Exhibit 10.5
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, effective as of August 22, 2005 (the
"Effective Date") is entered into by and between KNOCKOUT HOLDINGS, INC., a
Delaware corporation (the "Company"), XXXXX XXXXXX of Chicago, Illinois
("Executive"), and XXXX XXXXXXX of Chicago, Illinois ("Xxxxxxx") and XXXXX
XXXXXX of Raleigh, North Carolina ("Xxxxxx") (Xxxxxxx and Xxxxxx are also herein
sometimes individually referred to as a "Shareholder" and collectively as
"Shareholders").
RECITALS
The Company and Executive desire to enter into an Employment Agreement
setting forth the terms and conditions of Executive's employment with the
Company; and Shareholders are shareholders of the Company and deem it to their
financial benefit that Executive agrees to enter into this Employment Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the Company and Executive agree as follows:
1. Employment.
(a) Term. The Company hereby employs Executive to
serve as Chief Executive Officer. The term of employment shall be for a period
of four (4) years ("Employment Period") to commence on the date hereof, unless
earlier terminated as set forth herein.
(b) Duties and Responsibilities. Executive will be
reporting to the Board of Directors and be responsible for providing strategic
leadership for the company by working with other management to establish
long-range goals, strategies, plans and policies. Within the limitations
established by the Bylaws of the Company, the Executive shall have each and all
of the duties and responsibilities of that position and such other or different
duties on behalf of the Company, as may be assigned from time to time by the
Board of Directors.
(c) Location. The initial principal location at which
Executive shall perform services for the Company shall be 000 X. Xxxxxxxxx
Xxxxxx, Xxxxxxxxx, Xxxxxxxx 00000, provided, Executive, at his option, may
perform the services hereunder at a dedicated office in New York, New York.
Executive shall not be required to relocate outside of the Chicago Metropolitan
Area.
2. Compensation.
(a) Base Salary. Executive shall be paid a base
salary ("Base Salary") at the annual rate of Two Hundred Forty Thousand
($240,000) Dollars per year, payable in bi-weekly installments consistent with
Company's payroll practices. The annual Base Salary shall be reviewed on or
before April 1 of each year by the Board of Directors of the Company, unless
Executive's employment hereunder shall have been terminated earlier pursuant to
this Agreement, to determine if such Base Salary should be increased for the
following year in recognition of services to the Company.
(b) Bonus and Percentage Compensation. Executive
shall also be entitled to an annual bonus ("Bonus") during the Employment Period
equal to fifty (50%) percent of Executive's Base Salary (pro-rated from the date
of hire for the first calendar year), subject to certain Benchmarks as hereafter
delivered being achieved by the Company for each year of the term hereof
commencing January 1, 2006. No required Benchmark need be attained for the
current year 2005. Said Benchmark applicable to each such year shall be
determined by the mutual written agreement of the Executive and the Board of
Directors of the Company on or before January 31 of each applicable year. Said
Bonus shall be payable on or before thirty (30) days after the end of each
calendar year or termination of Executive's employment, as applicable. In the
event mutual written agreement as to the applicable required Benchmark for any
applicable year is not reached as between Executive and the Board of Directors
of the Company on or before January 31 of said applicable year, Executive shall
have the right to terminate his said employment hereunder and shall not be
deemed in default hereunder in such event.
Executive shall further be paid additional percentage
compensation ("Additional Percentage Compensation") of an amount equal to one
and one-half (1.5%) percent of the Excess Gross Sales of the Company and its
subsidiaries as hereinafter defined, as finally determined by the independent
certified public accountants servicing the Company as follows:
Excess Gross Sales of
Period the Company shall be:
From the Effective Date Fifty (50%) percent of the Company's
through December 31, 2005 Gross Sales for the calendar year 2005
From January 1, 2006 The Company's Gross Sales for the
through December 31, 2006 calendar year 2006 which shall be in
excess of the Company's Gross Sales
for the calendar year 2005
From January 1, 2007 The Company's Gross Sales for the
through December 31, 2007 calendar year 2007 which shall be in
excess of the Company's Gross Sales
for the calendar year 2006
From January 1, 2008 The Company's Gross Sales for the
through December 31, 2008 calendar year 2008 which shall be in
excess of the Company's Gross Sales
for the calendar year 2007
From January 1, 2009 The Company's Gross Sales for the
through August 22, 2009 period January 1, 2009 through August
22, 2009 which shall be in excess of
sixty (60%) percent of the Company's
Gross Sales for the calendar year 2008
Such Additional Percentage Compensation shall be paid on or before
forty-five (45) days after each said calendar quarter during which Excess Gross
Sales of the Company and its subsidiaries are achieved during said calendar
quarter.
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(c) Payment. Payment of all Base Salary and
Additional Percentage Compensation to Executive hereunder shall be made in
accordance with the relevant Company policies in effect from time to time,
including normal payroll practices, and shall be subject to all applicable
employment and withholding taxes.
3. Other Employment Benefits.
(a) Business Expenses. Upon submission of itemized
expense statements in the manner specified by the Company, Executive shall be
entitled to reimbursement for reasonable travel and other reasonable business
expenses duly incurred by Executive in the performance of his duties under this
Agreement.
(b) Benefit Plans. Executive shall be entitled to
participate in the Company's medical and dental plans, life and disability
insurance plans and retirement plans pursuant to their terms and conditions.
Executive shall be entitled to participate in any other benefit plan offered by
the Company to its employees during the term of this Agreement. Nothing in this
Agreement shall preclude the Company or any affiliate of the Company from
terminating or amending any employee benefit plan or program from time to time.
Notwithstanding the foregoing, and in addition thereto, Company shall provide
Executive with and maintain during the term of Executive's employment,
disability insurance coverage with a waiting period of no longer than ninety
(90) days and providing for full coverage equal to Executive's salary.
(c) Vacation. Executive shall be entitled to four (4)
weeks of vacation each year of full employment, exclusive of legal holidays, as
long as the scheduling of Executive's vacation does not interfere with the
Company's normal business operations.
(d) No Other Benefits. Executive understands and
acknowledges that the compensation specified in Sections 2 and 3 of this
Agreement shall be in lieu of any and all other compensation, benefits and plans
payable by the Company.
4. Stock Options.
(a) By the Company. In consideration of the execution
of this Agreement by Executive, Company agrees that it will adopt, within thirty
(30) days after (but not before) the first to occur of (i) June 30, 2006, or
(ii) the effectiveness of a Registration Statement filed on May 11, 2005, under
Form SB-2 with the United States Securities and Exchange Commission in relation
to the registration of shares of the Company, a Stock Option Plan (and will
cause its shareholders to approve same within thirty (30) days from the date of
adoption thereof) and hereby agrees that it will grant to Executive, at the
request of Executive, the right and option (a "Stock Option") pursuant to said
Stock Option Plan to acquire one million five hundred thousand (1,500,000)
shares of the Common stock of the Company. Such option granted shall be treated,
to the extent permitted, as an Incentive Stock Option under Section 422 of the
Internal Revenue Code of 1986 (the "Code").
(1) Said Stock Option shall vest immediately
in full.
(2) The exercise price for the Stock Option
shall be the fair market value per share as of the date of
grant of said Stock Option, and together with the number of
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shares granted shall be adjusted appropriately for stock
splits, stock dividends, and the like to reflect any changes
which may occur from the Effective Date of this Agreement.
Executive's execution of this Agreement shall be deemed full
and completed performance by Executive to the Company for its
agreement to grant the Stock Option above provided, which
shall be deemed an independent and separate agreement,
irrespective of whether this Employment Agreement is fully
performed by Executive.
(b) By the Shareholders. In consideration of the
execution of this Agreement by Executive, the Shareholders hereby agree that,
within thirty (30) days after, but not before, the first to occur of (i) June
30, 2006, or (ii) the effectiveness of a Registration Statement filed on May 11,
2005, under Form SB-2 with the United States Securities and Exchange Commission
in relation to the registration of shares of the Company (but not before) they
will grant to Executive, at the request of Executive, the right and option (an
"Option") to acquire seven million (7,000,000) shares of the Common stock of the
Company currently owned by Shareholders as hereinafter set forth. The
Shareholders agree that the number of shares of the Company as to which each has
agreed to grant an Option to Executive hereunder, is as follows:
Xxxxxxx 5,284,088
Xxxxxx 1,715,912
Such Option granted shall be treated, to the extent
permitted, as an Incentive Stock Option under Section 422 of the Internal
Revenue Code of 1986 (the "Code").
(1) Said Option shall vest immediately in
full.
(2) The exercise price for the Option shall
be the fair market value per share as of the date of the grant
of said Option, and together with the number of shares granted
shall be adjusted appropriately for stock splits, stock
dividends, and the like to reflect any changes which may occur
from the Effective Date of the Agreement. Executive's
execution of this Agreement shall be deemed full and completed
performance by Executive to the Shareholders for their
Agreement to grant the Option above provided which shall be
deemed an independent and separate agreement irrespective of
whether this Employment Agreement is fully performed by
Executive.
(c) Exercise. The Stock Option and the Option shall
be exercisable, in whole or in part, until the earlier of (i) ten (10) years
from the date such option is granted or (ii) one hundred twenty (120) days after
termination of Executive's employment with the Company, provided that, if as of
the date of termination of Executive's employment, for any reason whatsoever,
including, but not limited to death or disability of Executive, the Stock Option
or Option has not yet then been granted, Executive shall have a period of one
hundred twenty (120) days from the date said Option or Stock Option is granted
as herein provided, to exercise said Option and/or Stock Option.
(d) Escrow and Security. To secure the obligation of
Shareholders hereunder, the Shareholders agree to deposit certificates
representing, in the aggregate, seven million (7,000,000) shares of the issued
and outstanding shares of the Company issued to the Shareholders (5,284,088
shares by Xxxxxxx and 1,715,912 shares by Xxxxxx), with assignments separate
from certificate duly endorsed in blank with Chicago Title and Trust Company (or
another institutional escrowee acceptable to Executive if Chicago Title and
Trust Company shall refuse to act), as escrowee for the benefit of the Executive
pursuant to a separate escrow agreement in the form of Exhibit A to be executed
by the parties concurrent herewith (the "Escrow Agreement"). The Company agrees
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to pay all fees of the escrowee in connection with said Escrow Agreement and
agrees the Executive shall have a security interest with respect to said shares
so deposited to secure the performance of Shareholder's obligation under this
Paragraph 4. The Option price for the respective shares to which the Option is
exercised shall be paid to the Escrowee for the benefit of, and to be disbursed
to, the Shareholders, as applicable.
5. Executive's Business Activities. Executive shall devote the
substantial portion of his entire business time, attention and energy
exclusively to the business and affairs of the Company and its affiliates, as
its business and affairs now exist and as they hereafter may be changed.
Executive may serve as a member of the Board of Directors of other organizations
that do not compete with the Company, and may participate in other professional,
civic, governmental organizations and activities that do not materially affect
his ability to carry out his duties hereunder, subject to the approval of the
Board of Directors with regard to service on Boards of Directors of for-profit
corporations.
6. Termination of Employment.
(a) For Cause. Notwithstanding anything herein to the
contrary, the Company may terminate Executive's employment hereunder for cause
for any one of the following reasons: (1) conviction of a felony, any act
involving moral turpitude, or a misdemeanor where, as to any such acts,
imprisonment is imposed, (2) commission of any act of theft, fraud, or
dishonesty adversely involving the Company to a material extent, or
falsification of any employment or Company records to a material extent, (3)
Executive's failure or inability to repeatedly perform any reasonable assigned
duties after written notice from the Company of, and a reasonable opportunity to
cure (in any event, not less than thirty (30) days), such failure or inability,
(4) any material breach of this Agreement by Executive, which breach is not
cured within thirty (30) days following written notice of such breach (which
notice details the nature of said breach and the suggested method of curing
same). Upon termination of Executive's employment with the Company for cause,
the Company shall be under no further obligation to Executive, except to pay all
accrued but unpaid compensation and accrued vacation to the date of termination
thereof. In such event, Executive shall retain all rights to Stock Options and
Options provided, or to be provided, hereunder.
(b) Without Cause. The Company may terminate
Executive's employment hereunder at any time without cause, provided, however,
that Executive shall be entitled to severance pay in the amount equal to
Executive's Base Salary for twelve (12) months and Additional Percentage
Compensation for the then remainder of the term of the Employment Period and
prorated Bonus to the date of such termination, said amounts to be paid within
thirty (30) days of such termination, or with regard to Additional Percentage
Compensation as determined. Termination without cause shall mean termination by
the Company of the Executive for any reason other for cause as set forth in
Section 6(a), disability as set forth in Section 7, or death. In such event,
Executive shall retain all rights to Stock Options and Options provided, or to
be provided, hereunder.
(c) Resignation. Upon termination of employment,
Executive shall be deemed to have resigned from the Board of Directors of the
Company if he is a director.
(d) Cooperation. After notice of termination,
Executive shall cooperate with the Company, as reasonably requested by the
Company, to effect a transition of Executive's responsibilities and to ensure
that the Company is aware of all matters being handled by Executive.
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7. Disability of Executive. The Company may terminate this
Agreement if Executive shall be permanently prevented from properly performing
his essential duties hereunder with reasonable accommodation by reason of
illness or other physical or mental incapacity for a period of more than [120]
consecutive days (a "Disability"). Upon such termination, Executive shall be
entitled to all accrued but unpaid Base Salary, Additional Percentage
Compensation, prorated Bonus to the date of such disability, and vacation
accrued to the date of Disability.
8. Death of Executive. In the event of the death of Executive
during the Employment Period, the Company's obligations hereunder shall
automatically cease and terminate; provided, however, that within 15 days the
Company shall pay to Executive's heirs or personal representatives Executive's
Base Salary, Additional Percentage Compensation, prorated Bonus, and accrued
vacation accrued to the date of death.
9. Employment, Confidential Information and Invention
Assignments. Executive is simultaneously executing a Employment, Confidential
Information and Invention Assignment Agreement (the "Confidential Information
and Invention Assignment Agreement"). The obligations under the Confidential
Information and Invention Assignment Agreement shall survive termination of this
Agreement for any reason.
10. Exclusive Employment. During employment with the Company,
Executive will not do anything to compete with the Company's business. Executive
will not enter into any agreement which conflicts with his duties or obligations
to the Company. Executive will not during his employment or within one (1) year
after it ends, without the Company's express written consent, directly or
indirectly, solicit or encourage any employee, agent, independent contractor,
supplier, customer, consultant or any other person or company to terminate or
alter a relationship with the Company.
11. Assignment and Transfer. Executive's obligations under
this Agreement shall not be transferred or delegated by Executive, and any
purported transfer or delegation thereof shall be void. This Agreement shall
inure to the benefit of, and be binding upon and enforceable by, any purchaser
of substantially all of Company's assets, any corporate successor to Company or
any assignee thereof and shall inure to the benefit of Executive's heirs and
personal representatives.
12. No Inconsistent Obligations. Executive is aware of no
obligations, legal or otherwise, inconsistent with the terms of this Agreement
or with his undertaking employment with the Company. Executive will not disclose
to the Company, or use, or induce the Company to use, any proprietary
information or trade secrets of others. Executive represents and warrants that
he or she has returned all property and confidential information belonging to
all prior employers.
13. Miscellaneous.
(a) Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of Illinois without
regard to conflict of law principles.
(b) Entire Agreement. This Agreement, [together with
the attached exhibits and the Confidential Information and Invention Assignment
Agreement,] contains the entire agreement and understanding between the parties
hereto and supersedes any prior or contemporaneous written or oral agreements,
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representations and warranties between them respecting the subject matter
hereof. (c) Amendment. This Agreement may be amended only by a writing signed by
Executive and by a duly authorized representative of the Company.
(d) Severability. If any term, provision, covenant or
condition of this Agreement, or the application thereof to any person, place or
circumstance, shall be held to be invalid, unenforceable or void, the remainder
of this Agreement and such term, provision, covenant or condition as applied to
other persons, places and circumstances shall remain in full force and effect.
(e) Construction. The headings and captions of this
Agreement are provided for convenience only and are intended to have no effect
in construing or interpreting this Agreement. The language in all parts of this
Agreement shall be in all cases construed according to its fair meaning and not
strictly for or against the Company or Executive.
(f) Rights Cumulative. The rights and remedies
provided by this Agreement are cumulative, and the exercise of any right or
remedy by either party hereto (or by its successor), whether pursuant to this
Agreement, to any other agreement, or to law, shall not preclude or waive its
right to exercise any or all other rights and remedies.
(g) Nonwaiver. No failure or neglect of either party
hereto in any instance to exercise any right, power or privilege hereunder or
under law shall constitute a waiver of any other right, power or privilege or of
the same right, power or privilege in any other instance. All waivers by either
party hereto must be contained in a written instrument signed by the party to be
charged and, in the case of the Company, by an officer of the Company (other
than Executive) or other person duly authorized by the Company.
(h) Remedy for Breach. The parties hereto agree that,
in the event of breach or threatened breach of any covenants of Executive, the
damage or imminent damage to the value and the goodwill of the Company's
business shall be inestimable, and that therefore any remedy at law or in
damages shall be inadequate. Accordingly, the parties hereto agree that the
Company shall be entitled to injunctive relief against Executive in the event of
any breach or threatened breach of any of such provisions by Executive, in
addition to any other relief (including damages) available to the Company under
this Agreement or under law.
(i) Notices. Any notice, request, consent or approval
required or permitted to be given under this Agreement or pursuant to law shall
be sufficient if in writing, and if and when sent by certified or registered
mail, with postage prepaid, to Executive's address (as set forth below) to
Shareholders' addresses (as set forth below), or to the Company's principal
office, as the case may be. Any party may change his or its address for notice
by notice as herein provided.
(j) Assistance in Litigation. Executive shall, during
and after termination of employment, upon reasonable notice, furnish such
information and proper assistance to the Company as may reasonably be required
by the Company in connection with any litigation in which it or any of its
subsidiaries or affiliates is, or may become a party; provided, however, that
such assistance following termination shall be furnished at mutually agreeable
times and for mutually agreeable compensation.
(k) Indemnification. The Company and the Shareholders
acknowledge that Executive has had no involvement in the operation of the
Company prior to the Effective Date hereof and agree that Executive shall have
no liability for any such acts of the Company prior to such Effective Date. The
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Company shall indemnify the Executive to the fullest extent that would be
permitted by law (including a payment of expenses in advance of final
disposition of a proceeding) against all liability, losses, costs, charges and
expenses whatsoever incurred or sustained by the Executive (including but not
limited to any judgment entered by a court of law), in connection with any
action, suit or proceeding to which the Executive may be made a party by reason
of his being or having been an officer, employee or director of the Company, or
serving as an officer, employee or director of any other entity or as a
fiduciary of any benefit plan, at the request of the Company. The provisions of
this Section 12(k) shall specifically survive the expiration or earlier
termination of this Agreement. During the term of the Executive's employment and
while potential liability exists after the termination of the Executive's
employment, and except as below provided, the Company shall purchase and
maintain directors and officers liability insurance with limits of coverage of
not less than Three Million ($3,000,000) Dollars covering the Executive in
accordance with the terms of such insurance to be the maximum extent of the
coverage available for any Company officer or director; provided further that
said coverage limit above provided shall be increased to not less than Five
Million ($5,000,000) Dollars at such time as Executive determines that such
additional insurance coverage is available and the Company has the financial
ability to pay the cost of same.
(l) Arbitration. Any controversy, claim or dispute
arising out of or relating to this Agreement or the employment relationship,
either during the existence of the employment relationship or afterwards,
between the parties hereto, their assignees, their affiliates, their attorneys,
or agents, shall be settled by arbitration in Chicago, Illinois. Such
arbitration shall be conducted in accordance with the then prevailing commercial
arbitration rules of the American Arbitration Association (but the arbitration
shall be in front of an arbitrator appointed by JAMS/Endispute ("JAMS")), with
the following exceptions if in conflict: (a) one arbitrator shall be chosen by
JAMS; (b) each party to the arbitration will pay its pro rata share of the
expenses and fees of the arbitrator(s), together with other expenses of the
arbitration incurred or approved by the arbitrator(s); and (c) arbitration may
proceed in the absence of any party if written notice (pursuant to the JAMS'
rules and regulations) of the proceedings has been given to such party. The
parties agree to abide by all decisions and awards rendered in such proceedings.
Such decisions and awards rendered by the arbitrator shall be final and
conclusive and may be entered in any court having jurisdiction thereof as a
basis of judgment and of the issuance of execution for its collection. All such
controversies, claims or disputes shall be settled in this manner in lieu of any
action at law or equity; provided however, that nothing in this subsection shall
be construed as precluding the Company from bringing an action for injunctive
relief or other equitable relief or relief under the Confidential Information
and Invention Assignment Agreement. The arbitrator shall not have the right to
award punitive damages, consequential damages, lost profits or speculative
damages to either party. The parties shall keep confidential the existence of
the claim, controversy or disputes from third parties (other than the
arbitrator), and the determination thereof, unless otherwise required by law or
necessary for the business of the Company. The arbitrator(s) shall be required
to follow applicable law. IF FOR ANY REASON THIS ARBITRATION CLAUSE BECOMES NOT
APPLICABLE, THEN EACH PARTY, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY AS TO ANY ISSUE RELATING
HERETO IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OTHER MATTER INVOLVING THE PARTIES HERETO.]
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date set forth below.
THE KNOCKOUT GROUP, INC. EXECUTIVE:
By: /s/ Xxxx Xxxxxxx /s/ Xxxxx Xxxxxx
------------------------------------- ----------------------------------
Xxxxx Xxxxxx
Name: Xxxx Xxxxxxx Address:
----------------------------------- --------------------------
Title: Chairman
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Date: August 22, 2005 Date: August 22, 2005
----------------------------------- ----------------------------
SHAREHOLDERS:
/s/ Xxxx Xxxxxxx
Xxxx Xxxxxxx
Address:
------------------------------------
Date: August 22, 2005
-----------------------------------
/s/ Xxxxx Xxxxxx
Xxxxx Xxxxxx
Address:
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Date: August 22, 2005
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