EMPLOYMENT AGREEMENT
This
Employment Agreement (the “Agreement”) is dated as of March 31, 2006, by and
between AeroGrow International, Inc., a Nevada corporation (the “Company”), and
Xxxx Xxxxxxxx (“Employee”).
In
consideration of the promises and conditions contained herein, the parties
hereto agree as follows:
Section 1.
Employment.
The
Company hereby agrees to employ Employee, and Employee hereby accepts employment
by the Company effective as of the date of this Agreement (the “Commencement
Date”), upon the terms and subject to the conditions hereinafter set forth.
Section 2.
Duties. Employee
shall serve as the Vice President, Retail Sales of the Company. Employee will
perform the duties attendant to his position with the Company under the
direction of the Chief Executive Officer of the Company with dotted line
reporting responsibilities to Chief Marketing Officer. Employee will perform
his
duties faithfully and to the reasonable best of his ability and will devote
his
full business efforts and time to the Company and shall comply with all
reasonable and lawful existing and future regulations applicable to senior
management level employees of the Company and to the Company's business.
Duties
include, and can be modified as a result of discussions with and subject to
the
supervision of the CEO:
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(a)
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Participation
in the development of a corporate marketing and sales strategy as
a member
of senior management;
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(b)
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Development
of sales goals and forecasts consistent with corporate
objectives;
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(c)
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Achievement
of retail sales goals;
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(d)
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Establishment
of retail sales department budgets;
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(e)
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Gaining
of retailer distribution;
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(f)
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Setting
of pricing, merchandising, and retail advertising strategies and
programs
consistent with corporate goals;
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(g)
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Hiring,
training, and management of sales and sales administrative personnel
and
manufacturers’ representatives;
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(h)
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Development
of sales reporting tools required to keep management apprised of
sales
progress versus goals and budgets on a timely
basis;
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(i)
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Informing
management of unanticipated problems that are likely to effect corporate
performance on a timely basis.
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Further,
it is agreed that based upon the timing of the Company’s retail rollout of its
products, a western regional manager position will be established, a person
hired to fill this position and appropriate administrative staffing requirements
will be identified and persons hired to fill those positions.
Section 3.
Term.
Unless
Employee's employment hereunder is terminated earlier pursuant to Section 6
of
this Agreement, Employee's employment hereunder shall begin on April 1, 2006
and
shall expire on the last day of the twenty fourth (24th)
month
(the initial “Contract Term”), provided that upon the expiration of the initial
Contract Term, the Employee's employment hereunder shall continue automatically
for
additional consecutive extension terms of one (1) year each until either party
gives notice of termination to the other at least thirty (30) days prior to
end
of the Contract Term. The initial Contract Term and any extension is referred
to
as the Contract Term.
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Section 4.
Place
of Employment. Employee
shall live and maintain an office in Lexington, MA, however Employee shall
be
required to travel on behalf of AeroGrow as needed, up to a total of 30 nights
spent away from home each calendar quarter. Such travel is to include meetings
at AeroGrow’s headquarters in Boulder, CO., as needed. The reasonable expenses
for maintaining such home office excluding any charges for rent, interest or
utilities (other than telephone) will be borne by AeroGrow , including, but
not
limited to, the purchase of the necessary equipment, and all related ongoing
expenses (eg. telephone, maintenance of equipment, supplies, business related
mileage, secretarial, etc.). All such expenses shall be approved in
advance.
Section 5.
Compensation and Benefits. In
consideration for the services of the Employee hereunder, the Company will
compensate Employee as follows:
(a)
Base
Salary.
Beginning on the Commencement Date, Employee shall be entitled to receive a
base
salary of $150,000 per annum. Such Base Salary shall be payable in periodic
installments in accordance with the terms of the Company's regular payroll
practices in effect from the time during the term of this Agreement and subject
to applicable tax withholding., but in no event less frequently than once each
month. The
Base
Salary is to be reviewed annually prior to the anniversary date of this
Agreement and, based on performance, to be adjusted up, but not down at the
discretion of the CEO and/or a management salary committee comprised of the
Company’s directors.
(b)
Bonus.
Employee
shall receive an annual cash bonus in an amount not less than the greater of;
a)
$50,000; b) 0.5 per cent of retail net sales, net of all customer deductions
including but not limited to returns, allowances, bad debts and other
deductions, or; c) 1.5% of the EBITDA of the Company as determined by the
Company’s annual financial statements and pro rated for any portion of such
annual period covered under this Agreement. Such bonus shall be
payable
for the
initial year in
two
installments, $25,000 to be paid six months following the initial date hereof
and an additional $25,000 12 months following the date hereof and the balance
not later than one hundred and twenty (120) days after the end of the each
of
the Company’s fiscal years covered under this agreement. Employee acknowledges
the foregoing may be modified by the Board of Directors subsequent to the
initial Contract Term, however, in such event; the Bonus herein shall in no
event be less favorable than that granted to the Company’s senior executives. In
addition, Employee shall receive a cash bonus upon signing of this Agreement
of
$12,500 with $5,000 being paid within 30 days of the date hereof and the balance
of $7,500 being paid to Employee on the six month anniversary date of this
Agreement; provided Employee is adequately performing his duties hereunder,
as
determined by the chief Executive Officer.
(c)
Benefits.
Employee
shall be entitled to participate in and receive benefits under any and all
employee benefit plans and programs which are from time to time generally made
available to the executive employees of the Company, subject to approval and
grant by the Governance Committee of the Board with respect to programs calling
for such approvals or grants and consistent with plan terms. Notwithstanding
the
foregoing, Employee shall be entitled to receive;
(i)
The
Company will pay the COBRA premium for the Employee and his family for the
full
18 months it is offered, or until such time as the Company offers a comparable
benefit plan which is equal to replace the employee’s current plan;
(ii)
Paid
vacation equal to 10 paid business days during the first year of the employment
period in addition to all U. S. public holidays, and any other company-wide
vacation days granted by AeroGrow. Beginning with the second year of employment,
the number of paid vacation days will be increased from 10 to 15 business
days.
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(d)
Equity
Compensation.
(i)
Employee shall be entitled to participate in and receive benefits under the
2005
Equity Compensation Plan, and any successor plan providing for compensation
in
the form of stock, stock options and other equity-related compensation provided
by the Company to its employees. The initial grant of the Stock Options to
be
granted to Employee pursuant to the Company’s 2005 Equity Compensation Plan
shall not be less than 125,000 options to purchase the common stock of the
Company at an exercise price of not greater than $5.00. The options shall;
(i)
vest pursuant to terms no less than a minimum of 33% of the amount of the grant
at the date granted and 33% per each twelve month period from the date of grant;
(ii) shall not expire in less than five (5) years from the date of grant; and
(iii) shall be subject to other standard terms and conditions under the 2005
Equity Compensation Plan. Employee agrees that the foregoing options shall
be
subject to the lockup provisions as required by the Company’s investment bankers
in conjunction with a private placement offering conducted during February,
2006.
(ii)
The
Employee will be granted shares of AeroGrow common stock equal in value to
$25,000 semi-annually; i. e., 5,000 shares of stock assuming that the market
price of the common stock is $5.00 per share, or in the event the market price
is lower or higher than $5.00 per share, the number of shares will be equal
to
$25,000 divided by the market price of the shares at the time payment is due.
The first 5,000 shares (valued at a price of $5.00 per share) will be payable
immediately upon the employee’s joining AeroGrow, with shares having a total
value of $25,000 payable to the employee each six months thereafter until such
time as the employee is paid a salary at a rate of $200,000 annually ($16,667
monthly). The lock-out provisions for the sale of shares issued under the stock
grant is that 50 percent of the shares received in each six month period may
be
sold at any time after 12 months from the date of the company’s initial
registration of its common shares with the SEC, with the remaining 50 per cent
eligible for sale 18 months following the date of the company’s initial
registration of its shares with the SEC.
Section 5.
Expenses.
It is
acknowledged that Employee, in connection with the services to be performed
by
him pursuant to the terms of this Agreement, will be required to make payments
for travel, entertainment of business associates and similar expenses. The
Company will reimburse Employee for all reasonable expenses of types authorized
by the Company and incurred by Employee in the performance of his duties
hereunder within fifteen days from date Employee submits a request for such
reimbursement. Employee will comply with such budget limitations and approval
and reporting requirements with respect to expenses as the Company may establish
from time to time.
Section 6.
Termination.
(a)
For
Cause by Company.
The
Company may terminate the Employee's employment under this Agreement at any
time
for Cause. “Cause” is defined as (i) a material act of dishonesty by
Executive in connection with his responsibilities as an Employee,
(ii) conviction of, or plea of nolo contendere to, a felony,
(iii) gross misconduct, or (iv) continued substantial violation of his
employment duties after Employee has received a written demand for performance
from the Company which specifically sets forth the factual basis for the
Company’s belief that Employee has not substantially performed his
duties.
(b)
Without
Cause by Company. The
Company may terminate the Employee's employment under this Agreement at any
time
without Cause. If the Company breaches any term of this Agreement and fails
to
cure such breach within thirty (30) days of notice of such breach from the
Employee, and if Employee terminates his employment with the Company within
thirty (30) days after the period for the cure of the breach by the Company
expires, the Company shall be deemed to have terminated the Employee's
employment hereunder without Cause. Material breach, as defined herein shall
include, without limitation, (a) any failure by the Company to comply with
Section 4 hereof in any material way Area; (e) any misrepresentation by Company
to any government or other violation of law. If the Company terminates the
Employee’s employment in accordance with this paragraph, the Employee shall be
entitled to; (i) continuation in payment of his Base Salary until the end of
the
sixth (6th
)
month
following termination, at the rate in effect immediately before the termination;
(ii) the payment by the Company of medical benefits payable to employee until
the end of the sixth (6th
)
month
following termination, and; (iii) the pro rata portion the bonus payable
pursuant to Section 4(b) as determined by the EBITDA as of the nearest quarter
end financial statements of the Company. The foregoing is provided that the
Employee honors the restrictive covenants provided in this Agreement and
executes a release of all claims arising from his employment by the Company,
in
such form as may then be used by the Company respecting termination of
employees.
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(c)
Without
Cause by Employee. The
Employee may terminate the Employee's employment under this Agreement at any
time after the initial Contract Term without Cause upon giving at least thirty
(30) day’s advance written notice. If the Employee terminates the Employee’s
employment in accordance with this paragraph, the Employee shall be entitled
to
continuation in payment of his Base Salary until the end of the month following
said notice.
(d)
Non-Renewal
Deemed Termination.
The
notice by the Company not to renew the Contract Term for another year shall
be
deemed a termination without cause by the Company under this
Agreement.
(e)
Change
of Control.
Upon a
termination pursuant to Section 6 (b) after the occurrence of a Change of
Control, Employee shall be entitled to; (i) continuation in payment of his
Base
Salary until the end of the twelfth (12th
)
month
following termination, at the rate in effect immediately before the termination;
(ii) the payment by the Company of medical benefits payable to employee until
the end of the twelfth (12th
)
month
following termination For purposes of this Agreement, a "change of control"
shall mean the appointment by the Board of Directors of a new Chief Executive
Officer or a sale or other transaction involving more than 50% of the equity
interests of the Company. Further, upon a Change of Control, any unvested
options granted pursuant to Section 5 (d) (i) herein shall vest in full upon
termination.
(f)
Disability.
If
Employee becomes permanently and totally disabled, this Agreement shall be
terminated. Employee shall be deemed permanently and totally disabled if he
is
unable to engage in the activities required by this Agreement by reason of
any
medically determinable physical or mental impairment, as confirmed by three
independent physicians, which can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not less than
twelve (12) months. Upon termination due to disability, any portion of any
of
the Options granted to the Employee that is not then vested shall vest and
all
Options shall be exercisable by Employee until ninety (90) days after the
termination. Nothing herein shall limit the entitlement of the Employee to
any
other rights or benefits then available to the Employee under any plan or
program of the Company or under applicable law.
(g)
Death.
If
Employee dies during the Employment Term, the Employment shall be terminated
on
the last day of the calendar month of his death and any portion of any of the
Options granted to the Employee that is not then vested shall become vested
and
all Options shall be exercisable by the designated beneficiary, as provided
in
Section 6.8 below, the estate or personal representative of Employee until
ninety (90) days after death. This Section 4.9 will not limit the entitlement
of
the Employee's estate, personal representative or beneficiaries to any death
or
other benefits then available to the Employee under any life insurance, stock
ownership, stock options, or other benefit plan or policy that is maintained
by
the Company for the Employee's benefit.
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Section
7.
Restrictive Covenants and Representations.
(a) Confidential
Data. The
Employee will hold in a fiduciary capacity and will not reveal, communicate
or
divulge during the period of his employment by the Company or thereafter, any
information, knowledge or data to any person, firm or corporation other than
the
Company or persons, firms or corporations designated by the Company, which
relates to the names of the customers, finances, technical data concerning
products or services, or any other secret or confidential information, knowledge
or data of the Company or of any firm owned by the Company, which was learned
through or as a result of employment by the Company.
(b)
Covenant
Not to Compete.
In
consideration for his employment hereunder, during the term of this agreement,
and for twenty-four (24) months after the termination of this agreement,
whichever is later, the Employee shall not, within the United States, either
directly or indirectly, own, have a proprietary interest of any kind in, be
employed by, or serve as a consultant to or in any other capacity for any firm
which is in the primary business of providing aeroponics products or businesses,
or which is otherwise engaged in a business that is competitive with that
conducted by the Company. Notwithstanding the foregoing, the Employee may invest
in the securities of any corporation whose shares are listed on a national
securities exchange or registered under the Securities Exchange Act of
1934.
(c)
Ownership
of Inventions.
There
shall become the exclusive property of the Company, its successors and assigns,
every invention and improvement conceived, invented or developed by the Employee
during the term of his employment hereunder relating to products or services
to
be manufactured, sold, used or in the process of development by the Company
or
by any parent or affiliate of the Company during such period of employment,
or
which may be sold or used in competition with any such product. Employee agrees
to execute such assignments, instruments or other documents as the Company
or
its counsel may request to implement this paragraph.
(d)
Non-Solicitation of Employees.
The
Employee and any entity controlled by him or with which he is associated (as
the
terms "control" and "associate" are defined in the Exchange Act) shall not,
during the Contract Term and for a term equal to the Contract Term thereafter,
directly or indirectly solicit, interfere with, offer to hire or induce any
person who is or was an officer or employee of the Company or any affiliate
(as
the term "affiliate" is defined in the Exchange Act) (other than secretarial
personnel) to discontinue his or her relationship with the Company or an
affiliate of the Company, in order to accept employment by, or enter into a
business relationship with, any other entity or person. (These acts are
hereinafter referred to as the "prohibited acts of solicitation.")
(e)
Return
of Property.
Upon
termination of employment, and at the request of the Company, the Employee
agrees to promptly deliver to the Company all Company or affiliate memoranda,
notes, records, reports, manuals, drawings, designs, computer files in any
media, and any other documents (including extracts and copies thereof) relating
to the Company or its affiliates, and all other property of the Company. Upon
termination, the Executive shall cease to use all such materials and information
set forth under this Section 7(a).
(f)
Representations.
The
Employee represents and warrants to the Company that he has full power and
authority to enter into this Agreement and perform his duties hereunder, and
that he has no outstanding agreement, whether oral or written or any obligation
that is or may be in conflict with any of the provisions of this Agreement
or
that would preclude Employee from complying with the provisions of this
Agreement and the performance of his duties shall not result in a breach of,
or
constitute a default under, any agreement , whether oral or written, including,
without limitation, any restrictive covenant or confidentiality agreement,
to
which he is a party or by which he may be bound. Employee further represents
and
warrants that he has not misappropriated any confidential information and/or
trade secrets of any third party that he intends to use in the performance
of
his duties under this Agreement. Company and the individual signing this
Agreement on behalf of Company each represent and warrant that they each have
full power and authority to enter into this Agreement, that there are no
agreements whether oral or written, or legal requirements, that conflict with
any provisions of this Agreement, and that the performance of this Agreement
shall not result in a breach of, or constitute a material default, under, any
such agreement or legal requirement.
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Section
8. Indemnities
(a)
Employee.
Employee shall indemnify and hold harmless the Company from and against any
losses, claims, damages or liabilities which arise out of any breach of
Employee's representations and warranties set forth in Section 7 (f) of this
Agreement as determined in a court of law and made part of a final judgment
after exhaustion of, or the time has lapsed for, any appeal thereof.
(b)
Company.
Company
shall defend, indemnify and hold Employee harmless from and against any losses,
claims, damages or liabilities which arise out of any: (a) action or inaction
taken or not taken by him in the ordinary course of Company's business or as
directed by the Chairman, CEO or the Board or the Chief Marketing Office unless
a court of law determines that Employee has breached the Employee's
representations and warranties set forth in Section 7(f) of this Agreement
as
part of a final judgment after exhaustion of, or the time has lapsed for, any
appeal thereof. The Company agrees to obtain and maintain Directors and Officers
Liability Insurance during the Contract Term with coverage of not less than
$1.5
million.
Section 9.
General.
(a)
Notices.
Except
as provided in Section 8(a) hereof, all notices and other communications
hereunder will be in writing or by written telecommunication, and will be deemed
to have been duly given if delivered personally or if mailed by certified mail,
return receipt requested, or by written telecommunication, to the relevant
address set forth below, or to such other address as the recipient of such
notice or communication will have specified to the other party hereto in
accordance with this Section ll(a):
If
to
Employer, to:
000
00xx
Xxxxxx, Xxxxx 000
Xxxxxxx,
Xx 00000
If
to
Employee, to:
Xxxx
Xxxxxxxx
00
Xxxxxxxxx Xx
Xxxxxxxxx,
Xxxx 00000
(b)
Withholding;
No Offset.
All
payments required to be made by Employer under this Agreement to Employee will
be subject to the withholding of such amounts, if any, relating to federal,
state and local taxes as may be required by law. No payment under this Agreement
will be subject to offset or reduction attributable to any amount Employee
may
owe to the Company or any other person.
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(c)
Equitable
Remedies.
Each
of
the parties hereto acknowledges and agrees that upon any breach by Employee
of
his obligations under any of Section 7 hereof, the Company will have no adequate
remedy at law, and accordingly will be entitled to specific performance and
other appropriate injunctive and equitable relief.
(d)
Severability.
If
any
provision of this Agreement is held to be illegal, invalid or unenforceable,
such provision will be fully severable and this Agreement will be construed
and
enforced as if such illegal, invalid or unenforceable provision never comprised
a part hereof; and the remaining provisions hereof will remain in full force
and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom. Furthermore, in lieu of such illegal,
invalid or unenforceable provision, there will be added automatically as part
of
this Agreement a provision as similar in its terms to such illegal, invalid
or
unenforceable provision as may be possible and be legal, valid and enforceable.
(e)
Waivers.
No
delay
or omission by either party hereto in exercising any right, power or privilege
hereunder will impair such right, power or privilege, nor will any single or
partial exercise of any such right, power or privilege preclude any further
exercise thereof or the exercise of any other right, power or privilege.
(f)
Counterparts.
This
Agreement may be executed in multiple counterparts, each of which will be deemed
an original, and all of which together will constitute one and the same
instrument.
(g)
Captions.
The
captions in this Agreement are for convenience of reference only and will not
limit or otherwise affect any of the terms or provisions hereof
(h)
Reference
to Agreement.
Use
of
the words “herein,” “hereof,” “hereto” and the like in this Agreement refer to
this Agreement only as a whole and not to any particular subsection or provision
of this Agreement, unless otherwise noted.
(i)
Binding
Agreement.
This
Agreement will be binding upon and inure to the benefit of the parties and
will
be enforceable by the personal representatives and heirs of Employee and the
successors of Employer. If Employee dies while any amounts would still be
payable to him hereunder, such amounts will be paid to Employee’s estate. This
Agreement is not otherwise assignable by Employee.
(j)
Designation of Beneficiary.
If the
Employee shall die before receipt of all payments and benefits to which he
is
entitled under this Agreement, payment of such amounts or benefits in the manner
provided herein shall be made to such beneficiary as he shall have designated
in
writing filed with the Secretary of the Company or, in the absence of such
designation, to his estate or personal representative.
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(k)
Attorneys
Fees.
In any
proceeding brought to enforce any provision of this Agreement, or to seek
damages for a breach of any provision hereof, or when any provision hereof
is
validly asserted as a defense, the prevailing party will be entitled to receive
from the other party all reasonable attorney's fees and costs in connection
therewith.
(j)
Entire
Agreement.
This
Agreement contains the entire understanding of the parties, supersedes all
prior
agreements and understandings relating to the subject matter hereof and may
not
be amended except by a written instrument hereafter signed by each of the
parties hereto.
(k)
Governing
Law.
This
Agreement and the performance hereof will be construed and governed in
accordance with the laws of the State of Nevada, without regard to its choice
of
law principles.
EXECUTED
as of the date first above written.
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By:
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Its:
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Employee
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