EXHIBIT 10.4
EMPLOYMENT AGREEMENT
BETWEEN
CD WAREHOUSE, INC.
AND
XXXXX XXXXXX
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into this 26th day of
October, 1996, by and between CD WAREHOUSE, INC., a Delaware corporation
("the Company"), and Xxxxx X. Xxxxxx, an individual ("the Executive").
RECITALS
WHEREAS, the Company desires to be assured of the association and
services of the Executive and to enter into an agreement embodying the terms
of such employment ("Agreement"); and
WHEREAS, the Executive is willing and desires to be employed by the
Company and enter into such Agreement.
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions hereinafter set forth, the parties hereto do hereby agree as
follows:
ARTICLE I
EMPLOYMENT
1.1 AGREEMENT TO EMPLOY. Upon the terms and subject to the conditions
of this Agreement, the Company hereby agrees to employ the Executive as Chief
Financial Officer and Senior Vice President, subject to the supervision and
direction of the Company's Chief Executive Officer ("Chief Executive
Officer") and the Company's Board of Directors ("Board") and the Executive
hereby agrees to become employed by the Company.
1.2 TERM OF EMPLOYMENT. The term of this Agreement will be for a
period of one (1) year commencing on the effective date hereof and will
automatically renew for successive one (1) year terms, unless terminated
earlier pursuant to Article 7 below ("Employment Period"), provided however,
that the Executive's obligations in Section 6 and Section 8 below will
continue in effect after such termination.
1.3 EFFECTIVE DATE. This Agreement will be effective as of the closing
date of the Company's initial public offering. If the closing of the
Company's initial public offering does not occur on or before February 28,
1997, this Agreement will not become effective and will be of no further
force and effect unless mutually extended by the parties in writing.
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ARTICLE II
COMPENSATION
2.1 BASE SALARY. For all services rendered by the Executive under this
Agreement, the Company will pay the Executive a base salary of sixty-five
thousand dollars ($65,000) per year ("Base Salary"). The Chief Executive
Officer will annually review the Executive's Base Salary in light of
competitive practices, the base salaries paid to other executive officers of
the Company and the performance of the Executive and the Company, and may, in
his sole discretion, increase such Base Salary by an amount he determines to
be appropriate. The Executive's Base Salary (as set forth above or as may be
increased from time to time) will not be reduced. No such change will in any
way abrogate, alter, terminate or otherwise affect the other terms of this
Agreement. The Company will pay the Executive his Base Salary not less
frequently than in equal biweekly installments in arrears.
2.2 ANNUAL TARGET BONUS PLAN. In the Chief Executive Officer's sole
discretion, during the term of the Executive's Employment Period, the
Executive will have the opportunity to receive an annual bonus ("Annual
Target Bonus"), beginning at and equal to, twenty-five percent (25%) of his
Base Salary, with open ended incremental increases commensurate with length
of service and performance after the first year . The Annual Target Bonus
earned will be awarded based upon the performance of the Executive and the
Company against annual target objectives established jointly by the Chief
Executive Officer and/or Board and the Executive. Any Annual Target Bonus
payable under this Paragraph 2.2 will be paid to the Executive as soon as
practicable following a fiscal year.
2.3 LONG-TERM INCENTIVE COMPENSATION. During the Employment Period,
the Executive will participate in all of the Company's existing and future
long-term incentive compensation programs for key executives at a level
commensurate with his position at the Company and consistent with the
Company's then current policies and practices, as determined in good faith by
the Board or a committee thereof.
ARTICLE III
BENEFITS, PERQUISITES AND EXPENSES
3.1 BENEFITS. During the Employment Period, the Executive will be
eligible to participate in (a) each welfare benefit plan sponsored or
maintained by the Company, including, without limitation, each group life,
hospitalization, medical, dental, health, accident or disability insurance or
similar plan or program of the Company, and (b) each pension, retirement,
deferred compensation or savings plan sponsored or maintained by the Company,
in each case, whether now existing or established hereafter, to the extent
that the Executive is eligible to participate in any such plan under the
generally applicable provisions thereof. Nothing in this Paragraph 3.1 will
limit the Company's right to amend or terminate any such plan in accordance
with the procedures set forth therein. The Company shall pay the cost of an
annual medical physical examination of the Executive.
3.2 VACATION. During the Employment Period, the Executive will be
entitled to sick leave and two (2) weeks, increasing based on length of
service to a maximum of four (4) weeks, paid
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vacation annually as is generally provided to other senior officers of the
Company in accordance with the then current policies and practices of the
Company.
3.3 EXPENSES. (a) BUSINESS EXPENSES. The Executive will be reimbursed
for all reasonable "out-of-pocket" business expenses for business travel and
business entertainment incurred in connection with the performance of his
duties under this Agreement (i) so long as such expenses constitute business
deductions from taxable income for the Company and is excludable from taxable
income to the Executive under the governing laws and regulations of the
Internal Revenue Code of 1986, as amended (the "Code") (provided, however,
that the Executive will be entitled to full reimbursement in any case where
the Internal Revenue Service may, under Section 274(n) of the Code, disallow
to any such company 50% of meals and entertainment expenses); and (ii) to the
extent such expenses do not exceed the amounts allocable for such expenses in
budgets that are approved from time to time by the Chief Executive Officer.
The reimbursement of the Executive's business expenses will be made upon
monthly presentation to, and approval by, the Chief Executive Officer of
valid receipts and other appropriate documentation for such expenses.
(b) AUTOMOBILE EXPENSES. The Company will pay the Executive $850
per month in arrears to cover the Executive's use (including all associated
expenses) of his automobile for the Company's business.
ARTICLE IV
INDEMNIFICATION
4.1 INDEMNIFICATION. (a) RIGHT TO INDEMNIFICATION. During the
Employment Period, the Company will indemnify the Executive and hold the
Executive harmless from and against any claim, loss or cause of action
arising from or out of the Executive's performance as an officer, director,
or employee of the Company or its subsidiaries, if any, or in any other
capacity, including any fiduciary capacity, in which the Executive serves at
the request of the Company to the maximum extent permitted by the Delaware
General Corporation Act and the Company's Certificate of Incorporation and
By-Laws ("Governing Documents"), provided that in no event will the
protection afforded to the Executive hereunder be less than that afforded
under the Governing Documents as in effect at the time this Agreement becomes
effective.
(b) CULPABLE ACTION:
(i) Notwithstanding the provisions of Paragraph 4.1(a), the
Executive will not be entitled to indemnification if (A) the
Company is prohibited from paying such indemnification under
applicable law, or (B) the Executive's actions or omissions
involved intentional misconduct or knowing violation of law (any
existence or occurrence described in the foregoing clauses (A) and
(B), individually, is a "Culpable Action").
(ii) The existence or occurrence of a Culpable Action will
be conclusively
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determined by a non-appealable, final decision of the court having
jurisdiction over the applicable proceeding. Such determination will
be final and binding upon the parties hereto.
(iii) If a proceeding involves more than one claim, issue or
matter, the determination as to whether a Culpable Action exists or
has occurred will be severable as to each and every claim, issue
and matter.
(iv) The termination of any proceeding by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its
equivalent, does not affect the provisions of Paragraph 4.1(a) for
indemnification hereunder and does not create a presumption that
there exists a Culpable Action.
(c) PAYMENT OF COSTS. The reasonable costs incurred by the
Executive in connection with any proceeding based on this Agreement,
including any proceeding brought pursuant to Paragraph 4.1(a) and
Paragraph 4.1(b)(ii), will be paid by the Company on an "as incurred"
basis; provided, however, that if it will ultimately be determined
that there exists or has occurred a Culpable Action with respect to
such proceeding, the Executive will repay to the Company the amount
(or the appropriate portion thereof as contemplated by Paragraph
4.1(b)(iii)) so advanced, including the costs of obtaining a
determination pursuant to Paragraph 4.1(b)(ii).
ARTICLE V
SCOPE OF DUTIES
5.1 ASSIGNMENT OF DUTIES. The Executive will have such duties as may
be assigned to him from time to time by the Chief Executive Officer
commensurate with the Executive's experience and responsibilities in the
position for which he is employed pursuant to Article 1 above. Such duties
will be exercised subject to the control and supervision of the Chief
Executive Officer.
5.2 GENERAL SPECIFICATION OF DUTIES. The Executive, during the term
hereof, will be responsible for performing all services, acts, or things
necessary or advisable to manage and conduct the business of the Company
consistent with the position of Chief Financial Officer and Senior Vice
President subject to such policies and procedures as may be established by
the Chief Executive Officer.
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ARTICLE VI
NONSOLICITATION, CONFIDENTIALITY AND NONCOMPETITION
6.1 THE EXECUTIVE'S DEVOTION OF TIME. The Executive hereby agrees to
devote his full time, abilities and energy to the faithful performance of the
duties assigned to him and to the promotion and forwarding of the business
affairs of the Company and not to divert any business opportunities from the
Company to himself or to any other person or business entity.
6.2 CONFLICTING ACTIVITIES. The Executive will not, during the term of
this Agreement, be engaged in any other business activity without the prior
written consent of the Board, provided however, that this restriction will
not be construed as preventing the Executive from investing his personal
assets in purely passive investments in business entities which are not in
competition with the Company, its subsidiaries or affiliates.
6.3 HONORING OBLIGATIONS TO PREVIOUS EMPLOYER(S). The Executive has
not and will not breach any lawful obligations owed or owing by him to any
his former employers.
6.4 CONFIDENTIALITY. Without the prior written consent of the
Company, except to the extent required by an order of a court having
competent jurisdiction or under a subpoena from an appropriate government
agency, the Executive will not communicate or disclose to any third person,
or use for the benefit of himself or any third person, (a) trade secrets,
customer or supplier lists or information, marketing plans, sales plans,
management organization information (including data and other information
relating to members of the Board and management), operating policies or
manuals, business plans, processes and techniques, financial records, or
other financial, commercial, or business information relating to the Company
or its investors or the purchase and sale of its securities or any of its
subsidiaries, or (b) information designated as confidential or proprietary
that the Company or its subsidiaries, if any, may receive from its suppliers,
customers or others who do business with the Company or any of its
subsidiaries (collectively, "Confidential Information") to any third person
unless such Confidential Information has been previously disclosed to the
public by the Company or is in the public domain (other than by reason of the
Executive's breach of this Paragraph 6.4).
6.5 THE COMPANY PROPERTY. The Executive hereby agrees that all
documents, reports, plans, proposals, marketing and sales plans, client
lists, client files and materials made by him or by the Company and its
subsidiaries are the properties of such entity and will not be used by him
in any way adverse to the Company's interests. The Executive will not
deliver, reproduce or in any way allow such documents or things to be
delivered or used by any third party without specific written direction or
written consent of the Board of the Company as appropriate. The Executive
hereby assigns to the Company any rights which he may have in any such trade
secret or proprietary information. Further, except as expressly provided
herein, promptly following the Executive's termination of employment, the
Executive will return to the Company all property, documents or papers used
or owned by the Company and all copies, abstracts or summaries thereof in the
Executive's possession or under his control.
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6.6 NONSOLICITATION OF EMPLOYEES. During the Employment Period and the
two-year period following any termination of the Executive's employment, the
Executive will not directly or indirectly solicit, encourage or induce any
employee of the Company or any of its subsidiaries to terminate employment
with such entity, and will not directly or indirectly, either individually or
as owner, agent, employee, consultant or otherwise, employ or offer
employment to any person who is or was employed by the Company or a
subsidiary thereof unless such person will have ceased to be employed by such
entity for a period of at least six months.
6.7 COMPETITION WITH THE COMPANY. The Executive agrees that during the
term of the Executive's Employment Period and for a two year period of time
thereafter will not, directly or indirectly, for his own benefit or on
behalf of others, compete, or be an officer, director, employee or holder of
more than 5% of the capital stock or other equity interest of any corporation
or other entity which competes with the Company or any of its subsidiaries at
the date of his termination from the Company ("Competitive Activity"). The
limitations imposed by this Paragraph 6.7 will extend to all geographic areas
in which the Company conducts business at the date of termination of the
Executive's employment by the Company. If Executive becomes affiliated with
a franchise or franchisees of the Company after the termination of his
employment by the Company, it will not be deemed a competitive activity.
6.8 INJUNCTIVE RELIEF AND OTHER REMEDIES WITH RESPECT TO COVENANTS.
The Executive acknowledges and agrees that the covenants and obligations of
the Executive with respect to nonsolicitation, confidentiality, the Company
property, noncompetition, and conflicting activities, relate to special,
unique and extraordinary maters and that a violation of any of the terms of
such covenants and obligations will cause the Company irreparable injury for
which adequate remedies are not available at law. Therefore, the Executive
agrees that the Company will (a) be entitled to an injunction, restraining
order or such other equitable relief (without the requirement to post a bond)
restraining the Executive from committing any violation of the covenants and
obligations contained in this Article 6 and (b) have no further obligation to
make any payments to the Executive hereunder following any material violation
of the covenants and obligations contained in this Article 6. These remedies
are cumulative and are in addition to any other rights and remedies the
Company may have at law or in equity.
ARTICLE VII
TERMINATION
7.1 BASIS FOR TERMINATION. The Executive's employment hereunder may be
canceled at any time by mutual agreement of the parties.
7.2 INCAPACITY. This Agreement will automatically terminate on the
last day of the month in which the Executive dies or becomes permanently
incapacitated. "Permanent incapacity" as used herein will mean mental or
physical incapacity, or both, reasonably determined by the Board based upon a
certification of such incapacity by, in the discretion of such Board, either
the Executive's regularly attending physician or a duly licensed physician
selected by the Board, rendering the Executive unable to perform
substantially all of his duties hereunder and which appear reasonably
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certain to continue for at least six consecutive months without substantial
improvement. The Executive will be deemed to have "become permanently
incapacitated" on the date the Board has determined that the Executive is
permanently incapacitated and so notifies the Executive.
7.3 WITH CAUSE. The Executive's employment may be terminated by the
Company "with cause," if any of the following occur:
(a) any material breach of the Executive's obligations to the
Company pursuant to this Agreement; or
(b) any material acts or events which inhibit the Executive from
fully performing his responsibilities to the Company in good faith,
including, but not limited to (i) a felony criminal conviction; (ii) any
other criminal conviction involving the Executive's lack of honesty or
the Executive's moral turpitude; (iii) drug or alcohol abuse; or (iv)
material acts of insubordination, dishonesty, gross carelessness or
gross misconduct.
7.4 WITH CAUSE/ EFFECTIVE DATE / RIGHT TO BE HEARD. The Executive
shall not be deemed to have been terminated for cause unless and until
there shall have been delivered to him by either the Chief Executive
Officer or Board a notice of termination and a written statement of the
reasons for Executive's termination for cause and Executive has had an
opportunity to appear before the Board to state any protest that
Executive may have concerning his termination for cause. If the
Executive does not request an appearance before the Board pursuant to
this subsection within five days from the date of receipt of the notice
of termination and written statement of the reasons for his termination,
the right to appear before the Board to protest shall be deemed to be
waived and the Executive's termination shall be effective as of the date
the notice of termination is delivered to Executive. If Executive
elects to appear before the Board to protest his termination for cause,
a specially called meeting will be called as soon as practicable. At
the specially called Board meeting, the Executive will have the
opportunity to state any protest that he might have, orally (not to
exceed one hour) or in writing, to his termination and the Board will
thereafter re-consider its decision to terminate the Executive for
cause. If the Board decides to affirm its decision to terminate the
Executive for cause , after the Executive's appearance and protest
before it, the Board's decision: (i) will not require a written
statement of the reasons for the Board's decision; (ii) will thereafter
be final and non-appealable and (iii) effective as of the date of the
Board's final decision. The Executive will be suspended from his
responsibilities with pay, between the date that his original notice of
termination is delivered and the Board final decision as to his
termination for cause, if the Executive elects to protest his
termination to the Board, as set forth above.
7.5 WITHOUT CAUSE. The Executive's employment may be terminated
by the Company "without cause" (for any reason or no reason at all) at
any time by giving the Executive thirty (30) days' prior written notice
of termination. Termination of employment will occur at the conclusion
of the notice period, unless otherwise agreed to in writing by the
Company and the Executive.
7.6 TERMINATION BY THE EXECUTIVE. The Executive may terminate his
employment
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hereunder by giving the Company sixty (60) days' prior written notice.
Termination of employment will occur at the conclusion of the notice
period, unless otherwise agreed to in writing by the Company and the
Executive.
7.7 PAYMENT UPON TERMINATION WITH CAUSE BY THE COMPANY OR
VOLITIONAL TERMINATION BY THE EXECUTIVE. Upon termination of the
Executive's employment by the Company for cause pursuant to subsection
7.3 or volitional termination by the Executive pursuant to subsection
7.5, the Company will grant pay to the Executive within 14 days after
termination an amount equal to the sum of (a) the Executive's Base
Salary accrued to the date of termination; and (b) any unreimbursed
expenses accruing to the date of termination. After any such
termination, the Company will not be obligated to compensate the
Executive, his estate or representatives except for the foregoing
compensation then due and owing, nor provide the benefits to the
Executive described in Article 3 (except as may be required by law), and
the Executive agrees that, immediately upon any such termination, he
will forthwith return to the Company any benefits provided him hereunder
which are capable of being physically returned.
7.8 PAYMENT UPON TERMINATION WITHOUT CAUSE BY THE COMPANY. Upon
termination of the Executive's employment by the Company without cause
pursuant to subsection 7.4, the Company will grant pay to the Executive
within 14 days after termination an amount equal to the sum of (a) the
Executive's Base Salary accrued to the date of termination; (b) the
Executive's Base Salary for a twelve month period; and (c) any
unreimbursed expenses accruing to the date of termination.
Additionally, Executive will be entitled at the Company's expense to
participate for a twelve month period after termination in any group
life, hospitalization, medical, dental, health, accident or disability
insurance or similar plan or program of the Company, to the extent that
such participation would not be inconsistent with such plans contractual
provisions and/or applicable regulations.
ARTICLE VIII
MISCELLANEOUS
8.1 SURVIVAL. Articles Six and Seven and Paragraphs 8.2, 8.3 and
8.15 will survive the termination hereof.
8.2 ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement will be resolved by binding arbitration.
The arbitration will be held in the city of Oklahoma City, Oklahoma and
except to the extent inconsistent with this Agreement, will be conducted
in accordance with the Rules of the American Arbitration Association
then in effect at the time of the arbitration, and otherwise in
accordance with principles which would be applied by a court of law or
equity. The arbitrator will be acceptable to both the Company and the
Executive. If the parties cannot agree on an acceptable arbitrator, the
dispute will be heard by a panel of three arbitrators one appointed by
each of the parties and the third appointed by the other two arbitrators.
8.3 LEGAL FEES AND EXPENSES. (a) OF THE EXECUTIVE. If the
Executive will prevail, in whole or in part, as to any material issue
in any contest (whether initiated by the Executive or by
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the Company) as to the validity, enforceability or interpretation of any
provision of this Agreement, the Company will pay all reasonable
expenses incurred by the Executive with respect to such contest,
including, without limitation, his reasonable attorney's fees.
(b) OF THE COMPANY. If the Company will prevail, in whole or in
part, as to any material issue in any contest (whether initiated by the
Company or by the Executive) as to the validity, enforceability or
interpretation of any provision of this Agreement, the Executive will
pay all reasonable expenses incurred by the Company with respect to such
contest, including, without limitation, its reasonable attorney's fees.
8.4 BINDING EFFECT. This Agreement will be binding on, and will inure
to the benefit of, the Company and any person or entity that succeeds to the
interest of the Company (regardless of whether such succession does or does
not occur by operation of law) by reason of the sale of all or a portion of
the Company's stock, a merger, consolidation or reorganization involving the
Company or, unless the Company otherwise elects in writing, a sale of the
assets of the business of the Company (or portion thereof) in which the
Executive performs a majority of his services. This Agreement will also
inure to the benefit of the Executive's heirs, executors, administrators and
legal representatives.
8.5 ASSIGNMENT. Except as provided under Paragraph 8.4, neither this
Agreement nor any of the rights or obligations hereunder will be assigned or
delegated by any party hereto without the prior written consent of the other
party.
8.6 ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding between the parties hereto with respect to the matters referred
to herein. No other agreement relating to the terms of the Executive's
employment by the Company, oral or otherwise, will be binding between the
parties unless it is in writing and signed by the party against whom
enforcement is sought. There are no promises, representations, inducements
or statements between the parties other than those that are expressly
contained herein. The Executive acknowledges that he is entering into this
Agreement of his own free will and accord, and with no duress, that he has
read this Agreement and that he understands the Agreement and its legal
consequences.
8.7 SEVERABILITY; REFORMATION. In the event that one or more of the
provisions of this Agreement will become invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein will not be affected thereby. In the event that
any of the provisions of any of Paragraph 6.4, 6.6 or 6.7 are not enforceable
in accordance with its terms, the Executive and the Company agree that such
Paragraph will be reformed to make such Paragraph enforceable in a manner
which provides the Company the maximum rights permitted at law.
8.8 WAIVERS. Waiver by any party hereto of any breach or default by
the other party of any of the terms of this Agreement will not operate as a
waiver of any other breach or default, whether similar to or different from
the breach or default waived. No waiver of any provision of this Agreement
will be implied from any course of dealing between the parties hereto or from
any failure
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by either party hereto to assert it's or his rights hereunder on any occasion
or series of occasions.
8.9 NOTICES. Any notice required or desired to be delivered under this
Agreement will be in writing and will be delivered personally, by courier
service, by registered mail, return receipt requested, or by facsimile and
will be effective upon actual receipt by the party to which such notice will
be directed, and will be addressed as follows (or to such other address as
the party entitled to notice will hereafter designate in accordance with the
terms hereof):
If to the Company:
CD Warehouse, Inc.
Attention: Xxxxx X. Xxxxxxx, Chief Executive Officer
X.X. Xxx 000
Xxxxxx, Xxxxxxxx 00000-0000
with a copy to:
Day, Edwards, Federman, Propester & Xxxxxxxxxxx, P.C.
Attention: Xxxxx X. Day, Esq.
000 Xxxx Xxxxxx
Xxxxx 0000
Xxxxxxxx Xxxx, Xxxxxxxx 00000
If to the Executive:
The home address of the Executive noted on the records of the
Company.
8.10 AMENDMENTS. This Agreement may not be altered, modified or amended
except by a written instrument signed by each of the parties hereto.
8.11 CHANGE IN CONTROL PROTECTION. Nothing contained herein will be
construed to preclude the Company from providing the Executive different or
additional severance benefits as a result of a change in control of the
Company, whether pursuant to an agreement that is in addition to, or as a
supplement to, this Agreement.
8.12 HEADINGS. Headings to paragraphs in this Agreement are for the
convenience of the parties only and are not intended to be part of or to
affect the meaning or interpretation hereof.
8.13 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which will be deemed an original but all of which together will constitute
one and the same instrument.
8.14 WITHHOLDING. Any payments provided for herein will be reduced by
any amounts required to be withheld by the Company from time to time under
applicable federal, state or local income or employment tax laws or similar
statutes or other provisions of law then in effect.
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8.15 GOVERNING LAW. This Agreement will be governed by the laws of the
State of Delaware, without reference to principles of conflicts or choice of
law under which the law of any other jurisdiction would apply. This
Agreement will not be construed for or against a party because that party
prepared it.
8.16 RIGHT OF SET-OFF. Upon termination or expiration of this
Agreement, the Company will have the right to set-off against the amounts due
the Executive hereunder the amount of any outstanding loan or advance from
the Company to the Executive.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officer and the Employee has hereunto set his
hand as of the day and year first above written.
The Executive:
XXXXX X. XXXXXX
/s/ Xxxxx X. Xxxxxx
----------------------------------------------
Xxxxx X. Xxxxxx
The Company:
CD WAREHOUSE, INC.
By: /s/ Xxxxx X. Xxxxxxx
------------------------------------------
Xxxxx X. Xxxxxxx, Chief Executive Officer
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