EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of
September 18, 1997 by and between Xxxxxxxx Industries, a
California corporation ("Employer") and Xxxxxx X. Xxxxxxx
("Employee").
WITNESSETH:
WHEREAS, Sterling Electronics Corporation, a Nevada
corporation ("Company"), Employer and MI Holdings Nevada, Inc., a
Nevada corporation and a wholly-owned subsidiary of Employer
("Subsidiary"), are parties to an Agreement and Plan of Merger
dated as of September 18, 1997 (the "Merger Agreement") that
provides for the merger (the "Merger") of Subsidiary into
Company;
WHEREAS, Employee has served Company in various
capacities, most recently as Chairman of the Board, Chief Execu-
tive Officer and President, and Employer desires to obtain the
benefit of continued service by Employee to Company after the
Merger, and Employee desires to render such services to Employer;
WHEREAS, the Board of Directors of Employer (the
"Board") has determined that because of Employee's substantial
experience and business relationships in connection with the
business of Company, it is in Employer's best interest and its
stockholders to secure the services of Employee and to provide
Employee certain additional benefits; and
WHEREAS, Employer and Employee desire to set forth in
this Agreement the terms and conditions of Employee's employment
with Employer.
NOW, THEREFORE, in consideration of the mutual promises
and covenants herein contained, the parties agree as follows:
1. Term. Employer agrees to employ Employee and
Employee agrees to serve Employer, in accordance with the terms
of this Agreement, subject to and commencing at the Effective
Time (as defined in the Merger Agreement) and ending May 31,
2001, unless this Agreement is earlier terminated in accordance
with the provisions which follow. Concurrently with this
Agreement becoming effective, Employee shall: (a) terminate the
Employment Agreement between Company and Employee dated September
18, 1995 (the "Prior Employment Agreement") and any rights of
Employee upon a change in control of Company; and (b) terminate
all participation by or rights of Employee to participate in any
incentive bonus plan or severance plan of Company, including but
not limited to, Company's Upper Management Severance Plan and
Company's Broad Based Severance Plan. Employee hereby agrees to
waive any rights he might otherwise have pursuant to the Prior
Employment Agreement upon a change in control of Company.
2. Services and Exclusivity of Services. So long as
this Agreement shall continue in effect, Employee shall devote
his full business time, energy and ability exclusively to the
business, affairs and interests of Employer and its subsidiaries
and matters related thereto, shall use Employee's best efforts
and abilities to promote Employer's interests, and shall perform
the services contemplated by this Agreement in accordance with
policies established by and under the direction of the Board and
the Chief Executive Officer of Employer (the "CEO").
Employee agrees to serve without additional remunera-
tion in such senior capacities for one or more direct or indirect
subsidiaries of Company as the CEO may from time to time request,
subject to appropriate authorization by the subsidiary or
subsidiaries involved and any limitations under applicable law.
Employee agrees to faithfully and diligently promote the
business, affairs and interests of Employer and its subsidiaries.
Employee agrees to use Employee's best efforts to successfully
effectuate the purposes of the Merger Agreement, including, but
not limited to, the integration of the operations of Company with
those of Employer and the implementation of Company's policies
under its new ownership; provided, however, that best efforts
shall not require Employee to expend his own funds.
Without the prior express written authorization of the
Board, Employee shall not, directly or indirectly, during the
term of this Agreement: (a) render services to any other person
or firm for compensation; or (b) engage in any activity competi-
tive with or adverse to Employer's business, whether alone, as a
partner, or as an officer, director, employee or significant
investor of or in any other entity; provided, however, that
Employee may manage family investments or other similar matters
so long as such activities do not interfere with his duties. (An
investment of greater than 5% of the outstanding capital or
equity securities of an entity shall be deemed significant for
these purposes.)
Employee represents to Employer that Employee has no
other outstanding commitments inconsistent with any of the terms
of this Agreement or the services to be rendered hereunder.
3. Specific Position; Duties and Responsibilities.
Employer and Employee agree that, subject to the provisions of
this Agreement, Employer will employ Employee and Employee will
serve Employer for the duration of this Agreement as the
President of Company. Employee agrees to observe and comply with
the rules and regulations of Employer as adopted by the Board
respecting the performance of Employee's duties and agrees to
carry out and perform orders, directions and policies of Employer
as they may be, from time to time, stated either orally or in
writing. For the term of this Agreement, Employee shall report
to the CEO, or to such other person(s) as the CEO may designate
consistent with his position as President of a significant
subsidiary.
4. Compensation.
(a) Base Compensation. During the term of this
Agreement, Employer agrees to pay Employee a base salary for the
following periods and at the following rates:
Period Amount Payable
Date of this Agreement through May 31, 1998 $31,250 per monthly
("Year 1") month
June 1, 1998 - May 31, 1999 ("Year 2") $375,000 for in equal
the year monthly
installments
June 1, 1999 - May 31, 2000 ("Year 3") $400,000 for in equal
the year monthly
installments
June 1, 2000 - May 31, 2001 ("Year 4") $425,000 for in equal
the year monthly
installments
(b) Profit Sharing Plan. Subject to Section 6 of this
Agreement, during the term of this Agreement, Employee shall be
entitled to a bonus based on the earnings and profits of Company
and/or Employer for the periods, at the rates and payable in the
manner described below:
(i) At the end of Year 1, Employee shall be
entitled to receive a bonus in the fixed amount of $100,000.
Such amount shall be paid within 30 days of the end of Year
1.
(ii) During Year 2, Employee shall be eligible for
and shall participate in a profit sharing plan of Company
that shall include the same terms and conditions of the
profit sharing plan of Employer as in existence on the date
hereof (and as subsequently modified by Employer; provided,
however, that any such modification shall apply to all
senior or executive employees of Employer equally) (the
"Profit Plan") except that the payment, if any, to be paid
to Employee under the terms of such plan shall be calculated
based on the earnings and profits of Company alone.
(iii) During each of Year 3 and Year 4, Employee
shall be eligible for and shall participate in the Profit
Plan with the payment, if any, to be calculated based on the
consolidated earnings and profits for such period of
Employer and its subsidiaries, including Company.
(c) One-Time Special Bonus. Subject to Section 6 of
this Agreement, Employee shall be entitled to receive a special
one-time bonus on the terms and conditions and in the amount set
forth in Exhibit 1 hereto.
(d) Additional Benefits. Except for benefits
expressly identified in Sections 4(b), 4(c) and 5 of this
Agreement, Employee shall not participate in or be eligible to
participate in any bonus, profit, or incentive compensation plan
of Employer or any of its affiliates. However, to the extent
Employee meets eligibility requirements applicable to employees
generally, Employee shall also be entitled to participate in any
pension plan and/or health and welfare benefit plan of Employer
or its affiliates available to employees of Employer generally.
Notwithstanding the foregoing, this Agreement shall not
be deemed to amend or otherwise affect the provisions of any
compensation, retirement or other benefit program or plan of
Employer or its subsidiaries or affiliates, but in no event shall
Employee be entitled to benefits under both an Employer (or
affiliate) plan or this Agreement and a comparable plan of any
other entity and in no event shall Employee be entitled to
duplicative benefits under any plans of Employer and/or its
affiliates or such other entities.
(e) Vacation. Employee shall be entitled to paid
vacation in an amount consistent with that provided to the other
senior or executive employees of Employer.
(f) Perquisites. Employer shall provide Employee with
a company car of Employer or a car allowance (at Employer's
option), in either case with such perquisite being in an amount
consistent with that provided to the other senior executives of
Employer; provided, however, that in no event shall such amount
exceed $12,000 per year.
(g) Overall Qualification. Other than the benefits to
be provided to Employee pursuant to Sections 4(a), 4(b), 4(c) and
4(f), Employer reserves the right to modify, suspend or
discontinue any and all of the above referenced benefit plans,
practices, policies and programs at any time (whether before or
after termination of employment) without notice to or recourse by
Employee so long as such action is taken generally with respect
to other similarly situated persons (i.e. senior or executive
employees of Employer) and does not single out Employee.
5. Stock Option Grant. Upon the effectiveness of
this Agreement, Employee shall receive a nonqualified stock
option grant to purchase 50,000 shares of Employer's common stock
in the form attached hereto as Exhibit 2. The exercise price of
such options shall be the fair market value of Employer's common
stock on the date of the closing of the transactions pursuant to
the Merger Agreement.
6. Termination. The compensation and other benefits
provided to Employee pursuant to this Agreement, and the employ-
ment of Employee by Employer, shall be terminated prior to
expiration of the term of this Agreement only as provided in this
Section 6.
(a) Death or Disability. If Employee's employment is
terminated by reason of Employee's death or Disability (defined
as the failure, because of illness, incapacity or injury which is
determined to be total and permanent by a physician selected by
Employer or its insurers and acceptable to Employee or Employee's
legal representative (such agreement as to acceptability not to
be withheld unreasonably) to render for six consecutive months or
for shorter periods aggregating 120 or more business days in any
twelve (12)-month period, the services contemplated by this
Agreement after Employer has provided written notice of
termination for such Disability to Employee), this Agreement
shall terminate without further obligations to Employee (or
Employee's heirs or legal representatives) under this Agreement,
other than for:
(i) payment of the sum of (A) Employee's then base
salary as set forth in Section 4(a) through the date of
termination, (B) if the termination occurs during Year 1, a
pro rata portion of the $100,000 bonus to be paid pursuant
to Section 4(b)(i) of this Agreement (based on the number of
whole months worked by Employee up to the time of
termination) or, if the termination occurs in Years 2, 3 or
4, the amount of any profit sharing payment earned for the
period up to and including the termination as determined
under the applicable profit sharing plan referred to in
Sections 4(b)(ii) and 4(b)(iii) of this Agreement, (C) the
pro rata portion of the Guaranteed Minimum Special Bonus, as
set forth in Exhibit 1 hereto, (D) any compensation
previously deferred by Employee (together with any accrued
interest or earnings thereon), and (E) any accrued vacation
pay, in each case to the extent not theretofore paid (the
sum of the amounts described in clauses (A), (B), (C), (D)
and (E) shall be paid to Employee or Employee's estate or
beneficiary, as applicable, in a lump sum in cash within 30
days after the date of termination or any earlier time
required by applicable law); and
(ii) payment to Employee or Employee's estate or
beneficiary, as applicable, any amount due pursuant to the
terms of any applicable welfare benefit plan.
(b) For Cause; Employee Resignation. If either: (x)
Employee's employment is terminated upon a determination by
Employer, acting in good faith based upon actual knowledge at
such time that Employee is or has been personally dishonest or
grossly negligent in any dealings with or transactions with
Employer, is engaging or has engaged in willful or grossly
negligent misconduct in connection with his employment, or a
breach of fiduciary duty to Employer, has intentionally failed to
perform stated or assigned duties, or has willfully or
negligently violated any law, rule or regulation (other than
minor traffic violations or similar offenses) that has caused any
damage to Employer or any of its subsidiaries or has been
convicted of a misdemeanor (other than minor traffic violations
or similar offenses) which affects the performance of his duties
or of a felony or materially breached any of the provisions of
this Agreement (termination "For Cause"); or (y) Employee resigns
prior to the term of this Agreement, this Agreement shall
terminate without further obligations to Employee (or Employee's
heirs or legal representatives) under this Agreement, other than
for:
(i) payment of the sum of (A) Employee's then
base salary as set forth in Section 4(a) through the date of
termination, (B) if the termination occurs during Year 1, a
pro rata portion of the $100,000 bonus to be paid pursuant
to Section 4(b)(i) of this Agreement (based on the number
of whole months worked by Employee up to the time of
termination) or, if the termination occurs in Years 2, 3 or
4, the amount of any profit sharing payment earned for the
period up to and including the termination as determined
under the applicable profit sharing plan referred to in
Sections 4(b)(ii) and 4(b)(iii) of this Agreement, (C) any
compensation previously deferred by Employee (together with
any accrued interest or earnings thereon), and (D) any
accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in
clauses (A), (B), (C) and (D) shall be paid to Employee
in a lump sum in cash within 30 days after the date of
termination or any earlier time required by applicable
law); and
(ii) payment to Employee of any amount due
pursuant to the terms of any applicable welfare benefit
plan.
Notwithstanding the foregoing, Employee shall not be
terminated For Cause pursuant to this clause (b) unless and until
Employee has received notice of a proposed termination For Cause
and Employee has had an opportunity to be heard before at least a
majority of the members of the Board and, in the case of a
proposed termination For Cause involving Employee's failure to
perform stated or assigned duties, Employee shall have been given
a reasonable opportunity to cure or remedy the violations.
(c) Without Cause. Notwithstanding any other
provision of this Section 6, the Board shall have the right to
terminate Employee's employment with Employer at any time. In
the event of termination of Employee by Employer other than as
expressly provided in Section 6(a) (death or Disability) or 6(b)
(For Cause) (such termination referred to herein as termination
"Without Cause"), this Agreement shall terminate without further
obligations to Employee (or Employee's heirs or legal
representatives) under this Agreement, other than for:
(i) payment of the sum of (A) Employee's base
salary as set forth in Section 4(a) for the full term of
this Agreement, (B) the product of the average monthly
profit sharing payment paid to Employee pursuant to Section
4(b) for the period up to the date of termination and the
number of months remaining in the term of this Agreement,
(C) the Guaranteed Minimum Special Bonus amount as set forth
in Exhibit 1 hereto, (D) any compensation previously
deferred by Employee (together with any accrued interest or
earnings thereon) and (E) any accrued vacation pay, in each
case to the extent not theretofore paid, (the sum of the
amounts described in clauses (A), (B), (C), (D) and (E)
shall be paid to Employee in a lump sum in cash within 30
days after the date of termination or any earlier time
required by applicable law);
(ii) payment to Employee of any amount due
pursuant to the terms of any applicable welfare benefit
plan;
(iii) the continued coverage by Employer at
Employer's expense of Employee under, or the provision to
Employee of insurance coverage no less favorable than,
Employer's existing life, disability, health, dental or any
other welfare benefit plans or programs (as in effect on the
date of termination) for a period equal to the lesser of:
(A) the remaining term of this Agreement; or (B) until
Employee is provided by another employer with benefits
substantially comparable to the benefits provided by such
plans or programs; and
(iv) the acceleration of the vesting of the
options granted to Employee pursuant to Section 5 of this
Agreement to the date of termination.
(d) Constructive Termination. If Employer takes any
of the actions described in the second paragraph of this
subsection (d), Employee may provide written notice to the CEO of
Employee's intention to terminate employment because of a
Constructive Termination (as defined below). Employer shall have
twenty (20) days after receiving such notice of termination to
cure such condition (the "Notice Period"). If such condition is
not cured by the end of the Notice Period, Employee may terminate
employment because of the Constructive Termination at any time
within the two (2) week period following the Notice Period. Upon
such termination, Employee shall be treated as though his
employment was terminated "Without Cause" for all purposes of
this Agreement.
"Constructive Termination" means the occurrence of any
of the following events without the written consent of Employee:
(i) the forced relocation of the principal place of business of
Employee's employment to a place that is more than 50 miles from
Houston, Texas, or (ii) any removal of Employee from his position
as President of Company, or a material and adverse change in
Employee's work environment, or (iii) the assignment to Employee
of any duties or responsibilities inconsistent with Employee's
duties and responsibilities as President of Company, in any such
case other than as a result of grounds for termination of
employment for death or Disability under Section 6(a) or For
Cause under Section 6(b).
(e) No Limitation. Employer's exercise of its right
to terminate shall be without prejudice to any other right or
remedy to which it or any of its affiliates may be entitled at
law, in equity or under this Agreement.
(f) Exclusive Remedy. Employee agrees that the
payments expressly provided and contemplated by this Agreement
shall constitute the sole and exclusive remedy of Employee for
any claimed breach of this Agreement. Employee covenants not to
assert or pursue any other contractual remedies, at law or in
equity, with respect to any termination of employment.
7. Business Expenses. During the term of this
Agreement Employer shall reimburse Employee promptly for
reasonable, ordinary and customary business expenditures made
and substantiated in accordance with the policies, practice and
procedures established from time to time by Employer and incurred
in pursuit and furtherance of Employer's business and good will.
8. Miscellaneous.
(a) Succession; Survival. This Agreement shall inure
to the benefit of and shall be binding upon Employer, its
successors and assigns, but without the prior written consent
of Employee this Agreement may not be assigned other than in
connection with a merger or sale of substantially all the assets
of Employer or a similar transaction in which the successor or
assignee assumes (whether by operation of law or express
assumption) all obligations of Employer hereunder. The
obligations and duties of Employee hereunder are personal
and otherwise not assignable. Employee's obligations and
representations under this Agreement will survive the
termination of Employee's employment, regardless of the manner
of such termination.
(b) Notices. Any notice or other communication
provided for in this Agreement shall be in writing and sent if
to Employer to its principal office at:
0000 Xxxxxxx Xxxxxx
Xx Xxxxx, Xxxxxxxxxx 00000
Attention: Chief Executive Officer
or at such other address as Employer may from time to time in
writing designate, and if to Employee at such address as Employee
may from time to time in writing designate (or Employee's busi-
ness address of record in the absence of such designation). Each
such notice or other communication shall be effective (i) if
given by telecommunication, when transmitted to the applicable
number so specified in (or pursuant to) this Section 8(b) and an
appropriate answerback is received, (ii) if given by mail, three
days after such communication is deposited in the mails with
first class postage prepaid, addressed as aforesaid or (iii) if
given by any other means, when actually delivered at such
address.
(c) Entire Agreement; Amendments. This Agreement
contains the entire agreement of the parties relating to the
subject matter hereof and it replaces and supersedes any prior
agreements, undertakings, commitments and practices relating to
Employee's employment by Employer or its affiliates, including
but not limited to, the Prior Employment Agreement. No amendment
or modification of the terms of this Agreement shall be valid
unless made in writing and signed by Employee and, on behalf of
Employer, by an officer expressly so authorized by the Board.
(d) Waiver. No failure on the part of any party to
exercise or delay in exercising any right hereunder shall be
deemed a waiver thereof or of any other right, nor shall any
single or partial exercise preclude any further or other exercise
of such right or any other right.
(e) Choice of Law. This Agreement, the legal
relations between the parties and any action, whether contractual
or non-contractual, instituted by any party with respect to
matters arising under or growing out of or in connection with or
in respect of this Agreement, the relationship of the parties or
the subject matter hereof shall be governed by and construed in
accordance with the laws of the State of Texas.
(f) Arbitration. Any dispute, controversy or claim
arising out of or in respect of this Agreement (or its validity,
interpretation or enforcement), the employment relationship or
the subject matter hereof, including but not limited to, any
claims arising under any state or federal law arising out of or
relating to Employee's termination, shall be submitted to and
settled by arbitration conducted before a single arbitrator in
Los Angeles, California in accordance with the then in effect
Labor Arbitration Rules of the American Arbitration Association.
The arbitration shall be governed by the Federal Arbitration Act
(9 U.S.C. Sections 1-16). The arbitration of such issues, including
the determination of any amount of damages suffered, shall be
final and binding upon the parties to the maximum extent
permitted by law. The arbitrator in such action shall not be
authorized to change or modify any provision of this Agreement.
Judgement upon the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. The arbitrator
shall award reasonable expenses (including reimbursement of the
assigned arbitration costs) to the prevailing party upon
application therefor.
(g) Confidential Information. Employee recognizes and
acknowledges that Employer's trade secrets and proprietary
information and processes, as they may exist from time to time,
are confidential information and are valuable, special and unique
assets of Employer's business, access to and knowledge of which
are essential to the performance of Employee's duties hereunder.
Except as required by law, Employee will not, during or after the
termination of this Agreement, disclose any such confidential
information to any person, firm, corporation, association or
other entity for any reason or purpose whatsoever (except as his
duties may require while employed by Employer), nor shall
Employee make use of any such confidential information for his
own purposes or for the benefit of any person, firm, corporation
or other entity (except Employer) under any circumstances during
the term, or after the termination, of this Agreement. If
Employee proposes to make disclosure of any confidential
information in reliance on the foregoing exception, Employee
shall (i) immediately notify Employer in writing concerning the
proposed disclosure, (ii) provide Employer with copies of any
information Employee proposes to disclose as well as the facts
and circumstances requiring such disclosure and (iii) use his
best efforts (at Employer's sole cost and expense) to assist
Employer in obtaining a protective order or other protection if
requested by Employer. Employee agrees that such confidential
information shall include (but not be limited to) all information
contained in any memoranda, books, papers, client lists, files,
letters, formulas and other printed or written material, and all
copies thereof and therefrom, in any way relating to Employer's
business and affairs, whether made by Employee or otherwise
coming into Employee's possession, and Employee agrees that, upon
termination of this Agreement or on demand of Employer, at any
time, he shall immediately deliver all such printed or written
material and copies thereof to Employer. Notwithstanding the
above, confidential information shall not include any information
in the public domain that was not disclosed by Employee in breach
of this Section 8(g).
(h) Severability. If this Agreement shall for any
reason be or become unenforceable in any material respect by any
party, this Agreement shall thereupon terminate and become
unenforceable by the other party as well. In all other respects,
if any provision of this Agreement is held invalid or unenforce-
able, the remainder of this Agreement shall nevertheless remain
in full force and effect, and if any provision is held invalid or
unenforceable with respect to particular circumstances, it shall
nevertheless remain in full force and effect in all other
circumstances, to the fullest extent permitted by law.
(i) Withholding; Deductions. All compensation payable
hereunder, including salary and other benefits, shall be subject
to applicable taxes, withholding and other required, normal or
elected employee deductions.
(j) Section Headings. Section and other headings
contained in this Agreement are for convenience of reference only
and shall not affect in any way the meaning or interpretation of
this Agreement.
(k) Unique Services; Specific Performance. The
parties hereto agree that the services to be rendered by Employee
pursuant to this Agreement, and the rights and privileges granted
to Employer pursuant to this Agreement, and the rights and
privileges granted to Employee by virtue of his position, are of
a special, unique, extraordinary and intellectual character,
which gives them a peculiar value, the loss of which cannot be
reasonably or adequately compensated in damages in any action at
law, and that a breach by Employee of any of the terms of this
Agreement will cause Employer great and irreparable injury and
damage. Employee hereby expressly agrees that, notwithstanding
paragraph (f) of this Section 8, Employer shall be entitled to
the remedies of injunction, specific performance and other
equitable relief to prevent a breach of this Agreement by
Employee. Without limiting the generality thereof, the parties
expressly agree that Employer shall be entitled to the equitable
remedies set forth in this Section 8(k) for any violation of
Section 8. This subsection (k) shall not be construed as a
waiver of any other rights or remedies which Employer may have
for damages or otherwise.
(l) Non-Competition. Employee agrees that for the
periods set forth below, Employee will not, directly or
indirectly, either as an employee, employer, consultant, agent,
lender, principal, partner, stockholder, corporate officer or
director or in any other individual or representative capacity,
compete against, or in any manner be connected with or employed
by any individual, association or other entity that is engaged in
the electronic component distribution business or that is in
competition with the business of Company in the United States:
(i) in the case where this Agreement expires by
its terms on May 31, 2001 without termination by either
party for any other reason, for a period of one year after
the expiration of the Agreement; and
(ii) in the case where Employee's employment is
terminated by Employer Without Cause, for the period which
is the later of: (A) one year after the date of termination
Without Cause; and (B) May 31, 2001; and
(iii) in all other cases, including but not
limited to, resignation by Employee or termination by
Employer For Cause, for a period of two years after the
date of such resignation or termination.
(m) Non-Solicitation. Employee agrees that for a
period of two years after the termination of Employee's
employment for any reason, Employee will not, directly or
indirectly, (i) call on or solicit, with respect to the
activities prohibited by Section 8(l) of this Agreement, any
person, firm, corporation or other entity who or which at the
time of such termination, or within two years prior thereto,
was or had been a customer, referral source or distributor of
Employer or any of its affiliates or (ii) solicit the employment
of any person who was employed by Employer or any of its
affiliates on a full or part-time basis at the time of Employee's
termination of employment.
(n) Counterparts. This Agreement and any amendment
hereto may be executed in one or more counterparts. All of such
counterparts shall constitute one and the same agreement and
shall become effective when a copy signed by each party has been
delivered to the other party.
(o) Representation By Counsel; Interpretation.
Employee by his execution and delivery of this Agreement
represents to Employer as follows:
(i) That Employee has been advised by Employer to
have this Agreement reviewed by an attorney representing
Employee, and Employee has either had this Agreement
reviewed by such attorney or has chosen not to have this
Agreement reviewed because Employee, after reading the
entire Agreement, fully and completely understands each
provision and has determined not to obtain the services of
an attorney.
(ii) Employee, either on his own or with the
assistance and advice of his attorney, has in particular
reviewed Section 8 and understands and accepts: (A) the
restrictions imposed by Section 8 and in particular
paragraphs (g), (l) and (m) of Section 8; and (B) the
restrictions imposed upon Employee pursuant to these
sections are reasonable and necessary for the protection
of the property rights of Employer and its affiliates.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
"EMPLOYER"
XXXXXXXX INDUSTRIES
By: /s/ Xxxxxx Xxxxx
Name: Xxxxxx Xxxxx
Title: President and Chief
Executive Officer
"EMPLOYEE"
/s/ Xxxxxx X. Xxxxxxx
Xxxxxx X. Xxxxxxx
0000 Xxxxxxxxx Xxxxxxx
Xxxxxxx, Xxxxx 00000
Exhibit 1
Special Bonus
Employee shall be entitled to receive a special one-time
bonus (the "Special Bonus") based on Employee's performance with
respect to maintaining the business of Company and integrating
the operations of Company with those of Employer under Company's
new ownership. The performance of Employee shall be determined
based on certain operating results of Company during the twenty-
four month period ending on November 30, 1999 (the "Measurement
Period"). The Special Bonus shall be calculated in the following
manner:
(a) Subject to the terms of this Exhibit 1, the Special
Bonus shall be determined by adding each of the three individual
bonus components set forth in paragraphs (i), (ii) and (iii)
below.
(i) Employee shall receive up to $500,000 based on the
gross profits of Company during the Measurement Period.
Employee shall receive the full $500,000 if the Gross
Profits of Company (being the product of gross sales of
products sold by Company during the Measurement Period and
the gross margin percentage applicable to such sales) during
the Measurement Period equal or exceed $186,935,240. If
Company's Gross Profits (as calculated above) for the
Measurement Period are less than $186,935,240, Employee
shall be entitled to receive a pro rata portion of the
$500,000. By way of example, if the Gross Profits of
Company during the Measurement Period are $160,000,000,
Employee shall be entitled to receive $427,955.69 pursuant
to this paragraph (i) ($160,000,000/$186,935,240 x
$500,000).
(ii) Employee shall receive up to $500,000 based on the
continuation by *, *, * and * (the "Target Manufacturers")
of their franchise agreements (as in existence on the date
hereof) (each a "Franchise Agreement") with Company during
the Measurement Period. The amount to be paid to Employee
shall be determined by multiplying, for each of the Target
Manufacturers that continues its Franchise Agreement with
Company for the entire Measurement Period, the percentage
listed opposite such Target Manufacturer's name below by
$500,000, and adding each of such products; provided,
however, that no bonus will be paid pursuant to this
paragraph unless, during the Measurement Period the total
amount of gross sales of products of the Target
Manufacturers that continue their Franchise Agreements for
the entire Measurement Period equal or exceed 80% of (2
(two) x the 1998 forecasted gross sales of such Target
Manufacturers, as such 1998 forecasted gross sales have
been represented by Company to Buyer prior to the
Effective Date):
Target Manufacturer Percentage
* 27%
* 30%
* 28%
* 15%
Total 100%
By way of example, if * and * terminate their Franchise
Agreements with Company prior to the end of the Measurement
Period but * and * maintain their Franchise Agreements with
Company for the entire Measurement Period, and the gross
sales for * and * for the Measurement Period equal or exceed
80% of (2 (two) x the forecasted 1998 gross sales of * and
*), Employee shall be entitled to receive $290,000 pursuant
to this paragraph (ii) ($150,000 for maintaining * ($500,000
X 30%); plus $140,000 for maintaining * ($500,000 X 28%)).
(iii) Employee shall receive up to $500,000 based on the
difference (the "Cost Savings") between: (A) $65,535,904
(being 4 (four) x $16,383,976 (the actual selling and
administrative costs of Company for the quarter ending June
28, 1997)), as adjusted by the consumer price index for the
period from June 28, 1997 to November 30, 1998; and (B) the
amount of selling, general and administrative costs of
Company for the period from December 1, 1998 to November 30,
1999 (the "SG&A Costs"). If the Cost Savings are equal to
or greater than $ * , Employee shall receive the entire
$500,000. If the Cost Savings are less than $ * , Employee
shall receive a pro rata portion of the $500,000 based on
the actual amount of Cost Savings. By way of example, if
the SG&A costs for December 1, 1998 to November 30, 1999 are
$59,535,904 and there is an increase of 3.0% in the consumer
price index for the period from June 28, 1997 to November
30, 1998, Employee shall be entitled to receive $ * pursuant
to this paragraph (iii) (($65,535,904 x 1.03) -
$59,535,904)/$ * x $500,000). The amount of SG&A Costs for
the Measurement Period shall be calculated in the same
manner as the "selling, administrative and other operating
expenses" of Company have been calculated by Company in
preparing its audited financial statements for the fiscal
years ending March 30, 1996 and March 29, 1997 and the
"selling and administrative costs" of Company have been
calculated by Company in preparing its unaudited financial
statements for the quarter ending June 28, 1997.
________________________________________
* Pursuant to 17 CFR 240.24b-2, confidential portions have
been omitted and filed separately with the Securities and
Exchange Commission.
(b) Assuming Employee is employed by Employer for the full
Measurement Period, the total aggregate amount of the Special
Bonus shall not be less than $1.0 million (the "Guaranteed
Minimum Special Bonus") nor more than $1.5 million,
notwithstanding the fact that the actual amount calculated
pursuant to paragraph (a) above may be different. The Special
Bonus shall be paid to Employee on or before January 15, 2000
(the "Payment Date"). In addition, on or before the Payment
Date, Employer shall deliver to Employee a copy of its
calculation of the Special Bonus and appropriate supporting
documentation for such calculation.
(c) In the event Employee's employment is terminated prior
to the end of the Measurement Period due to Employee's death or
Disability (pursuant to Section 6(a) of this Agreement), Employee
shall receive the amount of the Guaranteed Minimum Special Bonus
that would have otherwise been payable to Employee but for such
termination; provided, however that such amount shall be prorated
over the number of months Employee was employed by Employer
during the Measurement Period. By way of example, if Employee is
terminated as a result of death or Disability after 15 months of
employment with Employer and, had Employee not been so
terminated, the entire Measurement Period would have been 24
months, Employee shall receive as the Special Bonus the following
amount:
15/24 X $1,000,000 = $625,000.00
(d) In the event Employee's employment is terminated prior
to the end of the Measurement Period Without Cause (pursuant to
Section 6(c) of this Agreement) or as a result of Constructive
Termination (pursuant to Section 6(d) of this Agreement),
Employee shall receive the Guaranteed Minimum Special Bonus.
(e) In the event Employee's employment is terminated prior
to the end of the Measurement Period other than as a result of
death or Disability (pursuant to Section 6(a) of this Agreement),
Without Cause (pursuant to Section 6(c) of this Agreement) or as
a result of Constructive Termination (pursuant to Section 6(d) of
this Agreement), Employee shall not be entitled to receive any
Special Bonus.
(f) The provisions of this Exhibit 1 shall not be deemed to
restrict in any way any rights of Employer, as stockholder of
Company, the Board, or the Board of Directors of Company, acting
in good faith, during the term of this Agreement to dissolve,
reorganize or take any other action or make any other change
(fundamental or otherwise) affecting the structure, existence,
organization, operations or business of Company or Employer or
any of their subsidiaries. If at any time during the Measurement
Period, Company shall be dissolved or Company or Employer shall
be reorganized, or shall be a party to a merger or sale of all or
substantially all of its assets to another entity, Employer shall
(or shall cause a successor to) provide for adjustment as nearly
equivalent as practicable to preserve for Employee the benefits
of this Agreement with respect to payment of the Special Bonus in
respect of the business of Company or such successor as provided
herein. Such adjustments by the Board made in good faith shall
be conclusive.
Exhibit 2
Stock Option Grant
Employee:
Grant Date:
No. Shares:
FMV Per Share on Date
of Grant:
Exercise Price
Per Share:
XXXXXXXX INDUSTRIES
1997 STOCK OPTION PLAN<1>
EMPLOYEE NONQUALIFIED STOCK OPTION AGREEMENT
1. Identification. This Employee Nonqualified Stock
Option Agreement (this "Agreement") is made by and between
Xxxxxxxx Industries, a California corporation (the "Company"),
and Xxxxxx X. Xxxxxxx (the "Employee") as of ,
199__.
2. Recitals.
2.1 The Company maintains the Xxxxxxxx Industries
1997 Stock Option Plan (the "Plan") providing for the grant
of incentive stock options and nonqualified stock options to
directors and key employees of the Company.
2.2 Employee is a key employee of the Company to
whom options may be granted under the Plan.
2.3 The Stock Option and Compensation Committee (the
"Committee") of the Company has authorized the grant to Employee
of an option to purchase the Company's Common Stock upon the
terms and conditions hereinafter set forth.
2.4 In consideration of the mutual promises and
covenants made herein and the mutual benefits to be derived
herefrom, the parties agree as set forth below.
________________
<1> Option grant to be made under the Company's 1997
Stock Option Plan if such plan is approved by shareholders of
Company. If shareholders of Company do not approve the 1997
Stock Option Plan, the option grant shall be made under the
Company's 1992 Stock Option Plan, with conforming changes
made to this form of grant.
3. Grant of Option. Pursuant to the action of the
Committee, and subject to the terms and conditions of this
Agreement and the terms and conditions of the Plan, the Company
grants to Employee an option to purchase all or any part of fifty
thousand (50,000) shares of the Company's authorized and unissued
Common Stock from the Company at the price of Dollars
($_____) per share (the "Option").<2> The Option is intended to
be a nonqualified stock option and shall not be deemed to be an
incentive stock option within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended.
4. Term of Option. The Option was granted on ,
199__ (the "Grant Date"). Unless previously exercised pursuant
to Article 5 hereof and subject to earlier termination under
Section 6.6 or Article 7 of the Plan, the Option shall terminate
on, and shall not be exercisable after, the day before the tenth
(10th) anniversary of the Grant Date.
5. Exercise.
5.1 Exercisability. Subject to the terms and
conditions of this Agreement, the Option shall become exercisable
in four equal cumulative installments of 12,500 shares of the
Company's common stock (individually an "Installment" and
collectively the "Installments"). Employee may exercise the
first Installment on or after the first anniversary of the Grant
Date, the second Installment on or after the second anniversary
of the Grant Date, the third Installment on or after the third
anniversary of the Grant Date and the fourth Installment on or
after May 31, 2001. In the event Employee's employment is
terminated by Company Without Cause (as such term is defined in
that certain Employment Agreement between Company and Employee
dated September 18, 1997), the Option shall accelerate and become
immediately exercisable on the date of termination.
To the extent Employee does not in any year purchase
all or any part of the shares to which Employee is entitled,
Employee has the right cumulatively thereafter to purchase any
shares not so purchased and such right shall continue until the
Option terminates or expires. Fractional share interests shall
be disregarded.
5.2 Notice of Exercise. Employee shall exercise the
option by (i) notifying the Company of Employee's election to
exercise the Option, (ii) paying in full the purchase price as
provided in Section 5.3 hereof, and (iii) satisfying the tax
withholding requirements of Section 8.8 of the Plan.
__________________
<2> Exercise price to be fair market value of
Company's common stock on the date of the closing of the
transactions pursuant to the Merger Agreement.
5.3 Payment of Purchase Price. The purchase price for
any shares of Common Stock with respect to which Employee
exercises the Option shall be paid in full promptly after
Employee gives notice of exercise as provided in Section 5.2
hereof. The purchase price shall be paid: (a) in cash or by
check in United States dollars, or (b) if, and only if, the
Committee so authorizes in its sole discretion, at the time
Employee gives notice of exercise, by transferring to the Company
for redemption, Common Stock of the Company at its "Fair Market
Value" (as defined in the Plan), with share certificates duly
endorsed and accompanied by instruments of transfer with
signatures guaranteed. If Employee desires to pay the purchase
price for the shares by transferring to the Company Common Stock
for redemption, Employee shall so notify the Secretary of the
Company with the notice of Employee's election to exercise the
Option in accordance with Section 5.2 hereof. Promptly after
receipt of Employee's notice of exercise and request for payment
by redemption, the Company shall notify Employee of its decision
as to whether it will permit Employee to pay the purchase price
by transferring the Company's Common Stock to it for redemption.
If the Committee does not authorize the proposed payment by
redemption, Employee shall pay the purchase price in cash or by
check in United States dollars as provided above.
6. Issuance of Shares. Subject to Section 8.3 of the
Plan, promptly after the Company's receipt of notification of
exercise provided for in Section 5.2 hereof and Employee's
payment in full of the purchase price, the Company shall deliver,
or cause to be delivered, to Employee a certificate for the whole
number of shares with respect to which the Option is being
exercised by Employee. Shares shall be registered in the name of
Employee. If any law or regulation of the Securities and
Exchange Commission or of any other federal or state governmental
body having jurisdiction shall require the Company or Employee to
take any action prior to the issuance to Employee of the shares
of Common Stock of the Company specified in the written notice of
election to exercise, the date for the delivery of such shares
shall be adjourned until the completion of such action.
7. Termination Of Employment. If Employee's employment
with the Company is terminated for any reason the Option shall
terminate in accordance with and at the time set forth in Section
6.6 of the Plan.
8. Assignment or Transfer. The Option is not assignable
or transferable except by will or by the laws of descent and
distribution and during Employee's lifetime the Option may be
exercised only by Employee. No transfer of the Option by will or
by the laws of descent and distribution shall be effective, nor
shall any designation of a person who may exercise the Option
after Employee's death be effective to bind the Company unless
the Company is furnished with a written notice thereof and a copy
of the will or such other evidence as the Company deems necessary
to establish the validity of the transfer and the acceptance of
the terms and conditions of the Option by the transferee or
designee.
9. No Rights as Shareholder. Employee shall have no
rights as a shareholder with respect to shares of the Common
Stock covered by the Option until the date of the issuance of a
stock certificate or stock certificates evidencing issuance of
such shares pursuant to Employee's exercise of the Option. No
adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior
to the date such stock certificate is issued, except as provided
in Article 10 hereof and in Article 7 of the Plan.
10. Modification and Termination.
10.1 The rights of Employee under this Agreement are
subject to modification and termination as provided in the Plan.
10.2 The number of shares of Common Stock set forth in
Article 3 hereof and the Option are subject to adjustment,
acceleration, and possible early termination under Article 7 of
the Plan.
11. No Right to Employment. Nothing in this Agreement, the
Plan, or any instrument executed pursuant to the Plan shall
confer upon Employee the right to continue in the employ or
service of the Company, affect the right of the Company to
terminate the employment or services of Employee with or without
cause, or be evidence of any agreement or understanding, express
or implied, that the Company will employ or continue to employ
Employee in a particular position or at a particular rate of
remuneration.
12. Compliance with Securities Laws. At the time the
Option is exercised, the Company may require Employee to execute
any documents or take any action which may be then necessary to
comply with the Securities Act of 1933, as amended, and the rules
and regulations adopted thereunder, or any other applicable
federal or state laws for the purpose of regulating the sale and
issuance of securities. The Company reserves the right to change
its requirements with respect to enforcing compliance with
federal and state securities laws, including the request for, and
enforcement of, letters of investment intent, such requirements
to be determined by the Company in its judgment as necessary to
assure compliance with such laws. Such changes may be made, with
respect to the Option, upon exercise hereof, or prior to or after
the exercise of the Option. The Company shall not be obligated
to issue any shares upon the exercise of the Option unless the
issuance, in the judgment of the Board of Directors of the
Company, is in full compliance with all applicable laws,
governmental rules and regulations, undertakings of the Company
made under the Securities Act of 1933, as amended, any state
securities laws, and stock exchange agreements of the Company.
13. General Provisions.
13.1 Subject to Plan. The Option and all rights of
Employee thereunder are subject to, and Employee agrees to be
bound by all of the terms and conditions of the Plan,
incorporated herein by this reference. Employee acknowledges
receipt of a copy of the Plan, attached hereto as Exhibit A,
which is made a part hereof by this reference, and agrees to be
bound by the terms thereof. Unless otherwise expressly provided
in other sections of this Agreement, provisions of the Plan that
confer discretionary authority on the Committee do not (and shall
not be deemed to) create any rights in Employee unless such
rights are expressly set forth herein or are otherwise in the
sole discretion of the Committee so conferred by appropriate
action of the Committee under the Plan after the date hereof.
13.2 Further Acts. Employee agrees to perform all
further acts and to execute and deliver any other and additional
documents as may be reasonably necessary to carry out the
provisions of this Agreement.
13.3 Notices. Any notice to be given under the terms
of this Agreement to the Company shall be in writing and
addressed to Xxxxxxxx Industries 0000 Xxxxxxx Xxxxxx, Xx Xxxxx,
XX 00000 to the attention of the Secretary and to Employee at the
address given beneath Employee's signature hereto, or at such
other address as either party may hereafter designate in writing
to the other.
IN WITNESS WHEREOF, this Agreement is executed by the
parties on the date and at the place indicated below.
"COMPANY"
XXXXXXXX INDUSTRIES,
a California corporation
Executed on , 199_
at _______________, __________. By:
Its:
"EMPLOYEE"
Xxxxxx X. Xxxxxxx
Executed on , 199_
at _______________, __________.
Signature
Print Name
Address
City, State, Zip Code
CONSENT OF SPOUSE
In consideration of the execution of the foregoing
Employee Nonqualified Stock Option Agreement by Xxxxxxxx
Industries, I, _________________________________, the spouse of
the Employee therein named, do hereby join with my spouse in
executing the foregoing Employee Nonqualified Stock Option
Agreement and do hereby agree to be bound by all of the terms
and provisions thereof and of the Plan.
DATED: ______________, 199__.
Signature of Spouse
