EXHIBIT 10.5
1998
EMPLOYMENT AGREEMENT
BETWEEN
HAT WORLD, INC.
A MINNESOTA CORPORATION
AND
XXXXXXX X. XXXXXX
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made and entered into
as of the 31st day of July, 1998, by and between HAT WORLD, INC., a Minnesota
corporation (the "Employer"), and Xxxxxxx X. Xxxxxx, a South Dakota resident
(the "Employee").
RECITALS
A. Employee is presently employed by Employer, and Employee and
Employer desire to continue Employee's employment on the terms and conditions
set forth in this Agreement.
B. Employee understands that Employer, through extensive efforts, has
developed, and continues to develop, certain management and marketing techniques
and strategies, innovations, designs, ideas, plans, trade secrets, proprietary
information, sales methods and systems, customer and client lists, methods of
obtaining business, advertising and pricing strategies and other proprietary
information that Employer desires to protect and keep confidential.
C. Employee will have access to confidential and proprietary
information belonging to Employer by reason of Employee's employment with
Employer pursuant to this Agreement, and will be able to harm the protectable
business interests of Employer unless reasonable restrictions are imposed on
Employee's conduct and activities following termination of Employee's
relationship with Employer.
D. Employer will be at an unfair competitive disadvantage and will be
harmed if Employee divulges Employer's confidential information at any time
during or after the termination of Employee's employment pursuant to this
Agreement or competes with Employer during a certain period of time following
termination of Employee's employment pursuant to this Agreement.
E. Employee wishes to assure Employer that Employee's relationship with
Employer and the information and relationships acquired and developed by
Employee during the course thereof do not and will not constitute a threat or
risk that Employer will be unfairly harmed or placed at an unfair competitive
disadvantage by Employee's actions in the future.
AGREEMENT
NOW, THEREFORE, in consideration of the promises and covenants
contained in this Agreement and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Employer and Employee
agree as follows:
1. EMPLOYMENT. Employer hereby agrees to employ Employee as Chief
Financial Officer and Treasurer of Employer in accordance with the terms and
conditions set forth in this Agreement. Employee shall perform such duties and
responsibilities as may from time to time be assigned to him by Employer.
Employee accepts such employment subject to the general supervision, orders,
advice, and direction of Employer and to the terms and conditions set forth in
this Agreement.
1
2. TERMS AND TERMINATION. Employee's employment hereunder shall be on
an at-will basis, terminable at any time with or without cause by either party.
In the event Employee terminates Employee's employment with Employer, Employee
agrees to give notice of such termination to Employer as far in advance of such
termination as is reasonably possible under the circumstances (but in no event
fewer than 30 days' advance notice).
3. COMPENSATION AND RELATED MATTERS.
(a) For all services rendered by Employee to Employer pursuant to
this Agreement, Employee's compensation shall be determined, computed and paid
in accordance with the Compensation Schedule attached hereto as Schedule A and
made a part hereof.
(b) Employee, subject to any applicable eligibility and insurability
requirements, shall be offered the opportunity to receive the same benefits, on
comparable terms and subject to comparable conditions, as those that are made
available by Employer to other employees generally from time to time (the
"Benefits"). Employer reserves the right, in its sole discretion, to modify,
supplement, replace or eliminate any or all of the Benefits without advance
notice to Employee.
4. EXPENSES AND CHARGES. If Employee incurs any out-of-pocket expenses
in performing his responsibilities and duties as President of Employer (the
"Duties"), Employer will reimburse Employee for such expenses only to the
extent, and in the amounts and at the times, in accordance with Employer's
expense policies in effect from time to time (the "Expense Policy"). Employer
reserves the right, in it's sole discretion, to modify, supplement, replace or
cancel any or all provisions in the Expense Policy without advance notice to
Employee.
5. NONCOMPETITION AND NONSOLICITATION. Employee will not, during the
term of his employment with Employer or at any time within 24 months immediately
following the termination of his employment with Employer, directly or
indirectly, on his own behalf or on behalf of any third party whether as an
agent, employee, employer, officer, director, manager, shareholder, member,
principal, consultant, independent contractor, partner, creditor or in any other
capacity:
(a) employ or seek to employ any person who was, during the "Service
Period" (as hereinafter defined), an employee of Employer; or
(b) induce, cause, solicit, advise or influence any person to leave
employment with Employer who was, during the "Service Period" (as hereinafter
defined), an employee of Employer; or
(c) "compete" (as hereinafter defined) with Employer in the "primary
market area" (as hereinafter defined); or
(d) induce, cause, solicit, advise or influence any person, business
or entity who was a customer of Employer during the "Service Period" to
patronize a "competitor" (as hereinafter defined) of Employer; or
(e) initiate contact with or solicit or accept the business of any
person, business or entity who was a customer of Employer during the "Service
Period" (as hereinafter defined) for the purpose of "competing" (as hereinafter
defined) with Employer or effecting any of the prohibited actions described in
this Section 5.
2
For purposes of this Agreement, "Service Period" shall mean the period
during which Employee is employed by Employer, whether under this Agreement or
otherwise. For purposes of this Agreement, "compete", "competes" and "competing"
shall mean to engage or seek to engage in the provision of products or services
that are identical or substantially similar to those products or services
provided by Employer during the "Service Period." For purposes of this
Agreement, "primary market area" shall mean any counties in any states of the
United States where, during the Service Period, Employer has performed services
or sold products in such counties or to customers who are located in such
counties. For purposes of this Agreement, "competitor" shall mean any person,
business, or entity that competes with Employer. Employee acknowledges and
understands that it is essential and reasonable, in order to protect Employer's
interests under this Agreement, that Employee be restricted in the manner
described above for the period described hereinabove.
6. CONFIDENTIALITY. Except for necessary disclosures made in the
ordinary course of the performance of the Duties, and except as is otherwise
expressly authorized by Employer in writing, Employee shall not at any time,
either during the term of his employment with Employer or at any time
thereafter, directly or indirectly, on his own behalf or on behalf of any third
party, whether as agent, employee, employer, officer, director, manager,
shareholder, member, principal, consultant, independent contractor, partner,
creditor or in any other capacity, use or disclose any confidential information
obtained, received or learned by him while Employed by Employer (including
information conceived, originated, discovered or developed by Employee)
including but not limited to, ideas, concepts, designs, specifications,
technical data, discoveries, programs, technical know-how, methods, procedures,
business plans, marketing plans, marketing information, techniques, forecasts,
customer (actual or prospective) lists, customer (actual or prospective)
information, supplier (actual or prospective) lists, Supplier (actual or
prospective) information, processes, formulae, research, development,
inventions, trademarks, trade names, trade secrets, proposals, and financial
information, whether or not the same are, or may be, patented, registered, or
otherwise publicly protected, and whether or not originated or generated by or
through Employer; provided, however, that this Section 6 shall not preclude
Employee from use or disclosure of information known generally to the public
(provided that Employee was not, without Employer's consent, directly or
indirectly responsible for such information becoming known generally to the
public) or from disclosure required by law or court order.
7. RETURN OF RECORDS AND PROPERTY. Employee agrees that all documents
and records and copies of documents and records pertaining to the financial
affairs, operations, customers, recruits, employees and business of Employer,
including, without limitation, price lists, customer lists, employee lists,
marketing data, sales aids, notes (even if made by or delivered to Employee),
and every other document or record obtained or received by Employee while
employed by Employer shall be the exclusive property of Employer, and Employee
agrees to keep such documents and records subject to Employer's direction,
custody and control and to surrender to Employer such of those documents and
records as are still in his possession at the termination of his employment with
Employer. Employee agrees not to disclose or give possession of such documents
or records to anyone except authorized representatives of Employer. Employee
further agrees to return to Employer, promptly upon termination of his
employment with Employer, all documentation, records, customer lists, supplier
lists, software, hardware, brochures, forms, supplies, samples, and all items of
a confidential nature.
3
8. SEVERANCE BENEFITS.
(a) Upon termination of Employee's employment with Employer for any
reason or under any circumstance other an on account of the death or
"misconduct" (as defined in Section 8(d) hereof) of Employee, Employer shall pay
Employee in cash an amount equal to four (4) month's base salary then in effect
for Employee. Except for the additional severance compensation and/or benefits,
if any, granted by Employer pursuant to Section 8(b) hereof, the severance
benefits provided for by this Section 8(a) shall constitute the entire
obligation of Employer for the payment of severance compensation or benefits to
Employee under this Agreement.
(b) Upon termination of Employee's employment with Employer for any
reason or under any circumstance other than on account of the death or
"misconduct" (as defined in Section 8(d) hereof) of Employee, the Board or an
authorized committee of the Board, shall consider and make a determination s to
whether, under the circumstances, severance compensation and/or benefits in
addition to the severance benefits granted in Section 8(a) should be awarded to
Employee. Employer shall be under no obligation to award any such additional
severance compensation and/or benefits and the determination of whether to award
such additional severance compensation and/or benefits shall be in the sole
discretion of the Board or such committee.
(c) Nothing in this Agreement shall be construed as affecting
Employee's right to severance compensation or benefits under any other written
agreements between Employer and Employee.
(d) For purposes of this Agreement, "misconduct" means:
(i) the failure of Employee to substantially perform any of
Employee's significant duties or responsibilities in connection with Employee's
employment (other than any such failure resulting from incapacity due to
physical or mental illness); or
(ii) any act that constitutes on the part of Employee common law
fraud or dishonesty regardless of whether such fraud or dishonesty resulted in,
or was intended to result in, a benefit to Employee at the expense of Employer;
or
(iii) the conviction of Employee of, or the plea by Employee of
nolo contendere to, a felony or a crime involving moral turpitude; or
(iv) any violation by Employee in any material respect of any of
Employer's policies or of any term or provision of any employment or other
agreement between Employee and Employer; or
(v) Employee's unexcused total abandonment or neglect of
Employee's duties and responsibilities in connection with Employee's employment
with Employer (other than absences due to illness, physical or mental
incapacity, vacations, or other excused absences) for a continuous period of ten
working days.
(e) Employer shall withhold from the severance benefits granted in
Section 8(a) (and any discretionary severance compensation and/or benefits
otherwise paid to Employee) all federal, state, city, county or other taxes as
shall be required pursuant top any law or governmental regulation or ruling.
4
9. NOTICES. Any notice, request, demand or other communication to be
given hereunder to any party by any other party shall be in writing and shall be
personally delivered or sent by prepaid same day or over night courier or
certified mail, return receipt requested, postage prepaid, addressed as follows
(or addressed to such other address as shall be given in writing by any party to
the other):
To Employer: Hat World, Inc.
0000 X. Xxxxxxxxx Xxx.
Xxxxx Xxxxx, XX 00000
Attn.: Board of Directors
To Employee: Xxxxxxx X. Xxxxxx
0000 Xxxxx Xxxx
Xxxxx Xxxxx, XX 00000
10. ENTIRE AGREEMENT; MODIFICATION; WAIVER. This Agreement constitutes
the entire agreement between Employer and Employee with respect to the subject
matter hereof and supersedes all prior or contemporaneous agreements,
representations and understandings, written or oral, relative to the subject
matter hereof. No supplement, modification or amendment to this Agreement shall
be binding unless executed in writing by the parties hereto. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision, whether or not similar, nor will any waiver constitute a
continuing waiver. No waiver will be binding unless executed in writing by the
party making the waiver.
11. HEADINGS; PRONOUNS. Headings in this Agreement are for convenience
only and shall not be used to interpret or construe its provisions. All pronouns
and any variations thereof shall be deemed to refer to the masculine, feminine,
neuter, singular or plural as the identity of the person or persons may require.
Use of the terms "herein", "hereof", and "hereunder" shall be deemed references
to this Agreement in its entirety and not to the Section or clause in which such
term appears.
12. REASONABLENESS OF TERMS. Both Employer and Employee stipulate and
agree that the covenants and other terms contained in this Agreement are
reasonable in all respects, including any time periods and geographical
coverage.
13. SEVERABILITY. Should any clause, portion or section of this
Agreement be unenforceable or invalid for any reason, such unenforceability or
invalidity shall not affect the enforceability or validity of the remainder of
this Agreement. Should any particular covenant in this Agreement be held
unreasonable or unenforceable for any reason, including, without limitation, the
time period, geographical area or scope of activity covered by such covenant,
such covenant shall be given effect and enforced to whatever extent would be
reasonable and enforceable.
14. GOVERNING LAW. This Agreement shall be construed, interpreted and
governed in all respects by the laws of the State of Indiana. The parties intend
the provisions of this Agreement to supplement, but not displace, their
respective rights and responsibilities under the Indiana Uniform Trade Secrets
Act, I.C. 24-2-3, as such statute may be amended, from time to time.
15. BINDING EFFECT. The Agreement is binding upon and shall inure to
the benefit of and may be enforced by Employer, is successors and assigns, and
shall be binding upon Employee and may be enforced against Employee and
Employee's executors, personal representatives, administrators, legatees and
other successors in
5
interest. This Agreement, being personal to Employee, may not be assigned by
Employee.
16. EMPLOYEE REPRESENTATIONS AND ACKNOWLEDGMENTS. Employee
acknowledges, stipulates, agrees, represents and warrants to Employer that (a)
he has had adequate time to review this Agreement, (b) he has had the
opportunity to ask questions and receive answers from Employer regarding this
Agreement, and (c) he has had the opportunity, and has been encouraged by
Employer, to consult with legal advisors of his choice concerning the terms,
conditions and provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written. By affixing his name hereto, Employee acknowledges
that he has received and read a fully executed copy of this Agreement.
"EMPLOYER"
HAT WORLD, INC.
By:
-----------------------------------
Xxxxxx X. Xxxxxx
Chairman & Corporate Secretary
"EMPLOYEE"
---------------------------------------
Xxxxxxx X. Xxxxxx
6
SCHEDULE A
COMPENSATION
1. BASE SALARY. Unless the Agreement is earlier terminated, Employer
shall pay to Employee an annual salary (less any applicable local, state and
federal taxes), payable in installments and as prorated to reflect any partial
months of employment hereunder, Sixty Thousand Dollars ($60,000) for the period
commencing July 1, 1998 to June 30, 2001.
Salary payments will be payable in 26 equal installments per year,
every two weeks, two weeks in arrears, or, if such Payment Date falls on a
Saturday, Sunday or legal holiday, on the last business day before such Payment
Date; or (b) in accordance with a schedule mutually agreed upon by the parties
hereto.
2. BASE SALARY ADJUSTMENTS. The annual base salary shall increase or
decrease as the number of stores operated by Employer increases or decreases as
follows:
Hat World Stores Operated Base Pay Increases
------------------------- ------------------
50 to 99 stores 10.00% to $66,000 Annually
100 to 149 stores 10.00% to $72,600 Annually
150 to 199 stores 15.00% to $83,490 Annually
200 to 249 stores 15.00% to $96,014 Annually
Annual increases or decreases shall be effective from the date the
total number of stores operated by Employer attains the numbers listed above
prorated to reflect any partial months of employment hereunder.
The increase would be lost if the total number of stores declines below
the thresholds indicated above. For example, if the store number is 50, then a
10.00% increase applies for the remainder of the term unless the store number
would drop to 49 or less, then the original Base Salary ($60,000) would apply.
3. PERFORMANCE BONUSES. By March 31 of each year, the board of
directors shall approve a reasonable projected ratio of Earnings Before
Interest, Taxes, Depreciation and Amortization (EBITDA) as a percent of
Revenues. For fiscal and calendar year 1998 the EBITDA Percent shall be 15.74%.
For 1998, the Employee shall receive a performance bonus as
determined by the actual EBITDA Percent as follows:
Actual EBITDA Percent for 1998 Performance Bonus
------------------------------ -----------------
Below 14.50% 0.00%
14.50% to less than 15.00% 10.00%
15.00% to less than 15.50% 12.50%
15.50% to less than 16.00% 15.00%
16.00% to less than 16.50% 17.50%
16.50% to less than 17.00% 20.00%
The ranges for achievement of Performance Bonuses in subsequent years
shall be reasonably adjusted to reflect changes in the projected ratio of EBITDA
Percent for such subsequent years. Performance Bonus percentages are of Base
Salary after adjustments.
Actual EBITDA Percents shall be properly calculated from financial
statements of Employer for the relevant period, certified after audit by
Employer's certified public accountants, which financial statements shall be
prepared in accordance with generally
A-1
accepted accounting principles in the United States of America in effect at the
time of the calculation as promulgated by the Financial Standards Accounting
Board and recognized and interpreted by the American Institute of Certified
Public Accountants.
4. STOCK OPTIONS. Upon execution of the Agreement by both parties,
Employer shall grant to Employee a non-qualified option to purchase shares of
Stock (the "Option"), which Option shall be subject to the terms and
restrictions on transfer and other restrictions, if any, as provided in the Hat
World, Inc. 1995 Stock Option Plan, as amended, modified or restated from time
to time (the "Plan") or the Non-Qualified Stock Option Agreement between
Employee and Employer of even date herewith (the "Option Agreement"), and the
following terms and conditions:
(a) Number of Shares: 40,000 shares of Common Stock (based on the
number of shares outstanding as of July 1, 1998)
(b) Exercise Price: $13.00 per share
(c) Expiration Date: The Option, to the extent unexercised, shall
expire at 12:00 noon, Indianapolis time, on December 31, 2001.
(d) Exercisability: The Option shall be exercisable so long as
Employee remains employed by Employer and in accordance with the following
vesting schedule:
Date of Vesting Number of Shares
--------------- ----------------
July 1, 1998 10,000
June 30, 1999 10,000
June 30, 2000 10,000
June 30, 2001 10,000
In the event of an acquisition of more than fifty percent of the
common stock of the Employer by any control person or group (as defined by the
Securities and Exchange Commission definitions and guidelines), then vesting of
all the options indicated above shall be immediate.
5. PRIOR OPTIONS. All options granted by prior employment agreements
and option grants, and not heretofore cancelled or expired, shall continue in
full force and effect.
A-2
