EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made between SIGNAL
APPAREL COMPANY, INC., an Indiana corporation, with its
principal offices at 000-X Xxxxxxxxxxxxx Xxxx,
Xxxxxxxxxxx, Xxxxxxxxx (the "COMPANY") and XXXXX
XXXXXXXX (the "EMPLOYEE").
RECITALS:
The Company and the Employee have reached an
understanding with respect to the employment of the
Employee by the Company. The parties desire to set
forth their understanding with respect to such
employment fully and completely in writing.
NOW, THEREFORE, the parties agree as follows:
1. EMPLOYMENT. The Company shall employ the
Employee as its Chief Executive Officer, Chief
Operating Officer and Chief Financial Officer, and the
Employee shall work for the Company in such capacity
upon the terms and conditions set forth herein.
2. EXCLUSIVE AGREEMENT. During the term of this
Agreement, the Employee shall devote his full time and
best effort to the business of the Company.
3. EMPLOYMENT TERM. Unless earlier terminated in
accordance with the terms of this Agreement, the
Employee's term of employment by the Company (the
"Employment Term") shall be for the period commencing
June 2, 1997 and ending June 1, 2000.
4. CONFIDENTIAL INFORMATION. The Employee
acknowledges that any use of the Company's Confidential
Information (defined below) by the Employee other than
for the sole benefit of the Company would be wrongful
and cause irreparable harm to the Company.
Accordingly, the Employee shall not, at any time during
or subsequent to his employment by the Company, without
the express written consent of the Company, publish,
disclose or divulge to any person, firm or corporation,
or use, directly or indirectly, for his own benefit or
for the benefit of any person, firm or corporation for
use other than for the Company, any property, trade
secrets, or Confidential Information (defined below) of
the Company or its affiliates.
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"Confidential Information" includes, but is not limited
to all data, reports, interpretations, forecasts,
records, statements (written and oral) and documents of
any kind relating to the Company's costs and financial
information, manufacturing methods or processes, market
studies, products, existing and potential customers,
pricing methods and strategies, new product plans and
sources of supply acquired by Employee during
Employee's employment by the Company. In addition, all
other information disclosed to the Employee or which
the Employee shall obtain during such employment with
the Company which the Employee has a reasonable basis
to believe to be confidential, or which the Employee
has a reasonable basis to believe the Company treats as
confidential, shall be presumed to be Confidential
Information.
5. SALARY AND EXPENSES. The Company shall pay
the Employee a base salary in accordance with the
normal payroll practices of the Company according to
the following schedule:
June 2, 1997 - June 1, 1998 $175,000
June 2, 1998 - June 1, 1999 $200,000
June 2, 1999 - June 1, 2000 $225,000
The Company shall also reimburse the Employee for all
reasonable, legitimate and documented business expenses
incurred by him, on behalf of the Company, upon
submission of accounts in satisfactory form, subject to
such reasonable limitations as the Company may impose
in its discretion from time to time as set forth in the
Company's standard practices and procedures.
6. ADDITIONAL BENEFITS. In addition to the
compensation described in Section 5, the Employee shall
be entitled during the Employment Term to receive the
following additional benefits:
(A) HEALTH INSURANCE. The Company will make
health insurance coverage available to Employee
consistent with the coverage available to other
employees of the Company from time to time. In
addition, the Company agrees to reimburse Employee for
the premium cost of procuring term Life Insurance with
death benefits in the amount of $1,000,000.
(B) RETIREMENT PLANS. The Employee will be
eligible to participate in the Company's 401(k)
retirement plan starting in January, 1998 and such
other retirement
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plans as may be established by the Company from time to
time in accordance with the provisions of the
applicable plan.
(C) HOLIDAYS AND VACATIONS. The Employee
shall be entitled to such paid holidays as may be
designated by the Company. In addition, the Employee
shall be entitled to three weeks of paid vacation for
each year during which time his compensation shall be
paid in full. Notwithstanding any other provisions of
this Agreement, in the event Employee is terminated
from the Company for any reason, Employee will be
entitled to a payment reflecting Employee's unused
accrued vacation through such date of termination.
(D) SICK LEAVE. The Employee shall be
entitled to sick leave in accordance with Company
practices.
(E) AUTOMOBILE. The Company shall provide
the Employee with a $667 per month car allowance for
the lease or purchase of an automobile plus the
reimbursement of the reasonable operating, maintenance
and insurance expenses of said automobile.
(F) RELOCATION. Subject to a cap of
$75,000, and the submission of appropriate support
documentation, Employee will be reimbursed for the
reasonable direct costs of relocating Employee and his
family to the Chattanooga, Tennessee vicinity. Such
costs shall include the following: the transport of
household furnishings and other personal belongings,
real estate commission on the sale of Employee's
current residence, initial mortgage points for the
procurement of a new residence in the Chattanooga
vicinity, closing costs for the sale of Employee's
existing residence and the procurement of said new
residence, a "tax gross-up" and other reasonable direct
costs in accordance with Company practices.
In addition to the above, Employee shall be
entitled to a reasonable number of "house hunting"
trips from his current residence to Chattanooga,
Tennessee for the selection/procurement of a new
residence as well as reasonable, temporary living
expenses in accordance with Company practices in the
Chattanooga area for a period not to exceed six months
pending the procurement of a new residence. The
expenses of this paragraph will not be applied to the
$75,000 cap.
(G) TUITION. The Company agrees to
reimburse Employee in the aggregate annual amount of
$35,000 for the private school tuition costs for
Employee's son and daughter
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through the high school level.
(H) OPTIONS. Effective with the
commencement of Employee's employment with the Company,
Employee will be granted options to purchase 350,000
shares of the Company's Common Stock at an exercise
price of $2.50 per share (also referred to below as
"Original Options"). Such options will remain
exercisable for a period of five years from grant date
and at the Company's election, will be issued pursuant
to the Company's 1985 Stock Option Plan (the "1985
Plan") or independently of said plan and the Company
will use its best efforts to cause the registration of
such shares pursuant to the Securities Act of 1933.
The Company acknowledges Employee's desire that the
options and shares issued on exercise thereof be
subject to the exemptions provided by Rule 16b-3 of the
Securities Exchange Act of 1934 and the Company will
attempt to grant options (both Original Options and
Additional Options) in accordance with that Rule to the
maximum extent possible.
Such options will become exercisable/vest in
accordance with the following schedule:
1. Options to purchase 50,000 shares will be
exercisable on grant date;
2. Options to purchase 200,000 additional
shares will become exercisable two years
from grant date; and
3. Options to purchase the remaining 100,000
shares will become exercisable three
years from grant date.
As of the date of this Agreement, the Company has
11,578,046 common shares outstanding, and Employee's
options reflect approximately 3.00% of such outstanding
shares. Upon the issuance of additional Common Stock
by the Company from time to time other than to
Employee, (such issuance hereinafter referred to as the
"Triggering Event"), Employee shall be issued options
to purchase additional common shares ("Additional
Options") so that the total options held by Employee
always equal a minimum of 3.00% of the Company's
outstanding Common Stock. Employee's rights to receive
Additional Options will accrue until such time as
Employee is entitled to receive Additional Options to
purchase a minimum of 50,000 additional shares at which
time all Additional Options then due will be issued.
The Company's obligations to issue future Additional
Options will accrue and be issued in the same manner.
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The Additional Options will be exercisable for five
years from grant date and will be issued at the fair
market value of the Company's Common Stock on the date
of grant as determined in accordance with the 1985
Plan.
The Additional Options will vest in accordance with the
following schedule:
1. If the Triggering Event is the issuance of
stock for which there is no increase in the
asset value of the Company, or in the debt or
equity funding provided to the Company, or
there is no other consideration provided to
the Company for the issuance of such stock,
the Additional Options will vest pro-rata on
the same schedule as the "Original Options"
with credit being given for time already
elapsed in said vesting schedule.
For example, if Additional Options are issued
eighteen months into the term of this
Agreement, 15% of the Additional Options will
be immediately exercisable, 55% will become
exercisable two years from the commencement of
this Agreement, and the remaining 30% of the
Additional Options will become exercisable
three years from the commencement of this
Agreement.
2. If the Triggering Event involves an
acquisition by the Company of additional
assets, or the receipt by the Company of
additional funding in the form of debt or
equity or the receipt of other consideration,
then the Additional Options will vest as
follows:
a. 15% upon the grant date of the Additional
Options;
b. An additional 55% two years from grant
date; and
c. The final 30% three years from grant
date.
All Additional Options issued to Employee will, at the
Company's election, be issued in accordance with the
1985 Plan, or if independent of the 1985 Plan, the
Company will use its best efforts to register such
shares pursuant to the Securities Act of 1933.
To the maximum extent permitted by law, Original
Options and
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Additional Options will be Incentive Stock Options.
The Company will consult with Employee concerning which
options will be incentive stock options.
All options granted pursuant to this Agreement will be
subject to the generally applicable anti-dilution
provisions adopted by the Company's Compensation
Committee.
(I) BONUS. Employee shall be entitled to
participate in an annual bonus plan based upon the
Company's performance and Employee's individual
performance. Under this plan, Employee shall be
eligible to receive an annual lump sum bonus payment
equal up to 50% of Employee's annual base salary based
upon a formula, criteria and performance standards to
be mutually agreed upon by Employee and the Company
prior to the commencement of the Company's 1998 fiscal
year.
Notwithstanding the foregoing, for the period
commencing June 2, 1997 and ending June 1, 1998,
Employee shall be entitled to a supplemental bonus
payment of $75,000 which will be paid in a lump-sum no
later than June 30, 1998.
Prior to the commencement of the Company's 1998
fiscal year, the Company and Employee will mutually
agree upon the manner and amount by which the above
supplemental bonus payment may be offset against the
annual bonus for the 1998 fiscal year, if any.
(j) Employee will receive directors and
officers insurance coverage reasonably equivalent to
the insurance coverage in effect as of the date of this
Agreement. Employee also will be indemnified by the
Company in accordance with the Restated Articles of
Incorporation of the Company.
7. TERMINATION OF EMPLOYMENT.
(A) The Employee's employment pursuant to
this Agreement shall terminate upon the death of the
Employee or upon his inability, by reason of a mental
or physical condition, to perform his duties hereunder
for an uninterrupted period of sixty (60) days
("Disability"), and may be terminated for "cause" (as
defined below) by the Company at any time during the
Term immediately upon written notice of termination
(except as provided otherwise below) given by the
Company to the Employee describing such cause. For
purposes of this Agreement, "cause" for termination
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shall be deemed to exist if: (i) the Employee is
convicted of a felony which involves an intentional act
of the Employee; (ii) the Employee engages in
dishonesty or fraud which relates to the Company; or
(iii) the Employee breaches any of his material
obligations as Chief Executive Officer, Chief Operating
Officer and Chief Financial Officer of the Company.
Any written notice of termination for cause
pursuant to this Section shall be a written notice
which (a) indicates the specific termination provision
relied upon, (b) sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for
termination of Employee's employment, and (c) if the
date of termination is other than the date of receipt
of such notice, specifies the termination date. In the
event that Employee's employment is terminated pursuant
to subsection (iii) above, Employee shall have a period
of thirty (30) days to cure the breach of Employee's
obligations under this Agreement as described in the
Notice of Termination. In the event that Employee
cures such breach within said thirty (30) day period,
the notice of termination shall be considered
rescinded. In the event that Employee fails to cure
such breach, then this Agreement will terminate without
further notice to Employee as set forth in the notice
of termination, and the provisions of 7(b) shall be
applicable. Employee shall not have the opportunity to
cure any termination for cause pursuant to subsections
(i) and (ii) above.
(B) In the event (i) the Employee's
employment under this Agreement is terminated for cause
as provided above, or (ii) the Employee voluntary
terminates his employment with the Company other than
pursuant to Section 7(c) or 7(d), prior to the end of
the Employment Term, the Company shall promptly pay to
the Employee (or to the Employee's legal
representatives) the amount of any compensation
attributable to periods prior to such termination
pursuant to Section 5 (included accrued vacation pay),
plus the amount of any reimbursable expenses. No other
payments shall be due Employee. In addition, all
outstanding stock options held by Employee will
terminate as of the effective date of Employee's
termination if termination is for cause. If Employee
voluntarily terminates his employment, all options
vested as of the date of termination shall terminate
ninety days after the date of termination.
(C) In the event the Employee's employment
is terminated without cause, or the Employee loses his
employment for any other reason other than pursuant to
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Section 7(a) and/or (b), including but not limited to
the bankruptcy, closure, reorganization, buyout,
merger, consolidation of the Company or for any other
reason, or Employee, without Employee's approval,
receives a material diminution in responsibilities,
title, or position from the level of employee's
responsibilities, title or position as of October 1,
1997, and Employee elects to terminate his employment
in writing as a result of and within thirty days of
such diminution, or in the event of the sale of all or
substantially all of the assets of the Company, (all of
the foregoing hereinafter referred to as "Loss of
Employment"), then the following provisions shall be
applicable:
1. If the Loss of Employment occurs during the
initial two years of this Agreement, the following
provisions shall apply:
(a) Employee shall be entitled to payments
equal to the greater of one year's base
salary plus the continuation of benefits
provided in Sections 6(a), (b), (c), (e)
and (g) for one year; or Employee's base
salary through June 1, 1999 plus the
continuation of the benefits provided in
Sections 6(a), (b), (c), (e) and (g)
through June 1, 1999. Base salary
payments will be paid in such
installments as Employee was receiving
his base salary prior to the Loss of
Employment.
(b) Unvested Original Options (subject to a
minimum vesting of options for 100,000
shares) and Additional Options will
become proportionately exercisable based
upon the number of months Employee is
employed relative to the vesting
schedule set forth in Section 6(h). For
example, if the Loss of Employment
occurs at the conclusion of 18 months of
employment, Original Options for 200,000
shares will become exercisable
consisting of the initial 50,000 shares
vested plus 18/24th's of the next
200,000 shares to become vested or
150,000 additional shares. The same
formula will apply to the applicable
vesting schedule of any Additional
Options granted Employee. Incentive
Stock Options (ISO's), if any, vested in
accordance with their respective terms
or in accordance with the above will
remain exercisable for three months
following the Loss of Employment and
Non-Incentive Stock Options (NSO's) will
remain exercisable
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for one year following the Loss of
Employment.
(c) Employee will be paid a pro-rata share
of any annual bonus otherwise payable
based upon the number of complete months
Employee is employed during the
Company's fiscal year. Said pro-rata
bonus will be paid, in a lump sum at the
time the Company traditionally pays its
annual bonuses or no later than June 30
of the subsequent fiscal year.
Notwithstanding the foregoing, Employee
shall be paid the $75,000 supplemental
bonus in accordance with Section 6(i)
regardless of when the Loss of
Employment occurs.
2. If the Loss of Employment occurs subsequent to
June 1, 1999, but prior to June 2, 2000, then
the following provisions shall apply:
(a) Employee shall be entitled to payments
equal to one years base salary payable
in such installments as Employee was
receiving his base salary prior to the
Loss of Employment plus a continuation
for one year of the benefits set forth
in Sections 6(a), (b), (c), (e) and (g).
(b) Unvested Stock Options will vest and
remain exercisable in accordance with
the provisions of Section 7(c)(1)(b)
above; and
(c) A pro-rata bonus payment determined and
payable in accordance with Section
7(c)(1)(c) above.
(d) In the event the Company, without the
written approval of Employee, elects not to be listed
for trading on a recognized United States stock
exchange, the NASD National Market System or the NASD
Small Cap market, or an event, initiated or approved by
the Company, is announced (and subsequently occurs)
which will result in the Company not being so listed
(in either case a "Going Private Transaction") Employee
shall have the option to terminate his employment by
written notice to the Company and receive the severance
benefits set forth in Section 7(c)(1) or 7(c)(2),
whichever is applicable. Employee shall have 30 days
from the date of the closing of such Going Private
Transaction or his knowledge of the Going Private
Transaction, whichever is later, to exercise said
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termination option. Upon exercise of said termination
option, Employee, at Employee's election shall be
entitled to one of the following:
1. A lump sum payment equal to the amount by
which the closing price of the Company's
Common Stock on the last trading day prior to
the date of the Company's first public
announcement pertaining to the Going Private
Transaction exceeds the exercise price of each
respective stock option held by Employee times
the number of shares for which each respective
stock option is exercisable on such last
trading date. Stock Options subject to
accelerated vesting pursuant to Sections
7(c)(1) or 7(c)(2) shall be considered
exercisable for the purposes of this Section;
or
2. In lieu of such lump sum payment, Employee may
elect to exercise all exercisable stock
options in accordance with the terms of the
respective options, including those options
subject to accelerated vesting pursuant to
Section 7(c)(1) or 7(c)(2).
(e) Severance or other post-termination
payments will not be reduced by amounts earned, or
earnable, by Xxxxxxxx from any other source.
8. DUTY OF THE EMPLOYEE UPON TERMINATION. The
Employee shall, upon termination of this Agreement,
return to the Company all of the Company's records of
any type and all literature, supplies, letters, written
or printed forms, and/or memorandum pertaining to the
Company's business.
9. COVENANTS ON TERMINATION.
(A) During the Employment Term, and for a
period of one (1) year thereafter so long as the
Company remains in compliance with this Agreement, the
Employee shall not, directly or indirectly, on
Employee's own behalf or on behalf of any other person,
corporation, partnership or any other entity, whether
as an employee, officer, director, proprietor, partner,
investor, consultant, advisor, agent or in any other
capacity, induce or attempt to induce any customer of
the Company to reduce its business with the Company, or
solicit or attempt to solicit any employees of the
Company to leave the employ of the Company, nor shall
Employee affiliate with any party engaging in the above
actions.
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(B) The Employee acknowledges that the
restrictions contained in this Section are reasonable
and necessary to protect the business and interests of
the Company and that any violation of these
restrictions will cause substantial and irreparable
injury to the Company. Therefore, notwithstanding the
provisions of Section 14 below, the Employee agrees
that the Company is entitled, in addition to any other
remedies, to preliminary and permanent injunctive
relief to secure specific performance, and to prevent a
breach or contemplated breach of this Agreement.
10. DIRECTOR. Employee will be elected to the
Company's Board of Directors as soon as practicable and
be nominated to that position at subsequent elections
so long as Employee remains an employee.
11. SEVERABILITY. In the event any clause or
provision of this Agreement shall be held to be invalid
or unenforceable, the same shall not affect the
validity or enforceability of any other provision
herein, and this Agreement shall remain in full force
and effect in all other respects. If a claim of
invalidity or unenforceability of any provision of this
Agreement is predicated upon the length of the terms of
any covenant or the area covered thereby, such
provision shall not be deemed to be invalid or
unenforceable; rather, such provision shall be deemed
to be modified to the maximum area or the maximum
duration as any court of competent jurisdiction shall
deem reasonable, valid and enforceable.
12. ENTIRE AGREEMENT. The parties understand and
agree that this Employment Agreement is the entire
Agreement between the parties regarding the terms and
conditions of the Employee's employment and there are
no other agreements. The terms of this Agreement may
not be varied, modified, supplemented or in any other
way changed by extraneous verbal or written
representations by the Company or its agents to the
Employee, unless by amendment to this Agreement
executed in writing by both parties. There are no
third party beneficiaries of the Company's rights under
this Agreement.
13. GOVERNING LAW. The Agreement shall be
governed by, construed and enforced in accordance with
the laws of the state of Tennessee.
14. ARBITRATION. Each party agrees not to bring
suit
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against the other party in the courts of any
jurisdiction in connection with any dispute which might
be the subject of a civil action arising from the
interpretation or application of this Agreement. Each
party agrees that any such dispute shall be finally
resolved by submission to compulsory commercial
arbitration to be held in Chattanooga, Tennessee
according to the American Arbitration Association
rules, by one or several arbitrators appointed. The
parties agree to be bound by the decision of the
arbitration and that a judgment of any court of
competent jurisdiction may be rendered upon the award
made pursuant to said submission to arbitration.
15. SURVIVAL. The Covenants of Paragraphs 4, 9,
11, 12, 13 and 14 shall survive the termination of this
Agreement.
16. NOTICE. All notices, demands, requests,
consents, reports, approvals, or other communications
which may be or are required to be given, served, or
sent pursuant to this Agreement shall be in writing and
shall be mailed by first class, registered or certified
mail, return receipt requested, postage prepaid, or
transmitted by facsimile or hand delivery, addressed as
first set forth above, or such other address as a party
may subsequently specify in writing.
IN WITNESS WHEREOF, the parties have executed this
Agreement this 1 day of October, 1997.
SIGNAL APPAREL COMPANY, INC.
Dated: October 1, 1997 By: /S/ Xxxxxx X. Xxxxxx
Its: Vice President
Dated: October 1, 1997 /S/ Xxxxx Xxxxxxxx
XXXXX XXXXXXXX
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