EXHIBIT 10.15
JUPITER PARTNERS LP
April 20, 1998
Xx. Xxxx Xxxxxx
Chief Executive Officer
PCA International, Inc.
000 Xxxxxxxx Xxxx Xxxx Xxxx
Xxxxxxxx, Xxxxx Xxxxxxxx 00000
Dear Xxxx:
We are delighted that you and your management team have agreed
to continue as principal executives of PCA International, Inc. (the "Company")
following the consummation of the merger (the "Merger") pursuant to the Merger
Agreement entered into today between our affiliate and the Company.
This letter agreement will confirm your and our agreement with
respect to the arrangements between the Company and you as well as between the
Company and your management team in connection with, and following, the Merger.
In connection with the Merger, you agree that you will
maintain $1,950,000 of equity in the surviving company. In addition, other
members of your management team will maintain at least $1,550,000 and not more
than $3,050,000 of equity in the surviving company. Such equity will be made up
of a combination of the "roll-over" of shares of the Company which you had the
other members of your management team currently own and/or the roll-over of
"in-the-money" options of the Company. In addition, in your case, part of such
equity will be purchased for cash.
We have also reached agreements regarding several other
matters directly affecting the management and other employees of the Company.
Our agreements cover the following:
1. The Employment and Noncompete Agreement with you
dated as of June 9, 1997 will be terminated
contemporaneously with the closing of the Merger and
you will be paid $975,714.09 by the Company in
connection therewith.
2. Contemporaneously with the closing of the Merger, you
and the Company will enter into an Employment and
Noncompete Agreement, a copy of which is attached
hereto as Exhibit A.
3. Contemporaneously with the closing of the Merger, the
Company and Xxxxx Xxxxxx will enter into an Amendment
No. 1 to Employment and Noncompete Agreement, a copy
which is attached hereto as Exhibit B.
4. Contemporaneously with the closing of Merger, the
Company and Xxxx Xxxxxxx will enter into an Amendment
No. 1 to Employment and Noncompete Agreement, a copy
of which is attached hereto as Exhibit C.
5. Attached hereto as Exhibit D is a Management Term
Sheet describing certain option grants and stock and
option ownership arrangements between the Company and
management and other employees of the Company.
Although such arrangements are expected to be
ultimately governed by a complete set of definitive
documents entered into prior to the effectiveness of
the Merger (including a Stock Option Plan and related
Stop Option Agreements and a Stockholders Agreement),
this letter agreement, when countersigned by you,
will constitute a binding agreement between us with
respect to the matters contained herein and in the
Management Term Sheet. Attached hereto as Exhibit E
are the Stock Option Plan, form of Stock Option
Agreement and Stockholders Agreement used by us in
another transaction. The definitive form of the
agreements entered into between the Company, us and
the management and other employees of the Company
will follow the form and substance of the documents
attached as Exhibit E, with the changes therein
necessary to conform the business arrangements among
the parties to the arrangements reflected in the
Management Sheet.
This letter agreement, when countersigned by you, will
constitute a binding agreement on all of our parties to proceed in accordance
with the terms hereof.
2
Please indicate your agreement by signing and returning to us
the enclosed copy of this letter agreement.
Sincerely yours,
JUPITER PARTNERS II L.P.
By: Ganymede II LLC
By: /s/ Xxxx X. Xxxxx
-------------------------
Xxxx X. Xxxxx
ACCEPTED AND AGREED
/s/ Xxxx Xxxxxx
-----------------------------------
Xxxx Xxxxxx
EMPLOYMENT AND NONCOMPETE AGREEMENT
THIS EMPLOYMENT AND NONCOMPETE AGREEMENT ("Agreement"), made
and entered into as of the ____ day of ________, 1998, by and between XXXX
XXXXXX, an individual resident of Charlotte, North Carolina ("Employee"), and
PCA INTERNATIONAL, INC., a North Carolina corporation with its principal
executive offices located in Matthews, North Carolina (the "Company").
BACKGROUND STATEMENT
On June 9, 1997, Employee and the Company entered into an
Employment and Noncompete Agreement (the "Prior Employment Agreement"). The
Prior Employment Agreement has terminated in accordance with paragraph 5(a)(iii)
thereof and Employee has been paid the amounts due thereunder. The Company now
desires to ensure that the services of Employee will continue to be available to
it on a mutually satisfactory basis. In the course of his employment with the
Company, Employee has had access to trade secrets and proprietary information of
the Company and will, as an employee of the Company, continue to have access to
trade secrets and proprietary information of the Company. Accordingly, Employee
has and will continue to acquire the knowledge and ability to compete with the
Company. The Company has offered Employee an employment agreement on the terms
and pursuant to the conditions hereof, including the stability and security
provided to Employee by the arrangement provided for herein. The parties agree
that the execution and delivery of this Employment Agreement is a condition
precedent to the benefits extended to Employee hereunder. Employee agrees that
the benefits provided for herein are adequate and sufficient consideration for
the covenants made by Employee hereunder, including, without limitation, the
covenants not to compete.
IN CONSIDERATION of the promises and the mutual covenants
contained herein, the parties hereto agree as follows:
1. Employment. Subject to the terms and conditions stated
herein, and in consideration of Employee's obligations and covenants, including
without limitation, those obligations and covenants set forth in Section 6
hereof, the Company agrees to employ Employee on an active and full-time basis,
and Employee accepts such employment, as President, Chief Executive Officer and
a member of the Board of Directors, subject to the order, supervision and
direction of the Board of Directors of the Company (the "Board").
2. Duties. Employee shall serve the Company as President,
Chief Executive Officer and a Director and shall devote substantially all of his
business time, skill and best efforts to the business of the Company and
faithfully perform such executive, administrative and supervisory duties as may
be prescribed by the Board. Employee shall act at all times in compliance, in
all material respects, with all policies, rules and decisions adopted from time
to time by the Board of which Employee shall have received written notice. The
Board shall deal with the Employee in good faith and shall not require that
Employee be required to relocate his residence, travel to the extent that he
must spend more nights away from home than are reasonably required to further
the
Company's business, or perform tasks which would be demeaning or degrading to
one in his position.
3. Term of Employment; Evergreen Provisions. (a) The term of
Employee's employment by the Company hereunder shall commence as of the date
hereof, _______, 1998, and shall continue for a period of four (4) years after
such commencement date or to such later date to which the term of this Agreement
may be extended pursuant to this Section 3 (the "Term of Employment"). The Term
of Employment shall be evergreen and shall be extended automatically for one day
effective at 5:00 p.m. of each day. As a result, the remaining Term of
Employment shall always be, and never be less than, four (4) years.
4. Base Compensation and Benefits. (a) The annual base
compensation rate to be paid to Employee for the services to be rendered
hereunder shall be Three Hundred Fifty Thousand Dollars ($350,000.00), payable
in accordance with the Company's normal payroll practices, subject to applicable
federal and state income and social security tax withholding requirements (the
"Base Rate").
(b) Employee's Base Rate may be reviewed from time to time
by the Board and adjusted upward as Employee's performance, the performance of
the Company and other pertinent factors warrant at any time during the term of
this Agreement.
(c) Employee shall have the right to fully participate in
any Management Bonus Program to the same extent or greater than as previously
provided to Employee prior to the execution of this Agreement. Any bonus payable
to Employee under such Management Bonus Program shall be paid in a manner
consistent with the Company's past practice with respect to payment of bonuses.
Notwithstanding the foregoing, any bonus opportunity provided to Employee under
a current or future Management Bonus Program shall at least equal an opportunity
to earn up to sixty percent (60%) of the Base Rate for the year to which such
bonus relates. Any operating or financial objectives on an annual basis related
to the payment of the annual bonus award to the Employee will be consistent with
and equal to the same operating or financial objectives for any of the Company's
other senior executives.
(d) Employee shall be entitled to receive such benefits as
were afforded to Employee prior to the execution of this Agreement including but
not limited to the following:
(i) Employee shall be entitled to twenty-one (21) days
of paid vacation during each year of employment plus all
Company sponsored holidays;
(ii) Employee shall be entitled to sick leave in
accordance with the plans and policies established by the
Company for all employees;
(iii) Employee shall be entitled to such medical
insurance, life insurance and disability and salary
continuation benefit programs, if any, as are provided by
the Company to its employees from time to time; and
(iv) Employee shall be entitled to participation in the
Company's 401K Plan, pension plan and/or profit sharing
plans.
(e) The Company shall reimburse Employee for those expenses
that are incurred by him in connection with the performance of his duties under
this Agreement, are consistent with Company policies and practices, and are
reasonably related to the business of the Company.
5. Events of Termination. (a) The following shall be events of
termination under this Agreement: (i) termination by the Company without cause;
(ii) termination as a result of Employee's death or total disability (as defined
in the long term disability plan maintained by the Company); and (iii)
termination by the Company for Cause. The effective date for all such
terminations shall hereafter be referred to as the "Termination Date".
(b) In the event of a termination of this Agreement in
accordance with subparts (i) or (ii) above, within ten (10) business days after
the Termination Date, the Company shall pay to Employee, (or, in the event of
his death, his written designee or, if he has no written designee, to his spouse
or, if he leaves no spouse and has no written designee, to his estate,) in cash
a lump sum amount equal to forty-eight (48) months of average monthly
compensation received during the preceding five (5) year period and calculated
as follows: Employee's total cash and non-cash compensation from the Company as
reported on line one (1) of his form W-2s (total wages, tips, and other
compensation) for the five (5) calendar year period immediately preceding the
Termination Date will be divided by sixty (60) to determine an average monthly
compensation rate for the prior five (5) year period and then such amount shall
be multiplied by forty-eight (48). In addition, all options or other rights to
acquire the Company's Common Stock, $.20 par value per share, (the "Stock")
previously granted to Employee shall immediately become fully vested without any
further action on behalf of either Employee or the Company and notwithstanding
any contrary provision in any stock option plan, agreement or similar document
and Employee shall have a period beginning on the Termination Date and ending
twelve months thereafter to exercise any stock options or right to acquire the
Stock.
(c) The Board of Directors shall have the right at any
time, without advance notice, to terminate Employee's employment for cause, as
hereinafter defined ("Termination for Cause") or without cause. Termination for
Cause shall mean termination because of conviction by a court of competent
jurisdiction of theft from the Company, conviction by a court of competent
jurisdiction of embezzlement of the Company's funds, conviction by a court of
competent jurisdiction of falsification of the Company's records, conviction by
a court of competent jurisdiction of fraud committed against the Company,
conviction by a court of competent jurisdiction of a felonious criminal act
involving the Company or while engaged in conduct of the Company's business,
incompetence due to the use of or reporting to work under the influence of
alcohol, narcotics, other unlawful drugs or controlled substances, legal
incapacity, insanity, act or acts involving dishonesty or misconduct which have
or may reasonably be expected to have a material adverse effect on the business
or reputation of the Company, breach of fiduciary duty to the Company, willful
and substantial failure to perform stated duties or lawful directives of the
Board subject to the provisions of Section 2 hereof, or material breach of any
provision of this Agreement.
(d) In the event of a Termination for Cause, Employee shall
have no right thereafter to receive any compensation or other benefits from the
Company, except for base salary accrued but unpaid and expenses incurred but not
repaid to Employee, in each case only until the effective date of Termination
for Cause, and COBRA and rights under vested stock option grants, 401(k),
vacation plans and other accrued and vested employee benefits.
(e) The provisions of Section 6 hereof shall continue to be
binding on the parties hereto notwithstanding the termination without cause or
Termination for Cause of Employee.
6. Noncompetition, Secrecy and Inventions.
(a) Employee specifically acknowledges and agrees that his
employment with the Company will bring him in personal contact with accounts and
customers of the Company, and will enable him to acquire valuable information as
to the nature and character of the business of the Company and the requirements
of the accounts and customers of the Company. Employee acknowledges and agrees
that in the event he were to become employed by some other employer or enter the
same or similar business as the Company on his own or in conjunction with others
in competition with the Company, such personal contacts with the customers and
accounts of the Company and the knowledge of such valuable information would
give to Employee an unfair competitive advantage.
Throughout the Term of Employment and for a period of two (2)
years thereafter (Employee's Term of Employment and the two-year period
thereafter, together, the "Term of the Covenants"), Employee shall not, directly
or indirectly, as principal, agent, manager, employee, partner, shareholder,
director, officer, consultant or otherwise, participate in or engage in the
Lines of Business, as hereinafter defined; provided, however, that Employee may
own up to one percent (1%) of the outstanding securities of any corporation
which is engaged in the Lines of Business, so long as such securities are traded
on a national securities exchange or are included in the National Association of
Securities Dealers Quotation System. "Lines of Business" for purposes of this
Section 6 shall mean the provision of portrait photography services through
itinerant or traveling operations or permanent studios or any other portrait
photography service, the processing or developing of photographic film in
connection with such provision and any other lines of business in which the
Company may engage during the Term of Employment.
(b) In performing the covenants set forth in this Section 6
(all of the covenants of Employee set forth in this Section 6, together, the
"Covenants Not to Compete"), Employee shall not, without limitation, during the
Term of the Covenants engage in the Lines of Business with any of the following:
1. any client, account or customer of the Company, or any
subsidiary or affiliate of the Company, that has done
business with the Company
or such affiliate or subsidiary within two (2) years
of the date of any alleged competitive act by Employee;
2. any client, account or customer of the Company, or any
subsidiary or any affiliate of the Company, that has
transacted any business with the Company within the
twelve months preceding the date of this Agreement;
3. Wal-Mart Stores, Inc. or any subsidiary thereof
("Wal-Mart");
4. any affiliate of Wal-Mart, including without limitation
Xxx's Wholesale Club, HYPERMART*USA and Wal-Mart
SuperCenters (a "Wal-Mart Affiliate");
5. KMart Corporation or any subsidiary thereof ("KMart");
6. any affiliate of KMart, including without limitation
KMart SuperCenters (a "KMart Affiliate");
7. PETsMART, Inc. or any subsidiary thereof ("PETsMART");
8. any affiliate of PETsMART (a "PETsMART Affiliate");
9. any current or prospective institutional customer
("Institutional Customer");
10. CPI Corp.;
11. Lifetouch National School Studios, Inc.;
12. any Wal-Mart store that does business with the Company
during the Term of the Covenants;
13. any Wal-Mart Affiliate store that does business with
the Company during the Term of the Covenants;
14. any Wal-Mart store with which the Company previously
conducted business but no longer conducts business or
the Board of Directors reasonably expects to do
business during the Term of the Covenants;
15. any Wal-Mart Affiliate store with which the Company
previously conducted business but no longer conducts
business or the Board of Directors reasonably expects
to do business during the Term of the Covenants;
16. any PETsMART store that does business with the Company
during the Term of the Covenants;
17. any PETsMART Affiliate store that does business with
the Company during the Term of the Covenants;
18. any PETsMART store with which the Company previously
conducted business but no longer conducts business or
the Board of Directors reasonably expects to do
business during the Term of the Covenants;
19. any PETsMART Affiliate store with which the Company
previously conducted business but no longer conducts
business or the Board of Directors reasonably expects
to do business during the Term of the Covenants;
20. any Institutional Customer with which the Company
previously conducted business but no longer conducts
business or the Board of Directors reasonably expects
to do business during the Term of the Covenants;
21. any KMart store that does business with the Company
during the Term of the Covenants;
22. any KMart store that does business with the Company
during the Term of the Covenants;
23. any KMart store with which the Company previously
conducted business but no longer conducts business or
the Board of Directors reasonably expects to do
business during the Term of the Covenants;
24. any KMart Affiliate store with which the Company
previously conducted business but no longer conducts
business or the Board of Directors reasonably expects
to do business during the Term of the Covenants;
25. Xxxxx, X.X. de C.V.;
26. Aurrera, S.A. de C.V., a subsidiary of Xxxxx, X.X. de
C.V.;
27. any other subsidiary of Xxxxx, X.X. de C.V.;
28. Xxxx Xxxxx;
29. Expressly Portraits;
30. any employee or former employee of the Company, whose
employment with the Company terminated less than two
(2) years prior to Employee's association with such
employee or former employee, within a ten-mile radius
of any Wal-Mart store or any
store in which the Company has engaged in the Lines of
Business within six (6) months prior to Employee's
engaging in the Lines of Business; or
31. any person or entity in the geographic areas listed in
paragraph 10(c) hereinbelow.
(c) In performing the Covenants Not to Compete, Employee shall
not, without limitation, during the Term of the Covenants engage in the Lines of
Business in any of the following geographic areas:
1. The United States of America;
2. The State of Alabama;
3. The State of Arizona;
4. The State of Arkansas;
5. The State of California;
6. The State of Colorado;
7. The State of Connecticut;
8. The State of Delaware;
9. The District of Columbia;
10. The State of Florida;
11. The State of Georgia;
12. The State of Idaho
13. The State of Illinois;
14. The State of Indiana;
15. The State of Iowa;
16. The State of Kansas;
17. The State of Kentucky;
18. The State of Louisiana;
19. The State of Maine;
20. The State of Maryland;
21. The State of Massachusetts;
22. The State of Michigan;
23. The State of Minnesota;
24. The State of Mississippi;
25. The State of Missouri;
26. The State of Montana
27. The State of Nebraska;
28. The State of Nevada
29. The State of New Hampshire;
30. The State of New Jersey;
31. The State of New Mexico
32. The State of New York;
33. The State of North Carolina;
34. The State of North Dakota;
35. The State of Ohio;
36. The State of Oklahoma;
37. The State of Oregon;
38. The State of Pennsylvania;
39. The Commonwealth of Puerto Rico;
40. The State of Rhode Island;
41. The State of South Carolina;
42. The State of South Dakota;
43. The State of Tennessee;
44. The State of Texas;
45. The State of Utah
46. The State of Vermont;
47. The State of Virginia;
48. The State of Washington;
49. The State of West Virginia;
50. The State of Wisconsin;
51. The State of Wyoming;
52. Mexico;
53. Canada;
54. Puerto Rico;
55. South America;
56. Latin America;
57. Asia;
58. China; and
59. Counties in each State of the United States where the
Company has customers.
(d) As applied to the categories of persons, firms and
entities and geographic areas covered by the Covenants Not to Compete, the
provisions of paragraphs 6(b) and 6(c), respectively, shall be completely
severable and independent, and any invalidity or unenforceability thereof as
applied to any of such persons, firms or entities or geographic areas shall not
affect the validity or enforceability thereof as applied to any one or more of
the other persons, firms or entities or geographic areas.
(e) Throughout the Term of the Covenants, Employee shall
not directly or indirectly cause or attempt to cause any supplier or customer of
the Company, or any of its subsidiaries or affiliates, or any governmental body
or public agency, not to do business with the Company or such subsidiary or
affiliate or to transfer all or part of its business from the Company, or such
subsidiary or affiliate, or otherwise interfere or attempt to interfere with any
business relationship between the Company, or any of its subsidiaries or
affiliates, and any of such suppliers, customers, government bodies or public
agencies.
(f) Employee acknowledges that irreparable injury will
result to the Company from any breach of the Covenants Not to Compete and there
is no adequate remedy at law to redress a breach or threatened breach of the
Covenants Not to Compete As a result of the foregoing, Employee agrees that the
parties seeking to enforce any of such provisions shall be entitled to an
injunction or other equitable relief against Employee to restrain him from such
breach, and Employee waives any claim or defense that the Company has an
adequate remedy at law for any such breach; provided, however, that nothing
contained herein shall prohibit the Company, or any subsidiary or affiliate of
the Company, from pursuing any other remedy it may have, including without
limiting the generality of the foregoing the recovery of damages.
(g) If any court determines that any provision of this
Section 6, or any part thereof, is invalid or unenforceable, the remainder of
this Section 6 shall not thereby be affected and shall be given full effect,
without regard to the invalid portions. If any court determines that any
provision of this Section 6, or any part thereof, is unenforceable because of
the duration or geographic scope of such provision, the parties agree that such
court shall have the power to reduce the duration or scope of such provision, as
the case may be, and the parties agree to request the court to exercise such
power, and, in its reduced form, such provision shall then be enforceable and
shall be enforced. The provisions of this Section 6 shall survive the
termination of this Agreement, for whatever reason.
(h) At all times, both during and after the termination of
his employment, Employee shall keep and retain in confidence and shall not,
without the prior written consent of the Company, disclose to any persons, firm
or corporation or otherwise use for his own benefit or the benefit of another
any of the proprietary, confidential or secret information or trade secrets of
the Company. Further, Employee and the Company agree to keep confidential the
terms and conditions of this Agreement except for such disclosure as may be
required (i) in the event of a breach of this Agreement, (ii) compulsion by law
or court order, or (iii) as may be required by any applicable provision of law.
(i) In consideration of employment, and the compensation
paid to Employee as an employee of the Company, Employee hereby recognizes as
the exclusive property of, and assigns, transfers and conveys to, the Company
without further consideration each invention, discovery or improvement
(hereinafter collectively referred to as "inventions") made, conceived,
developed or first reduced to practice by Employee (whether alone or jointly
with others) during the Term of Employment or within one (1) year thereafter
which relates in any way to Employee's work at the Company or any of its
subsidiaries or affiliates. Employee will communicate to the Company current
written records of all such inventions, which records shall be and remain the
property of the Company. Upon request by the Company, Employee will at any time
execute documents assigning to the Company, or its designees, any such invention
or any patent application or patent granted therefor, and will execute any
papers relating thereto. Employee also will give all reasonable assistance to
the Company, or its designee, regarding any litigation or controversy in
connection with his inventions, patent applications, or patents, all expenses
incident thereto to be assumed by the Company.
7. Governing Law. This Agreement shall be construed and
governed under the laws of the State of North Carolina.
8. Binding Nature. Except as expressly provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, successors and assigns. The obligations and
covenants of Employee are personal in nature and, as such, are not assignable by
him.
9. Entire Agreement; Prior Oral Agreement; Amendment. This
Agreement contains the entire agreement of the parties with respect to the
matters set forth herein and supersedes all prior written and prior or
contemporaneous oral agreements or understandings of the parties hereto. This
Agreement confirms and sets forth the prior oral agreement of the parties as to
the terms and conditions of Employee's employment by the Company stated herein,
including without limitation, the obligations and covenants of Employee set
forth in Section 6 hereof, and Employee's agreement to enter into a written
employment agreement with the Company, as of the date his employment by the
Company commenced, stating such terms and conditions. This Agreement may be
changed or amended only by an agreement in writing signed by both parties
hereto.
10. Severability, Invalidity or Unenforceability. The
severability, invalidity or unenforceability of any paragraph or part of any
paragraph herein shall not in any way affect the validity or enforceability of
any other paragraph or any part of any other paragraph.
11. Prior Agreements and Covenants of Employee. Employee
hereby warrants and represents that he is not a party to any agreement or
binding obligation, oral or written, that would prevent his employment by the
Company, and Employee's execution of this Agreement and his fulfillment of his
duties and obligations hereunder do not and will not violate the provisions of
any agreement, contract, loan document or other binding written or oral
obligation.
12. Time of the Essence. Time is of the essence.
13. Arbitration. Any dispute arising in connection with this
Agreement (other than with respect to Section 6) shall be finally and
conclusively determined in accordance with the rules of the American Arbitration
Association of Charlotte, North Carolina, whose determination shall be final and
binding on the parties, be entitled to be enforced to the fullest extent
permitted by law and be entered in any court of competent jurisdiction. Each
party shall pay all fees, costs and expenses, including legal fees and expenses,
incurred by such party in connection with any such arbitration, and the fees,
costs and expenses of any arbitrator(s) appointed or selected pursuant to this
Section 13 shall be shared equally by the parties hereto.
14. Indemnification. To the fullest extent permitted or
required by the laws of the State of North Carolina, the Company shall indemnify
and hold harmless (including the advance payment of expenses) Employee, in
accordance with the terms of such laws, if Employee is made a party, or
threatened to be made a party, to any threatened, pending, or contemplated suit
or proceeding (whether civil, criminal, administrative or investigative) by
reason of the fact that
Employee is or was an officer or director of the Company or any subsidiary or
affiliate of the Company, against expenses (including reasonable attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with any such action, suit or proceeding. The
Company's obligations under this paragraph will survive the termination of this
Agreement for any reason whatsoever.
15. D&O Liability Insurance. During the Term of Employment,
the Company shall maintain customary directors' and officers' liability
insurance.
16. Notices. Any notice, offer, acceptance or other document
required or permitted to be given pursuant to any provisions of this Agreement
shall be in writing, signed by or on behalf of the person giving the same, and
(as elected by the person giving such notice) delivered by hand or mailed to the
parties at the following addresses by registered or certified mail, postage
prepaid, return receipt requested, or by a third party company or governmental
entity providing delivery services in the ordinary course of business, which
guarantees delivery on a specified date:
If to Employee: Xxxx Xxxxxx
0000 Xxxxxxxxx Xxxxx
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000
If to the Company: PCA International, Inc.
000 Xxxxxxxx-Xxxx Xxxx Xxxx
Xxxxxxxx, Xxxxx Xxxxxxxx 00000
With copies to: Xxxxxx X. Xxxxxx
XXXXXXXX, XXXXXXXX & XXXXXX, P.A.
One Independence Center
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000-1900
(000) 000-0000
or to such other address as any party hereto may designate by complying with the
provisions of this Section 16.
Such notice shall be deemed given (i) as of the date of
written acknowledgment by Employee or an officer of the Company if delivered by
hand, (ii) seventy-two (72) hours after deposit in United States mail if sent by
registered or certified mail or (iii) on the delivery date guaranteed by the
third party delivery service if sent by such service.
Rejection or other refusal to accept or inability to deliver
because of changed address of which no notice has been received shall not affect
the date upon which the notice is deemed to have been given pursuant hereto.
Notwithstanding the foregoing, no notice of change of address shall be effective
until the date of receipt hereof.
IN WITNESS WHEREOF, Xxxx Xxxxxx has set his hand and seal
hereto and PCA International, Inc. has caused this Agreement to be executed and
sealed in its name by its duly authorized officials as of the day and year first
above written.
EMPLOYEE:
(SEAL)
---------------------------------
XXXX XXXXXX
COMPANY:
PCA INTERNATIONAL, INC.
By:
----------------------------------
--------------------
Chairman of the Board
By:
----------------------------------
Xxxxx X. Xxxxxx
Senior Vice President and Chief
Financial Officer
AMENDMENT NO. 1 TO EMPLOYMENT AND NONCOMPETE AGREEMENT
This Amendment No. 1 To Employment and Noncompete Agreement
(the "Amendment") is made and entered into as of the ____ day of ______, 1998,
by and between PCA INTERNATIONAL, INC., a North Carolina corporation (the
"Company"); and XXXXX X. XXXXXX, a citizen and resident of the State of North
Carolina ("Employee").
Background Statement
--------------------
Employee and the Company entered into an Employment Agreement
(the "Agreement") dated as of June 9, 1997. Employee and the Company have agreed
to amend paragraph 4(a) to increase Employee's Base Rate. Capitalized words or
phrases used herein without definition shall have the meanings ascribed to them
in the Agreement.
NOW, THEREFORE, in consideration of the mutual duties and
obligations set forth herein, and intending to be legally bound, the parties
hereto agree as follows:
1. The Agreement is hereby amended by deleting paragraph 4(a)
and replacing it with the following:
"The annual base compensation rate to be paid to Employee for
the services to be rendered hereunder shall be Two Hundred
Thousand Dollars ($200,000.00), payable in accordance with the
Company's normal payroll practices, subject to applicable
federal and state income and social security tax withholding
requirements (the "Base Rate").
2. Except as set forth herein, the Agreement is ratified and
confirmed in all respects.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the day and year first above written.
Employee:
-------------------------
Xxxxx X. Xxxxxx
Company:
PCA International, Inc.
-------------------------
By:
-------------------------
Its:
JUPITER PARTNERS LP
April 20, 1998
Xx. Xxxx Xxxxxxx
PCA International, Inc.
000 Xxxxxxxx Xxxx Xxxx Xxxx
Xxxxxxxx, Xxxxx Xxxxxxxx 00000
Dear Xxxx:
We are delighted that you have agreed to continue as a
principal executive of PCA International, Inc. (the "Company") following the
consummation of the merger (the "Merger") pursuant to the Merger Agreement
entered into today between our affiliate and the Company.
This letter agreement will confirm your and our agreement with
respect to the arrangements between the Company and you in connection with, and
following, the Merger.
In connection with the Merger, you agree that you will
maintain $900,000 of equity in the surviving company. Such equity will be made
up of a combination of the "roll-over" of shares of the Company which you
currently own and/or the roll-over of "in-the-money" options of the Company.
We have also reached agreements on the following:
1. Contemporaneously with the closing of the Merger, you
and the Company will enter into an amendment No. 1 to
Employment and Noncompete Agreement, a copy of which
is attached hereto as Exhibit A.
2. Attached hereto as Exhibit B is a Management Term
Sheet describing certain option grants and stock and
option ownership arrangements between the Company and
management and other employees of the Company.
Although such arrangements are expected to be
ultimately governed by a complete set of definitive
documents entered into prior to the effectiveness of
the merger (including a Stock Option Plan and related
Stock Option Agreements and a Stockholders
Agreement), this letter agreement, when countersigned
by you, will constitute a binding agreement between
us with respect to the matters contained herein and
in the Management Term Sheet. Attached hereto as
Exhibit E are the Stock Option Plan, form of Stock
Option Agreement and Stockholders Agreement used by
us in another transaction. The definitive form of the
agreements entered into between the Company, us and
the management and other employees of the Company
will follow the form and substance of the documents
attached as Exhibit E, with the changes therein
necessary to conform the business arrangements among
the parties to the arrangements reflected in the
Management Term Sheet.
This letter agreement, when countersigned by you, will
constitute a binding agreement on all of our parts to proceed in accordance with
the terms hereof.
2
Please indicate your agreement by signing and returning to us
the enclosed copy of this letter agreement.
Sincerely yours,
JUPITER PARTNERS II L.P.
By: Ganymede II LLC
By: /s/ Xxxx X. Xxxxx
------------------------------
Xxxx X. Xxxxx
ACCEPTED AND AGREED
/s/ Xxxx Xxxxxxx
------------------------------
Xxxx Xxxxxxx
JFK/nb
3
AMENDMENT NO. 1 TO EMPLOYMENT AND NONCOMPETE AGREEMENT
This Amendment No. 1 To Employment and Noncompete Agreement (the
"Amendment") is made and entered into as of the ____ day of ______, 1998, by and
between PCA INTERNATIONAL, INC., a North Carolina corporation (the "Company");
and XXXX X. XXXXXXX, a citizen and resident of the State of North Carolina
("Employee").
Background Statement
Employee and the Company entered into an Employment Agreement (the
"Agreement") dated as of June 9, 1997. Employee and the Company have agreed to
amend paragraph 4(a) to increase Employee's Base Rate. Capitalized words or
phrases used herein without definition shall have the meanings ascribed to them
in the Agreement.
NOW, THEREFORE, in consideration of the mutual duties and obligations
set forth herein, and intending to be legally bound, the parties hereto agree as
follows:
1. The Agreement is hereby amended by deleting paragraph 4(a) and
replacing it with the following:
"The annual base compensation rate to be paid to Employee for
the services to be rendered hereunder shall be Two Hundred
Fifty Thousand Dollars ($250,000.00), payable in accordance
with the Company's normal payroll practices, subject to
applicable federal and state income and social security tax
withholding requirements (the "Base Rate").
2. Except as set forth herein, the Agreement is ratified and confirmed
in all respects.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
Employee:
---------------------------------
Xxxx X. Xxxxxxx
Company:
PCA International, Inc.
By:
-----------------------------
Its:
-----------------------------
JUPITER PARTNERS L.P. PCA International Management Term Sheet
--------------------------------------------------------------------------------
TRANSACTION SUMMARY
-------------------
Company and Transaction Jupiter Partners II L.P. ("Jupiter"), a
Delaware limited partnership, will acquire
outstanding common stock (the "Shares" or
"Common Stock") of PCA International, Inc. (the
"Company") (such purchase and related
transactions hereafter identified as the
"Transaction"). The Transaction would be
accomplished through a cash and share merger of
the Company with an affiliate to be formed by
Jupiter and would be accounted for as a
recapitalization.
Management Current and future managers of the Company
("Management" or "Managers").
Jupiter Transaction Fee and Jupiter Partners Inc., an affiliate of Jupiter
Management Fee Partners II L.P., will be paid a transaction
fee by the Company of 1% of the enterprise
value of the Company upon the closing of the
transaction, in addition to expenses incurred.
The Company will not be charged (i) an annual
"management" fee by Jupiter, or (ii) any
director's fees for individuals affiliated with
Jupiter.
COMMON STOCK
------------
Roll Over of Options and Jupiter has committed to invest up to $54.3
Common Stock million to purchase Common Stock of the Company
at $26.50 per share (the "Transaction Price").
Each Senior Management shareholder (Xxxx
Xxxxxx, Xxxx Xxxxxxx, Xxxxx Xxxxxx, Xxxxxx Xxxx
and Xxxxxxx Xxxxxxx) is required to roll over
shares and in-the-money options. The minimum
aggregate roll over by Senior Management
shareholders is $3.5 million, the allocation of
which has been previously scheduled by Xxxx
Xxxxxx.
Management shareholders in aggregate (including
Senior Management shareholders) may roll over
up to $5.0 million of the value of their shares
and in-the-money options.
The roll over of equity by management will be
in the form of roll-over shares for Xxxx Xxxxxx
and a combination of roll-over shares and
roll-over options by each manager will be in
ascending order or strike price (i.e. those
options with the
lowest strike price will be rolled over or
retained by the manager.) The option roll-over
will be structured in order to minimize the
dilution allowable by accounting.
Jupiter will endeavor to structure the
transaction so that the use of existing stock
to purchase Common Stock and existing options
to purchase Roll-over Options in the Company
can be done in a tax-efficient manner. However,
this may not be possible and Managers are
advised to consult their own counsel on this
matter.
Roll over of Options and As used hereafter in this document, unless
Common Stock otherwise specifically noted, both Shares and
(continued) Common Stock refer to both Shares acquired by
exercise of Roll-over Options and Management
Options ("Option Shares") and Shares acquired
for cash or roll-over stock at the Transactions
date ("Purchased Shares").
Additional Common Stock may be available for
purchase at fair market value ("FMV") by
Managers expected to fill vacant positions on
the Management team.
Dividends and Cash In the event on a dividend or cash
Distributions distribution, Roll-over Option holders will be
provided the opportunity to either: (i) pay-in
the exercise price of the Roll-over Option and
receive the distribution, or (ii) incur a
reduction in the exercise price of such
Roll-over Option to reflect such distribution.
Transferability Management Shares, Management Options and
of shares Roll-over Options are saleable when Jupiter is
achieving or has achieved liquidity in its
Shares.
Management may sell or transfer any Option
Shares or Purchased Shares pursuant to the
appropriate provisions herein on the earlier of
(i) the public listing of the Company's stock,
(ii) the date Jupiter owns less than 20% of the
shares it held as of the Transaction, (iii) six
months prior to the expiration of the Options,
(iv) a tag-along transaction, or (v) an
applicable drag-along transaction.
If the Company is public and Jupiter owns more
than 20% of the Shares it held as of the
Transaction, Management may only sell via the
Piggyback Registration process (see below) or
in proportion (utilizing the same methodology
as in the Piggyback Registration provisions
below) to Jupiter sales under Rule 144.
2
If the Company is public and Jupiter owns less
than 20% of the shares it held as of the
Transaction, Management sales are only subject
to normal securities law limitations.
Managers may not elect to sell Roll-over
Options or Management Options that are still
subject to the Repurchase Rights provisions
below related to termination without cause,
resignation and death or disability.
Managers may sell or transfer Shares when
electing the Tag-Along provision and must sell
when subject to the Jupiter Drag-Along
provision.
Repurchase Rights on The Company, first, (for a period of 90 days)
Management Options and and Jupiter, second, (for a period of an
Roll-over Options additional 90 days) have the right, but not the
obligation, Roll-over Options to purchase a
Manager's or Management Options under the
following circumstances at the prices outlined
below:
Event Repurchase Right
----- ----------------
Death or Disability No repurchase right
Termination for Cause Lower of Cost or Fair Market
Value
Repurchase Formula
Termination without Cause Lower of Cost or Fair
Resignation Market Value
The Fair Market Value will be determined by the
Board of Directors. If the Company is private
and the parties disagree regarding the Fair
Market Value of the options then the parties
will select an appraiser to determine the fair
market value of the options (taking into
consideration the lack of liquidity and
non-control nature of such option). This
appraisal remedy is only available to managers
holding options valued in excess of $500,000.
It is further understood that the holder will
be responsible for the cost of the appraisal
unless it is determined that the Board's
initial valuation was inadequate.
If the Company is public, the Fair Market Value
will be equal to the average of the closing
prices of the Common Stock over the prior
thirty day period.
The Company may utilize either cash or, if this
is constrained by financing or other
arrangements, a subordinated note (interest
rate equals prime rate; maturity equals 2
years) as
3
consideration when exercising its Repurchase
Rights.
The percent of a Manager's Roll-over Options or
Management Options on which the Company has a
repurchase right in the cases of termination
without Cause and resignation is as follows:
Anniversary from Closing Repurchase Percentage
------------------------ ---------------------
Before 1st anniversary 100%
Between 1st and 2nd anniversary 80%
Between 2nd and 3rd anniversary 60%
Between 3rd and 4th anniversary 40%
Between 4th and 5th anniversary 20%
After 5th anniversary 0%
If a Manager is terminated for Cause or
breaches the Non-Compete agreement, the
Repurchase Percentage on Roll-over Options and
Management Options shall be 100% (excluding
Shares previously sold in compliance with the
various provision of this agreement) until the
fifth anniversary of the Transaction.
Repurchase Rights on After the fifth anniversary, the Repurchase
Management Options and Percentage shall be 100% of Management Options
Roll-over Options only (excluding Option Shares previously sold
(continued) in compliance with the various provisions of
this agreement) in cases of termination for
Cause or breaches of the Non-Compete.
The exercise of the Repurchase Right by either
the Company or Jupiter will not be subject to
any Tag-Along or similar provisions available
to other Management stockholders.
The Repurchase Rights shall terminate only upon
a Change in Control (see below).
Repurchase Rights shall not apply to Shares
previously sold subject to the Tag-Along,
Drag-Along and Piggyback provisions (see
below).
The Repurchase Rights will apply to all
Management Options and Roll-over Options but
will not apply to Shares owned by the manager
prior to the Transaction.
"Tag Along" Rights In private transactions between Jupiter and
third parties, the Managers have the right to
sell a proportional number of their Shares,
Management Options and Roll-over Options on the
4
same terms and conditions which Jupiter is
selling its Shares. For purposes of this
provision, proportionality will be measured by
including all Shares and Roll-over Options that
are not subject to Repurchase Rights and all
Management Options that are vested, exercisable
and in-the-money.
In public transactions, the Piggyback
Registration provisions apply. Jupiter has
similar tag-along rights when Management is
eligible and proceeds to sell their shares in a
non-public setting.
"Drag Along" Rights At any time that Jupiter has agreed to sell
Shares of Common Stock to any person, Jupiter
shall be entitled to require all other holders
to sell an equivalent portion of their Shares
and Options in the transaction.
OPTIONS
-------
Management Options The Company will arrange an Option plan
that will make available to Managers Management
Options that represent 12% of the primary
shares outstanding of the Company as of the
closing of the Transaction.
Management Options will be granted at the
closing of the Transaction. The remainder, if
any, will be granted to new Managers within 18
months of closing.
Of these Management Options, half (6% of the
primary shares outstanding at the date of the
Transaction) will vest over time (the "Time
Options"), and the remainder (6% of the primary
shares outstanding at the date of the
Transaction) will vest provided the Company
generates cumulative earnings before interest,
taxes, depreciation and amortization ("EBITDA")
for fiscal years ended January 1999, 2000, 2001
and 2002 (the "Performance Option Calculation
Period") equivalent to or greater than the sum
of Management's projection of EBITDA for the
comparable time period (the "Performance
Options"). Both the Time Options and the
Management Options will be exercisable at the
Transaction Price per share.
Time Options will vest in equal portions on
each of the first five anniversaries from
grant. At the conclusion of the Performance
Option Calculation Period, a portion of the
Performance Options will vest provided the
Company achieves at least 90% of the cumulative
EBITDA target; all Performance Options will
vest if the Company achieves 100%
5
of the cumulative EBITDA target (vesting to be
pro rata between 90% and 100%). In the event of
a Change in Control prior to the conclusion of
the Performance Option Calculation Period, the
vesting of the Performance Options will be
based on Company performance versus
Management's projection of cumulative EBITDA
from the Transaction date to the Change in
Control. The EBITDA test will be adjusted if
the Company makes any material acquisitions or
divestitures.
Xxxx Xxxxxx will receive Management Options on
3% of the primary shares outstanding at the
date of the Transaction (1.5% Time Options and
1.5% Performance Options).
The exercise prices of Management Options not
granted at the closing of the Transaction will
be determined by the Board of Directors at the
time of grant.
Time Options will expire 8 years from grant.
Performance Options will expire 8 years from
grant. The expiration of Roll-over Options will
be extended to the earlier of: (i) a liquidity
event; (ii) a Change in Control, or (iii) 8
years.
Any shares acquired on exercise of Options will
be subject to provisions of Repurchase Rights,
Drag-Along, Tag-Along and Registration Rights.
Acceleration of Vesting on On a Change in Control, all Options will vest
Change in Control and must be exercised prior to or simultaneous
with the Change in Control transaction. Upon a
Change of Control, unexercised Options are
canceled.
If more than 50% of the Company's Shares are
sold but a Change in Control has not occurred,
the Board may, at its sole discretion,
immediately vest all, or a portion of, unvested
Options and then require exercise on all vested
options within a specific time period.
Definition of Change in A Change in Control will occur when (i) Jupiter
Control has received cash proceeds from the sale of 50%
or more of the Common Stock purchased on the
Transaction date, and (ii) the Company is not
public following the transaction by which
Jupiter sold its stake.
Cancellation of Management The Company has the right to cancel Management
Options Options under the following circumstances as
follows:
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Event Options Cancelable
----- ------------------
Death or Disability Unvested Options only
Termination for Cause All Options
Termination without Cause Unvested Options only
Resignation Unvested Options only
Required Exercise of Under the following circumstances, vested
Management Options Management Options must be exercised within the
time frames outlined below. Any Management
Options not exercised during the appropriate
period are canceled.
Event Accelerated Exercise Period
----- ---------------------------
Death or Disability No acceleration
Termination for Cause All Options canceled
Termination without Cause No acceleration
Resignation 60 days
REGISTRATION RIGHTS
-------------------
Demand Registration Rights Jupiter shall be allowed six Demand
Registrations at the Company's expense at any
time.
Piggyback Registration Rights In a public offering of shares, the Management
shareholders have the right to sell their
Shares and Roll-over Options in a proportion
equal to one-half the proportion of the number
of shares sold by Jupiter until Jupiter has
sold 50% of the shares it held prior to an
initial public offering. For purposes of this
provision, proportionality will be measured by
including all Shares and Roll-over Options that
are not subject to Repurchase Rights and all
Management Options that are vested, exercisable
and in-the-money.
After Jupiter has sold 50% of the shares it
held prior to an initial public offering, the
Management shareholders may register their
shares in equal proportion to Jupiter in any
registered offering.
Former Management will only retain these
registration rights to the extent that their
employment ended due to death or disability or
they were terminated without Cause.
In any public offering of shares, Jupiter shall
have Piggyback Registration rights.
7
