EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), executed on October 1, 1999, is
made and entered into effective the 1st day of July, 1999, by and between C.
XXXXXXX XXXXXX (hereinafter referred to as "Xxxxxx"), and PIZZA INN, INC.
(hereinafter referred to as the "Company").
W I T N E S S E T H:
WHEREAS, the Company and Xxxxxx entered into that certain Employment
Agreement dated July 26, 1990 and subsequent Employment Agreements dated
September 25, 1992, July 1, 1994 and July 1, 1997 (together, the "Employment
Agreement"); and
WHEREAS, pursuant to the Employment Agreement, the Company currently
employs Xxxxxx as its President and Chief Executive Officer, and the Company and
Xxxxxx desire to continue and extend such employment on the terms and conditions
set forth; and
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company and Xxxxxx
hereby agree as follows:
ARTICLE I
AGREEMENT
1.01 Employment. Subject to the terms and conditions of this Agreement,
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the Company agrees to continue to employ Xxxxxx as its President and Chief
Executive Officer and Xxxxxx hereby accepts such continued employment with the
Company.
1.02 Term. The term (the "Term") of Xxxxxx' employment hereunder shall
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commence on the effective date of this Agreement set forth above (the "Effective
Date") and shall continue through June 30, 2004, unless earlier terminated as
provided pursuant to Article V hereof.
1.03 Extensions. During each fiscal year of the Company, beginning
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with the fiscal year ending in June 2000, the Board of Directors of the Company
may extend the term of this Agreement, by an additional fiscal year, without the
need to execute an amendment to this Agreement by adopting appropriate
resolutions which expressly extend the term of this Agreement for such
additional fiscal year and which establish a target amount for pre-tax operating
cash flow for such fiscal year pursuant to Section 3.02(c) of this Agreement.
ARTICLE II
TITLE AND AUTHORITY
2.01 Xxxxxx agrees to act as President and/or Chief Executive Officer
of the Company and to render such services as are normally delegated to such
offices and positions and such additional services as may be delegated to him
from time to time by the Board of Directors of the Company (the "Board of
Directors") or otherwise stated in the Company's By-Laws, as amended. In
performing such duties hereunder, Xxxxxx shall give the Company the benefit of
his special knowledge, skills, contacts and business experience and shall devote
substantially all of his business time, attention, ability and energy
exclusively to the business of the Company. It is agreed that Xxxxxx may have
other business investments and participate in other business ventures which may,
from time to time, require minor portions of his time, but which shall not
interfere or be inconsistent with his duties hereunder.
ARTICLE III
COMPENSATION
3.01 Base Salary. During the Term, the Company will pay to Xxxxxx, as
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compensation for services rendered under this Agreement during the fiscal year
ending June 25, 2000, an aggregate base salary (the "Base Salary") of Five
Hundred Ninety-One Thousand Ten andNo/100 Dollars ($591,010.00) per annum. The
Base Salary shall be paid in equal bi-weekly installments less applicable
withholding, FICA and other taxes, if any. Such Base Salary shall be increased
by 5% per year commencing on each anniversary of the Effective Date thereafter
during the Term.
3.02 Cash Bonuses. The Company agrees to pay Xxxxxx the cash bonuses
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provided below during the term of this Agreement. In the event the Company
fails to meet the required criteria for Xxxxxx to earn any portion of any of the
bonuses listed below due to an extraordinary and/or non-recurring event or
condition, the Compensation Committee of the Board of Directors has the
authority, in its sole discretion, to authorize an additional bonus of an amount
not exceeding the amount lost by Xxxxxx due to such event or condition. The
Compensation Committee also has the authority, in its sole discretion, to
authorize an additional bonus to Xxxxxx at each fiscal quarter end and fiscal
year end in the event the Company experiences superior financial or stock price
performance and the Compensation Committee deems such a bonus appropriate.
(a) Bonus No. 1. During the Term, the Company will pay to Xxxxxx a cash
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incentive bonus ( Bonus No. 1 ) equal to $150,000 per Company fiscal year if at
least 50 new Pizza Inn units are opened during such fiscal year. Payments will
be made on a semi-annual basis, 50% on January 1 and July 1 of each year, based
upon the opening of at least 25 new Pizza Inn units during each semi-annual
period of such fiscal year. To the extent that 25 new units are not opened in
either semi-annual period, the entire unpaid amount of Bonus No. 1 shall be paid
to Xxxxxx at fiscal year end if 50 new units are opened by fiscal year end.
(b) Bonus No. 2. During the Term, the Company will pay to Xxxxxx a cash
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incentive bonus ( Bonus No. 2 ), payable quarterly, in the amount of $37,500 for
each fiscal quarter in which the Company s operating results report pre-tax net
income growth or earnings per share growth of at least 10% more than the same
quarter in the preceding year. To the extent that there is a shortfall from
such goal in any given quarter, the entire year-to-date unpaid amount of Bonus
No. 2 shall be paid to Xxxxxx if the total year-to-date pre-tax income growth
for such fiscal year is at least 10% more than the previous fiscal year.
(c) Bonus No. 3. During the Term, the Company will pay to Xxxxxx a cash
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incentive bonus ( Bonus No. 3 ), payable at the end of each fiscal year, based
on the targets set forth below for EBITDA cash flow. For the purposes of this
Agreement, "EBITDA cash flow" shall mean pre-tax earnings before interest,
taxes, depreciation, and amortization prior to this bonus accrual per Section
3.02. If EBITDA cash flow equals or exceeds the target amount for an applicable
year, then Bonus No. 3 shall equal $200,000. If EBITDA cash flow equals or
exceeds 75% but is less than 100% of the target amount for an applicable year,
then Bonus No. 3 shall equal $150,000. There shall be no Bonus No. 3 if EBITDA
cash flow is less than 75% of the target amount for an applicable year. If
EBITDA cash flow exceeds the target amount for an applicable year by $300,000 or
more, then Bonus No. 3 shall equal $250,000.
EBITDA Cash
Fiscal Year Ending Flow Target
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June 2000 $ 6,000,000
June 2001 $ 6,500,000
June 2002 $ 7,000,000
June 2003 $ 7,500,000
June 2004 $ 8,000,000
3.03 Stock. It is acknowledged that Xxxxxx owns a substantial
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number of shares of Common Stock. The issuance of any additional shares of
stock to Xxxxxx would be at the discretion of the Company's Board of Directors.
ARTICLE IV
BENEFITS
4.01 Xxxxxx shall receive a $50,000 yearly allowance to purchase life
and disability insurance on each January 1 during the Term. At his option,
Xxxxxx shall receive $10,000 yearly allowance to maintain secondary health,
dental and other insurance payable at such time as the premiums for such
insurance are due. In addition, Xxxxxx may participate in the Company's benefit
plans. Xxxxxx shall receive an automobile allowance of $1,350 per month payable
on the first day of each month during the Term plus reimbursement of gasoline
and maintenance expenses.
ARTICLE V
TERMINATION
5.01 Disability of Xxxxxx. If Xxxxxx shall become disabled, ill or be
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injured or otherwise become incapacitated such that, in the good faith opinion
of the Board of Directors, he cannot fully carry out and perform his duties
hereunder, and such incapacity shall continue for a period of 90 consecutive
days, the Board of Directors may, at any time thereafter, fully and finally
terminate his employment under this Agreement by giving Xxxxxx written notice of
such termination; provided, however, Xxxxxx shall continue to receive 25% of his
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Base Salary for the remainder of the Term. Termination under this Paragraph
5.01 shall be effective as of the date of such notice. The right to terminate
Xxxxxx hereby shall expire (if not invoked) at such time as the event causing
such incapacity is fully cured.
5.02 Death of Xxxxxx. This Agreement shall automatically terminate
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upon the death of Xxxxxx; provided, however, that the estate of Xxxxxx shall
receive for one (1) year after the date of death, upon the dates that such
payments would have been made to Xxxxxx, payments of Base Salary, Bonus Xx. 0,
Xxxxx Xx. 0, and Bonus No. 3 pursuant to this Agreement.
.
5.03 Termination by the Company for Cause. In addition to any other
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remedies which the Company may have at law or in equity, the Board of Directors
may immediately terminate Xxxxxx' employment under this Agreement in the event
of the occurrence of any of the following events:
(a) Xxxxxx willfully engages in an act of dishonesty (including, but not
limited to, conviction of a felony) which act in and of itself materially
injures or damages the Company; or
(b) Xxxxxx willfully fails to substantially perform his duties within
fifteen (15) days after written demand for substantial performance is delivered
to Xxxxxx by the Board of Directors, which demand specifically identifies the
manner in which the Board believes that Xxxxxx has not substantially performed
his duties.
The Board of Directors shall provide at least ten (10) days prior written notice
to Xxxxxx of its intention to discharge Xxxxxx for cause, and such notice must
specify in detail the nature of the cause alleged and provide Xxxxxx an
opportunity to be heard by the Board of Directors prior to the expiration of
such ten day period.
5.04 Termination by the Company Without Cause. The Board of Directors
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may terminate Xxxxxx without cause (cause being as defined in Paragraph 5.03
above) upon 30 days prior written notice.
5.05 Termination by Xxxxxx. Xxxxxx may, with or without cause,
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terminate his employment under this Agreement at any time by giving the Company
at least 30 days prior written notice of such termination.
5.06 Change of Control. Xxxxxx may terminate this Agreement with or
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without any reason at any time within six months after a Change of Control has
occurred by giving the Company at least ten days prior written notice of such
termination. Change of Control shall mean any of the following: (a) all or
substantially all of the assets of the Company are sold, leased, exchanged or
otherwise transferred to any person or entity or group of persons or entities
acting in concert as a partnership, limited partnership, syndicate or other
group (a "Group of Persons") other than a person or entity or Group of Persons
at least 50% of the combined voting power of which is held by Xxxxxx; or (b) the
Company is merged or consolidated with or into another corporation with the
effect that the then existing stockholders of the Company hold less than 50% of
the combined voting power of the then outstanding securities of the surviving
corporation of such merger or the corporation resulting from such consolidation
ordinarily (and apart from rights accruing under special circumstances) having
the right to vote in the election of directors; or (c) a person or entity or
Group of Persons (other than (i) the Company or (ii) an employee benefit plan
sponsored by the Company) shall, as a result of a tender or exchange offer, open
market purchases, privately negotiated purchases or otherwise, have become the
beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange
Act of 1934) of securities of the Company representing 50% or more of the
combined voting power of the then outstanding securities of the Company
ordinarily (and apart from rights accruing under special circumstances) having
the right to vote in the election of directors; or (d) individuals who, as of
the date hereof, constitute the Board of Directors (the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board of Directors;
provided, however, that any individual becoming a director subsequent to the
date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange
Act of 1934) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board of Directors.
5.07 Termination by Xxxxxx for Good Reason. Xxxxxx may terminate his
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employment for good reason within twelve months following a Change of Control by
giving the Company at least ten days prior written notice of such termination.
For purposes of this Agreement, good reason shall mean, without Xxxxxx
express written consent, that, following a Change of Control, (i) Xxxxxx is
required to relocate, (ii) Xxxxxx is assigned a diminished position or
diminished responsibilities with the Company, or (iii) Xxxxxx annual base
salary, bonus or benefits, as the same may be contractually adjusted from time
to time, are reduced in any manner other than as provided for in Section 3.02 in
this Agreement.
ARTICLE VI
RIGHTS UPON TERMINATION
6.01 If the Company terminates this Agreement pursuant to Paragraphs
5.01 or 5.03 hereof, or if this Agreement is automatically terminated pursuant
to Paragraph 5.02 hereof, or if Xxxxxx terminates this Agreement pursuant to
Paragraph 5.05 hereof, then Xxxxxx or Xxxxxx' estate, as the case may be, will
only be entitled to the salary (under Paragraph 3.01) which has been received or
accrued to the date of termination, and Xxxxxx or Xxxxxx' estate, as the case
may be, will not be entitled to any additional salary for the remainder of the
Term (except as otherwise provided in Paragraph 5.01 or 5.02 hereof). Xxxxxx
will not be entitled to any bonus (including any bonuses set forth herein),
further equity participation, employee benefit, or any other payment except for
bonuses which may have accrued prior to the date of termination (except as
otherwise provided in Paragraph 5.02 hereof).
6.02 If the Company terminates this Agreement pursuant to Paragraph
5.04 hereof, or if Xxxxxx terminates this Agreement pursuant to Paragraph 5.06
or 5.07 hereof, Xxxxxx will be entitled to a lump sum payment within 30 days of
termination of all ordinary salary payments as provided in Paragraph 3.01 which
would have been paid had Xxxxxx remained in the employment of the Company during
the complete Term together with an amount equal to (i) two times the sum of
Bonus Xx. 0, Xxxxx Xx. 0 and Bonus No. 3 Xxxxxx would have received in the
fiscal year of such termination assuming the Company's financial and
operational results for such fiscal year attained the highest levels set forth
in Paragraph 3.02 hereof, less (ii) any Bonus Xx. 0, Xxxxx Xx. 0, and Bonus No.
3 actually received in such fiscal year based on operating results of such
fiscal year.
6.03 The parties hereto acknowledge and agree that the amount set forth
in Paragraph 6.02 is not a penalty or a forfeiture; rather, the amount specified
is a reasonable and fair reflection of damages that Xxxxxx might incur in the
event this Agreement is terminated pursuant to such paragraph.
6.04(a) If any payment received or to be received by Xxxxxx in
connection with a change in control of the Company or termination of Xxxxxx'
employment (whether payable pursuant to the terms of this Agreement or any other
plan, arrangement, or agreement with the Company, any person whose actions
result in a change in control of the Company, or any person affiliated with the
Company or such person (together with the severance payment, the "total
payments"), will be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code, the Company will pay to Xxxxxx, within 30 days of any
payments giving rise to excise tax, an additional amount (the "gross-up
payment") such that the net amount retained or to be retained by Xxxxxx, after
deduction of any excise tax on the total payments and any federal and state and
local income tax and excise tax on the gross-up payment provided for by this
section, will equal the total payments.
6.04(b) For purposes of determining the amount of the gross-up payment,
Xxxxxx will be deemed to pay federal income taxes at the highest marginal rate
of federal income taxation in the calendar year that the payment is to be made,
and state and local income taxes at the highest marginal rate of taxation in the
state and locality of the executive's residence on the date of termination or
the date that excise tax is withheld by the Company, net of the maximum
reduction in federal income taxes that could be obtained by deducting such state
and local taxes.
6.04(c) For purposes of determining whether any of the total payments
would not be deductible by the Company and would be subject to the excise tax,
and the amount of such excise tax, (i) total payments will be treated as
"parachute payments" within the meaning of Section 280G(b)(2) of the Internal
Revenue Code, and all parachute payments in excess of the base amount within the
meaning of Section 280G(b)(3) will be treated as subject to the excise tax
unless, in the opinion of tax counsel selected by the Company's independent
auditors and acceptable to Xxxxxx such total payments (in whole or in part) are
not parachute payments, or such parachute payments in excess of the base amount
(in whole or in part) are otherwise not subject to the excise tax, and (ii) the
value of any non-cash benefits or any deferred payment or benefit will be
determined by the Company's independent auditors in accordance with Sections
280G(d)(3) and (4) of the Internal Revenue Code.
ARTICLE VII
EXPENSE REIMBURSEMENT
7.01 Xxxxxx is authorized to incur reasonable business expenses in
promoting the business of the Company, including expenditures for entertainment
and travel. Such expenses shall include economy airfare for commuting between
Xxxxxx' residence (which may be his primary or secondary residence) and the
Company's corporate office (or such other locations as Xxxxxx needs to conduct
the Company's business from time to time). The Company shall reimburse Xxxxxx
from time to time for all business expenses which are determined by the Board of
Directors to be reasonable. The Company shall reimburse Xxxxxx' legal and
resultant accounting expenses incurred in connection with this Agreement.
ARTICLE VIII
BOARD OF DIRECTORS
8.01 In the event of termination of this Agreement, Xxxxxx shall tender
his resignation from the Board of Directors.
ARTICLE IX
TRADE SECRETS AND NON COMPETITION
9.01 Trade Secrets. During the Term and at all times thereafter, Xxxxxx
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shall not use for his personal benefit, or disclose, communicate or divulge to,
or use for the direct or indirect benefit of any person, firm, association or
company other than the Company or any affiliate or subsidiary of the Company,
any material referred to in Paragraph 10.01 or 10.02 or any information
regarding the business methods, business policies, procedures, techniques,
research or development projects or results, trade secrets or other knowledge
or processes of a proprietary nature belonging to, or developed by, the Company
or any other confidential information relating to or dealing with the business
operations or activities of the Company or any affiliate or subsidiary of the
Company, made known to Xxxxxx or learned or acquired by Xxxxxx while in the
employ of the Company.
9.02 Non-Competition. For a period of three years after the
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termination of his employment with the Company, Xxxxxx shall not become employed
by, consult with or otherwise assist in any manner any company (or any affiliate
thereof) the primary business of which involves or relates to the sale of pizza
in the continental United States.
9.03 Remedies. Xxxxxx acknowledges that the restrictions contained in
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the foregoing Paragraphs 9.01 and 9.02 (the "Restrictions"), in view of the
nature of the business in which the Company and its affiliates and subsidiaries
are engaged, are reasonable and necessary in order to protect the legitimate
interests of the Company and its affiliates and subsidiaries, and that any
violation thereof would result in irreparable injury to the Company, and Xxxxxx
therefore further acknowledges that, in the event Xxxxxx violates, or threatens
to violate, any such Restrictions, the Company and its affiliates and
subsidiaries shall be entitled to obtain from any court of competent
jurisdiction, without the posting of any bond or other security, preliminary and
permanent injunctive relief as well as damages and an equitable accounting of
all earnings, profits and other benefits arising from such violation, which
rights shall be cumulative and in addition to any other rights or remedies in
law or equity to which the Company or any affiliate or subsidiary of the Company
may be entitled.
9.04 Invalid Provisions. If any Restriction, or any part thereof, is
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determined in any judicial or administrative proceeding to be invalid or
unenforceable, the remainder of the Restrictions shall not thereby be affected
and shall be given full effect, without regard to the invalid provisions.
9.05 Judicial Reformation. If the period of time or the area specified
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in the Restrictions should be adjudged unreasonable in any judicial or
administrative proceeding, then the court or administrative body shall have the
power to reduce the period of time or the area covered and, in its reduced form,
such provision shall then be enforceable and shall be enforced.
9.06 Tolling. If Xxxxxx violates any of the Restrictions, the restrictive
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period shall not run in favor of Xxxxxx from the time of the commencement of any
such violation until such time as such violation shall be cured by Xxxxxx to the
satisfaction of the Company.
ARTICLE X
PROPRIETARY INFORMATION
10.01 Disclosure of Information. It is recognized that Xxxxxx will
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have access to certain confidential information of the Company and its
affiliates and subsidiaries, and that such information constitutes valuable,
special and unique property of the Company and its affiliates and subsidiaries.
Xxxxxx shall not at any time disclose any such confidential information to any
party for any reason or purpose except as may be made in the normal course of
business of the Company or its affiliates and subsidiaries and for the Company's
or its affiliates' or subsidiaries' benefits.
10.02 Return of Information. All advertising, sales and other
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materials or articles of information, including without limitation data
processing reports, invoices, or any other materials or data of any kind
furnished to Xxxxxx by the Company or developed by Xxxxxx on behalf of the
Company or at the Company's direction or for the Company's use or otherwise in
connection with Xxxxxx' employment hereunder, are and shall remain the sole and
confidential property of the Company; if the Company requests the return of such
materials at any time during, upon or after the termination of Xxxxxx'
employment, Xxxxxx shall immediately deliver the same to the Company.
ARTICLE XI
ARBITRATION
11.01 Any controversy or claim arising out of or relating to this
Agreement or the breach thereof of Xxxxxx' employment relationship with the
Company shall be settled by arbitration in the City of Dallas in accordance with
the laws of the State of Texas by three arbitrators, one of whom shall be
appointed by the Company, one by Xxxxxx, and the third of whom shall be
appointed by the first two arbitrators. If the first two arbitrators cannot
agree on the appointment of a third arbitrator, then the third arbitrator shall
be appointed by the Chief Judge of the United States Court of Appeals for the
Fifth Circuit. The arbitration shall be conducted in accordance with the rules
of the American Arbitration Association, except with respect to the selection of
arbitrators which shall be as provided in this Article XI. Judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction.
ARTICLE XII
MISCELLANEOUS
12.01 Notices. Any notices to be given hereunder by either party to
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the other shall be in writing and may be effected either by personal delivery or
by mail, registered or certified, postage prepaid with return receipt requested.
Mailed notices shall be addressed to the parties at the following addresses:
If to Company: Pizza Inn, Inc.
0000 Xxxxxx Xxxxx
Xxxxx 000
Xxxxxx, Xxxxx 00000
Attn: Chairman of the Board
If to Xxxxxx: C. Xxxxxxx Xxxxxx
0000 Xxxxxx Xxxxx
Xxxxx 000
Xxxxxx, Xxxxx 00000
Any party may change his or its address by written notice in accordance
with this Paragraph 12.01. Notices delivered personally shall be deemed
communicated as of actual receipt; mailed notices shall be deemed communicated
as of three days after proper mailing.
12.02 Entire Agreement. This Agreement supersedes any and all other
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agreements, either oral or in writing, between the parties hereto with respect
to the employment of Xxxxxx by the Company, including, but without limitation,
the Employment Agreement, and contains all of the covenants and agreements
between the parties with respect to such employment in any manner whatsoever.
12.03 Law Governing Agreement. This Agreement shall be governed by and
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construed in accordance with the laws of the State of Texas and all obligations
shall be performable in Dallas County, Texas.
12.04 Waivers. No term or condition of this Agreement shall be deemed
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to have been waived nor shall there be any estoppel to enforce any of the terms
or provisions of this Agreement except by written instrument of the party
charged with such waiver or estoppel, and, if the Company is the waiving party,
such waiver must be approved by the Board of Directors. Further, it is agreed
that no waiver at any time of any of the terms or provisions of this Agreement
shall be construed as a waiver of any of the other terms or provisions of this
Agreement, and that a waiver at any time of any of the terms or provisions of
this Agreement shall not be construed as a waiver at any subsequent time of the
same terms or provisions.
12.05 Amendments. No amendment or modification of this Agreement shall
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be deemed effective unless and until executed in writing by all of the parties
hereto and approved by the Board of Directors.
12.06 Severability and Limitation. All agreements and covenants
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contained herein are severable and in the event any of them shall be held to be
invalid by any competent court, this Agreement shall be interpreted as if such
invalid agreements or covenants were not contained herein. Should any court or
other legally constituted authority determine that for any such agreement or
covenant to be effective that it must be modified to limit its duration or
scope, the parties hereto shall consider such agreement or covenant to be
amended or modified with respect to duration and scope so as to comply with the
orders of any such court or other legally constituted authority, and, as to all
other portions of such agreements or covenants, they shall remain in full force
and effect as originally written.
12.07 Headings. All headings set forth in this Agreement are intended
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for convenience only and shall not control or affect the meaning, construction
or effect of this Agreement or of any of the provisions thereof.
12.08 Assignment. Xxxxxx agrees that his representations, warranties,
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covenants, promises and obligations contained herein may be assigned by the
Company to any person, partnership, firm, association, corporation or other
business entity to which the Company may transfer all or substantially all of
its business or assets.
12.09 Survival. Articles VI, IX and XI shall survive the termination
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of this Agreement.
EXECUTED as of the date and year first above written.
PIZZA INN, INC.
By: /s/ Xxxxxx X. Xxxxxx
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Xxxxxx X. Xxxxxx, Executive
Vice President
/s/ C. Xxxxxxx Xxxxxx
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C. Xxxxxxx Xxxxxx
