other documents (and all copies thereof) relating to the
Confidential Information which he may then possess or have within his control.
8. TERMINATION OF OBLIGATION OF CONFIDENTIALITY. The
confidentiality obligations imposed by Section 7 of this Agreement shall
cease to apply to Confidential Information after the EARLIEST of the date on
which the Executive provides the Company with written evidence clearly
establishing that the Confidential Information which has been treated by the
Company as Confidential Information: (i) was known to Executive before it
was obtained from the Company; (ii) was publicly available on the date of
first receipt from the Company; (iv) has become generally known to the public
in the United States through no fault of the Executive; (v) has been
disclosed to Executive free of any obligation of confidentiality by a third
party who has the right to disclose the same and who did not derive the
information from the Company; or (vi) was independently developed by the
Executive without the use of the Confidential Information.
9. WORK PRODUCT. The Executive acknowledges that Work Product
belongs solely to the Company.
(a) At the request of the Company, the Executive shall (i)
promptly and fully inform the Company in writing of Work Product made,
created or conceived during the Executive's employment, (ii) assign (and the
Executive does hereby assign) to the Company all of his ownership in and
rights to such Work Product, and (iii) assist the Company as requested during
and after employment to evidence, perfect and enforce the rights of the
Company in and ownership of such Work Product by promptly executing and
delivering to the Company, the necessary written instruments and by
performing such other acts as may be necessary, in the opinion of the
Company, so as to enable the Company to obtain and maintain patent, copyright
or other intellectual property rights in such Work Product and so as to vest
the entire right and title thereto in the Company.
(b) Pursuant to the provisions of Minn. Stat. Section 181.78,
the Company hereby notifies the Executive that this Section 9 does not apply to
an invention for which no equipment, supplies, facility or trade secret
information of the Company was used and which was
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developed entirely on the Executive's own time, and (i) which does not relate
(A) directly to the business of the Company, or (B) to the Company's actual
or demonstrably anticipated research or development, or (ii) which does not
result from any work performed by the Executive for the Company.
10. NONCOMPETITION, NONSOLICITATION AND NONDISPARAGEMENT. The
Executive acknowledges and agrees with the Company that, during the course of
the Executive's employment with the Company, the Executive has had and will
continue to have the opportunity to develop relationships with existing
employees, customers and other business associates of the Company, which
relationships constitute goodwill of the Company, and the Executive
acknowledges and agrees that the Company would be irreparably damaged if the
Executive were to take actions that would damage or misappropriate such
goodwill. The Executive accordingly covenants and agrees as follows:
(a) The Executive acknowledges that the Company currently
conduct throughout the United States (the "Territory") the business of direct
marketing merchandise and membership services including without limitation
customer segmentation and modeling (the "Subject Business"). Accordingly, in
consideration of the covenants of the Company pursuant to this Agreement,
from the date hereof until the first anniversary of the Termination Date (the
"Noncompete Period"), the Executive shall not, directly or indirectly, enter
into, engage in, assist, give or lend funds to or otherwise finance, be
employed by or consult with, or have a financial or other interest in, any
business which engages in the Subject Business and markets programs, products
or services similar to those of the Company as of the Termination Date,
whether for or by himself or as an independent contractor, agent,
stockholder, partner or joint venturer for any other Person, provided that
the aggregate ownership by the Executive of no more than two percent of the
outstanding equity securities of any Person, which securities are traded on a
national or foreign securities exchange, quoted on the Nasdaq Stock Market or
other automated quotation system shall not be deemed to be giving or lending
funds to, otherwise financing or having a financial interest in a competitor.
In the event that any Person in which the executive has any financial or
other interest directly or indirectly enters into the Subject Business in the
Territory during the Noncompete Period, the Executive shall divest all of his
interest (other than any amount permitted under this paragraph) in such
Person within 30 days after such Person enters into the Subject Business in
the Territory.
(b) The Executive covenants and agrees that during the
period commencing with the date of this Agreement and ending on the first
anniversary of the Termination Date, the Executive will not, directly or
indirectly, either for himself or for any other Person (i) solicit any
employee of the Company to terminate his or her employment with the Company
or employ any such individual during his or her employment with the Company
and for a period of six months after such individual terminates employment
with the Company, (ii) solicit any supplier to the Company as of the
Termination Date to purchase or distribute information, products or services
of or on behalf of the Executive or such other Person that are competitive
with the information, products or services provided by the Company, or (iii)
make any disparaging statements concerning the Company or its officers,
directors or employees, to any lessor, lessee, vendor, supplier, customer,
distributor, employee, consultant or other business associate of the Company,
as such relationship relates to the Company's conduct of the Subject Business.
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(c) The Executive understands that the foregoing
restrictions may limit the Executive's ability to earn a livelihood in a
business similar to the business of the Company, but the Executive
nevertheless believes that the Executive has received and will receive
sufficient consideration and other benefits as an employee of the Company and
as otherwise provided hereunder to clearly justify such restrictions which,
in any event (given the Executive's education, skills and ability), the
Executive does not believe would prevent him from otherwise earning a living.
11. REMEDIES. In the event of the violation or threatened
violation by the Executive of any of the covenants contained in this
Agreement, in addition to any other remedy available in law or in equity, the
Company shall have (i) the right and remedy of specific enforcement,
including injunctive relief, it being acknowledged and agreed that any such
violation or threatened violation will cause irreparable injury to the
Company and that monetary damages will not provide an adequate remedy, (ii)
the right and remedy to terminate forthwith any payments or benefits required
to be made or provided to the Executive hereunder upon violation by the
Executive of any provisions of paragraphs 7, 9 or 10 hereof, but without
limiting the Executive's obligations under paragraphs 7, 9 or 10 hereof,
provided that all such payments shall be promptly paid over to the Executive
if a court of competent jurisdiction determines that the Executive did not
violate such provisions, (iii) the right and remedy to require the Executive
to account for and pay over to the Company all compensation, profits, monies,
accruals, increments, or other benefits, other than those payable under this
Agreement, derived or received by the Executive or the entity in competition
with the Company as the result of any transactions constituting a breach of
any part of paragraphs 7, 9 or 10 of this Agreement, and Executive agrees to
account for and pay over to the Company such amounts promptly upon final
determination by a court of competent jurisdiction, (iv) the right to any and
all damages available as a matter of law, and (v) if the Company is the
prevailing party, costs and expenses incurred by the Company in pursuing its
rights under this Agreement, including reasonable attorneys' fees and other
litigation expenses.
12. ARBITRATION. In the event of a dispute between the Company and
the Executive regarding the Executive's failure to comply with the covenants
contained in paragraphs 7, 9 or 10 of this Agreement for purposes of
determining a basis for a termination for Cause pursuant to clause (v) of the
definition thereof or regarding the entitlement of the Executive to benefits
under paragraph 2(e) or the amount thereof, it is the intention of the
parties that the dispute shall be resolved as expeditiously as possible,
consistent with fairness to both sides. Accordingly, any such matters shall
be resolved by binding private arbitration before three arbitrators. Within
30 days of receipt of such notice by the opposing party, each party shall
appoint a disinterested arbitrator and the two arbitrators selected thereby
shall appoint a third neutral arbitrator. In the event the two arbitrators
cannot agree upon the third arbitrator within 10 days after their
appointment, then the neutral arbitrator shall be appointed by the Chief
Judge of Hennepin County (Minnesota) District Court. Any arbitration
proceeding conducted hereunder shall be in the City of Minneapolis and shall
follow the procedures set forth in the Rules of Commercial Arbitration of the
American Arbitration Association, and both sides shall cooperate in as
expeditious a resolution of the proceeding as is reasonable under the
circumstances. The arbitrators shall apply the law of the State of
Minnesota. The arbitration panel shall have the power to enter any relief it
deems fair and just on any claim, including interim and final equitable
relief, along with any procedural order that is
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reasonable under the circumstances. Any award rendered by any arbitration
panel, or a majority thereof, may be filed and a judgment obtained in any
court having jurisdiction over the parties unless the relief granted in the
award is delivered within 10 days of the award. Either party may request
arbitration by written notice to the other party.
13. SEVERABILITY. Should any covenant, term or condition contained
in this Agreement become or be declared invalid or unenforceable by a court
of competent jurisdiction, the parties agree that the court shall be
requested to judicially modify such unenforceable provision consistent with
the intent of this Agreement so that it shall be enforceable to the fullest
extent possible.
14. APPLICABLE LAW; JURISDICTION. This Agreement shall be
construed, interpreted and enforced according to the statutes, rules of law
and court decisions of the State of Minnesota without regard to conflict of
law provisions. The Executive hereby submits to the jurisdiction of, and
waives any venue objections against, the State of Minnesota and the federal
courts of the United States located in such state in respect of all actions
arising out of or in connection with the interpretation or enforcement of
paragraphs 7, 9 or 10 of this Agreement, and the Executive consents to the
personal jurisdiction of such courts for such purposes.
15. AMENDMENTS; WAIVERS This Agreement may be amended, modified,
superseded or cancelled, and the terms or covenants waived, only by a written
instrument executed by both of the parties hereto or, in the case of a
waiver, by the Company. The failure to require performance of any provision
hereof shall in no manner affect the right at a later time to enforce the
same. No waiver of any term, whether by conduct or otherwise, shall be
deemed to be a further or continuing waiver of any such breach, or a waiver
of the breach of any other term contained in this Agreement.
16. SUCCESSORS. The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation, or otherwise) to all
or substantially all of the business and/or assets of the Company, to
expressly assume and agree to perform its obligations under this Agreement in
the same manner and to the same extent that the Company would be required to
perform them if no succession had taken place unless, in the opinion of legal
counsel mutually acceptable to the Company and the Executive, such
obligations have been assumed by the successor as a matter of law. The
Executive's rights under this Agreement shall inure to the benefit of, and
shall be enforceable by, the Executive's legal representative or other
successors in interest, but shall not otherwise be assignable or transferable.
17. TERM OF AGREEMENT; SURVIVAL. Unless earlier terminated
pursuant to paragraph 2 hereof, this Agreement shall terminate on the second
anniversary of a Change in Control, provided that the obligations of the
Executive under paragraphs 7 and 9 shall continue forever and the obligations
of the Executive under paragraph 10 shall continue for the period stated
therein. The rights and obligations of the parties pursuant to this
Agreement shall survive the Termination Date to the extent that any
performance is required hereunder after the expiration or termination of such
term.
18. NOTICES. All notices under this Agreement shall be in writing and
shall be deemed effective when delivered in person (in the Company's case, to
its Chief Financial Officer) or 48 hours after deposit thereof in the U.S.
mails, postage prepaid, addressed, in the case of the
12
Executive, to the Executive's last known address as carried on the personnel
records of the Company and, in the case of the Company, to the corporate
headquarters, attention of the Chief Financial Officer, or to such other
address as the party to be notified may specify by written notice to the
other party.
19. CONSTRUCTION. Paragraph headings are for convenience only and
shall not be considered a part of the terms and provisions of the Agreement.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
DAMARK INTERNATIONAL, INC.
By /s/ Xxxx X. Xxxx
-----------------------------
Its Chairman/CEO
-----------------------------
EXECUTIVE
/s/ Xxxxxx X. Xxxxx
--------------------------------
Name: Xxxxxx X. Xxxxx
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EXHIBIT A
CALCULATION OF GROSS-UP PAYMENT
Pursuant to Section 3 of the Change of Control, Confidentiality and
Noncompete Agreement to which this Exhibit A is attached, a gross-up payment
shall be paid to the Executive by the Company within the time period
specified in the Agreement for the amount of excise tax incurred by the
Executive as a result of Internal Revenue Code Section 4999. The following
is an example of the result intended by Section 3 of the Agreement.
Definition of terms:
G= Gross-up payment due,
P= Amount of the parachute payment,
B= Base amount,
R= Aggregate applicable Federal and State (net of Federal benefit)
income tax rate
Example assumptions:
G= X,
P= $800,000,
B= $200,000, and
R= .4
Based upon the assumptions listed, the gross-up payment is calculated as
follows:
G= (.2P - .2B) / (.8-R)
G= [(.2($800,000) - .2($200,000)] / (.8 - .4)
G= ($160,000 - $40,000) / .4
G= $120,000 / .4
G= $300,000
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