EMPLOYMENT AGREEMENT
Agreement (this "Agreement") made as of September 16, 1996 by and between
QUALITY FOOD CENTERS, INC., a Washington corporation (the "Company"), and
Xxxxxxxxxxx X. Xxxxxxxx ("Executive").
R E C I T A L S:
1. The Company desires to employ Executive to further the business
purposes of the Company; and
2. Executive desires to be employed by the Company on the terms provided
herein.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby employs Executive as its President and
Chief Executive Officer, and Executive accepts such employment, upon the terms
and conditions set forth in this Agreement, for the period beginning on the date
hereof and ending as provided in Section 5 hereof (the "Employment Period").
2. POSITION AND DUTIES. During the Employment Period, Executive shall
diligently and faithfully perform the duties of President and Chief Executive
Officer of the Company and shall perform the attendant responsibilities thereto,
as well as such other responsibilities as the board of directors of the Company
(the "Board") may from time to time direct. Executive shall devote substantially
all his business time and attention (except for permitted vacation periods and
periods of illness or other incapacity) to the business and affairs of the
Company and, to the extent necessary to discharge the responsibilities assigned
to Executive hereunder, shall use his reasonable best efforts to perform
faithfully and efficiently such responsibilities. Executive shall report only
to the Board. The parties hereby acknowledge that it is the present intention of
the Company to adopt a holding company structure such that the Company would
become a wholly-owned subsidiary of another corporation ("Holdco"), and the
parties hereby agree that if such a holding company structure is adopted, this
Agreement shall be assigned and transferred to Holdco in accordance with Section
10 hereof and, from and after the effective date of such assignment and
transfer, (a) Executive shall diligently and faithfully perform the duties of
President and Chief Executive Officer of Holdco and shall perform the attendant
responsibilities thereto, as well as such other responsibilities as the board of
directors of Holdco may from time to time direct, (b) Executive shall report
only to the board of directors of Holdco, and (c) all references herein to
Company shall be a reference to Holdco.
3. SALARY; BONUS; BENEFITS
(a) SALARY. During the Employment Period, Executive's base salary (the
"Salary") shall be not less than $600,000 per annum. The Salary shall be payable
in regular installments in accordance with the general payroll practices of the
Company. The Company's Compensation Committee shall review Executive's Salary
hereunder from time to time, but not less frequently than each Company fiscal
year and, in its discretion, may adjust such Salary in
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such amount as it deems appropriate for any future year of this Agreement;
provided, however, that the specified rate of Salary hereunder shall not be
reduced below $600,000.
(b) BONUS. Executive shall be eligible for an annual bonus ("Bonus") in
addition to Salary, which Bonus shall be based on criteria established from time
to time by the Company's Compensation Committee; provided, that a target Bonus
(hereinafter a "Target Bonus") equal to fifty-percent (50%) of the Salary set
forth in Section 3(a) hereof shall apply during the initial twelve (12) month
period hereunder, and the Target Bonus for each subsequent twelve (12) month
period hereunder (if and only if a Termination has not occurred prior to the
beginning of such twelve (12) month period) shall be an amount equal to fifty
percent (50%) of the Salary applicable to the immediately preceding twelve (12)
month period hereunder; provided, further, that the actual amount of Bonus
payable with respect to any twelve (12) month period hereunder shall be
determined based on criteria established from time to time by the Company's
Compensation Committee, and no Bonus shall be payable to Executive hereunder for
any twelve (12) month period unless, and then only to the extent, the criteria
established by the Compensation Committee for such period are actually met;
provided, further, that in the event the Compensation Committee fails to
establish Bonus criteria applicable to any twelve (12) month period hereunder,
then Executive shall be entitled to a Bonus for such twelve (12) month period in
an amount equal to the lesser of (i) fifty percent (50%) of the Salary
applicable to the immediately preceding twelve (12) month period hereunder, and
(ii) the amount of the Bonus actually paid to Executive for such immediately
preceding twelve (12) month period.
(c) BENEFITS. In addition to the Salary and other benefits expressly
described herein, Executive shall be entitled during the Employment Period to
participate in all benefit plans provided by the Company generally to senior
executive officers of the Company (other than incentive compensation, bonus,
deferred compensation or similar compensation plans, if any), including, but not
limited to, such amount of paid vacation as is permitted for other senior
executive officers of the Company.
4. STOCK OPTIONS.
(a) INITIAL GRANT. Concurrently with the execution and delivery of
this Agreement, Company has granted to Executive options (the "Initial Options")
to purchase a total of 500,000 shares of the Company's common stock, $.001 par
value per share ("Common Stock"), on the terms and conditions set forth in that
certain Stock Option Agreement between Company and Executive, a copy of which is
attached hereto as EXHIBIT A. As more particularly described in the Stock
Option Agreement, Executive will vest in the Initial Options at such time as the
market price for the Common Stock, as reported by the NASDAQ National Market
System, meets or exceeds Forty Dollars ($40) per share for any consecutive ten
(10) trading day period subsequent to the date hereof (subject to immediate
vesting in the event of a Termination which falls within the categories
described in Section 5(c) hereof).
(b) SUBSEQUENT GRANTS. On and as of each of the first and second
anniversary of the date hereof during the term of this Agreement, if as of such
date a Termination (as hereinafter defined) has not occurred, Company shall
grant to Executive on such date additional options to purchase not less than
that number of shares of the Company's Common Stock which is equal to the
quotient of (i) the product of (A) the sum of the Salary plus Target Bonus
applicable to the immediately preceding twelve (12) month period hereunder,
multiplied by (B) three (3), divided by (ii) an amount equal to the greater of
(Y) the market price
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for the Common Stock, as reported by the NASDAQ National Market System, for the
ten (10) trading day period immediately prior to the effective date of such
grant, and (Z) the market price for the Common Stock, as reported by the NASDAQ
National Market System for the effective date of such grant (or the last trading
day immediately prior to the effective date of such grant if the effective date
is not a trading day). Such options shall be granted on such terms and subject
to such conditions as the Company's Compensation Committee shall establish in
its discretion; provided, that (i) all such options shall be granted under
either the Company's 1993 Executive Stock Option Plan and/or the Company's 1987
Incentive Stock Option Plan, (ii) Executive shall vest in such options ratably
over the five (5) year period beginning on the applicable date of grant (subject
to immediate vesting in the event of a Termination which falls within the
categories described in Section 5(c) hereof), and (iii) such options shall
expire ten (10) years after the applicable date of grant.
5. TERM.
(a) The Employment Period shall commence on the date hereof and shall end
on September 16, 1999 (the "Expiration Date"); provided that (i) the Employment
Period shall terminate prior to the Expiration Date upon Executive's death, or
the inability of Executive to perform his normal services to the Company
required hereunder for a period of ninety (90) consecutive days due to a
condition resulting from any physical or mental illness or disability (as
reasonably determined by the Board in its good faith judgment), (ii) the
Employment Period may be terminated by the Company at any time prior to the
Expiration Date upon five (5) business days prior written notice for Cause (as
defined below) or upon thirty (30) days prior written notice without Cause, and
(iii) the Employment Period may be terminated by Executive at any time prior to
the Expiration Date upon thirty (30) days prior written notice, whether or not a
Material Change of Duties or Change of Control (each as defined below) shall
have occurred.
(b) Upon termination of the Employment Period for any reason (any such
event, a "Termination"), except as otherwise provided in Section 5(c) hereof,
Executive shall not be entitled to receive Salary, Bonus or other amounts or
benefits for periods after the termination of the Employment Period.
(c) In the event the Employment Period is terminated (i) by Executive due
to a Material Change of Duties, (ii) by the Company or Executive within ninety
(90) days after a Change of Control, or (iii) by the Company other than for
Cause, then, except as otherwise herein provided, the following provisions shall
apply:
(1) the Company shall pay to Executive, to the extent not already
paid to Executive, (A) payments equal to Executive's then current Salary, at the
same times that installments of Salary would be due to Executive hereunder if
the Employment Period had not been terminated, for a period beginning on the
date of such Termination and ending on the Expiration Date (the "Severance
Period"), and (B) the Target Bonus applicable to the twelve (12) month period in
which such Termination occurs, within ninety (90) days after the effective date
of such Termination (all such payments described in the preceding clauses (A)
and (B) hereinafter "Severance Payments"); provided, that Company may in its
sole discretion pay all Severance Payments in a single lump sum within thirty
(30) days after the effective date of such Termination; and
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(2) during the Severance Period, the Company shall continue to
provide to Executive (at no cost to Executive other than the costs being borne
by Executive immediately prior to Termination) all fringe benefits, including
but not limited to, insurance, being provided or required to be provided to
Executive at the time of Termination.
Notwithstanding any provision of this Agreement to the contrary, the
Company's obligation pursuant to this Section 5(c) to make the Severance
Payments, if any, and to provide such benefits, if any, to Executive shall
immediately terminate and be of no further force and effect from and after the
date on which a breach of Section 7 or Section 8 hereof shall have occurred, and
Executive shall not be entitled to any such Severance Payments and/or benefits
from and after such date.
(d) For purposes of this Agreement, "Cause" shall mean (i) repeated
failure or refusal to carry out the reasonable directions of the Board (or the
board of directors of Holdco, as the case may be) consistent with Executive's
duties as an officer and employee of the Company and/or Holdco, as the case may
be, (ii) a material act or omission involving willful misconduct or gross
negligence in the performance of Executive's duties, (iii) conviction of a
felony which could reasonably cause, in the determination of the Board (or the
board of directors of Holdco, as the case may be), substantial damage to the
business, assets, or reputation of the Company, Holdco and/or any of their
subsidiaries, (iv) the violation of any statutory or common law duty of loyalty
to the Company, Holdco and/or any of their subsidiaries, or (v) violation of
Section 7 or Section 8 of this Agreement.
(e) For purposes of this Agreement "Material Change of Duties" shall mean
the assignment of Executive to duties and responsibilities that are
substantially inconsistent with his authority, duties and responsibilities as
President and Chief Executive Officer of the Company or Holdco, as the case may
be, and that are normally assigned to an employee of lesser rank, regardless of
whether such assignment is accompanied by a change in title or reporting
responsibility.
(f) For purposes of this Agreement, "Change of Control" shall have
occurred at such time as a majority of the Board (which term shall for the
purposes of this Section 5(f) shall be deemed to include a reference to the
board of directors of Holdco, if and when applicable) do not constitute
"Continuing Directors", as such term is defined in the Articles of Incorporation
of the Company in effect as of the date hereof (applying the principles of such
term to the board of directors of Holdco if and when applicable).
6. EXPENSES. During the Employment Period, the Company shall reimburse
Executive for all business travel and expenses reasonably necessary and
appropriate for the performance of his duties hereunder, provided that Executive
submits receipts or other expense records to the Company in accordance with the
general reimbursement policy then in effect for executives and other employees
of the Company.
7. CONFIDENTIALITY. Executive acknowledges and agrees that, as a result
of the performance of his duties hereunder and his performance of duties prior
to the date hereof, he has and/or will develop, make use of, acquire and have
access to knowledge of a special, unique, non-public or proprietary nature
relating to the Company, including, without limitation, pricing and marketing
strategy and customer and supplier lists and information (collectively,
"Confidential Information") and that such Confidential Information constitutes
valuable, special
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and unique property to the Company. As a material inducement to the Company's
entering into this Agreement, Executive covenants and agrees that he will not,
at any time during or after the term of this Agreement, directly or indirectly,
use, divulge or disclose (other than as required by law), in any manner or for
any purpose whatsoever, any Confidential Information, other than for the sole
benefit of the Company. Executive shall use his best efforts to take all
measures necessary to prevent any person from directly or indirectly using,
divulging or disclosing such Confidential Information.
Executive shall, upon termination of the Employment Period for any reason,
immediately surrender and turn over to the Company any and all books, reports,
accounts, records, correspondence and other information constituting or
incorporating Confidential Information that are in his possession, without
retaining any copy, summary or extract thereof on any storage medium whatsoever.
8. COVENANTS NOT TO COMPETE.
(a) As a material inducement to the Company's entering into this
Agreement, Executive hereby covenants and agrees that, during the Covenant
Period (as defined below), he shall not, directly or indirectly:
(i) engage in, or have any interest in any person, firm,
corporation, partnership or business that engages in, any business
which is competitive with any business in which (A) the Company is
engaged at any time during the Employment Period and (B) Executive is
directly involved in the performance of his duties hereunder;
(ii) divert or attempt to divert or take advantage of or attempt
to take advantage of any business or opportunities of any type
whatsoever which are similar to the business of the Company or the
opportunities in which the Company is engaged during the Employment
Period;
(iii) solicit or attempt to solicit any existing or future
customers, clients or suppliers of the Company, except to the extent
that such solicitation or attempted solicitation concerns business
activities which are unrelated to any and all businesses and/or
opportunities in which the Company is engaged at any time during the
Employment Period; or
(iv) induce or attempt to induce any employee of the Company to
leave or terminate such employment (collectively, such restrictions
shall hereinafter be referred to as the "Covenants Not To Compete").
As used herein, the term "Covenant Period" shall mean the period beginning
on the date hereof and ending (xx) in the event of a Termination which does not
fall within the categories described in Section 5(c) hereof, twenty-four (24)
months after the date of such Termination, and (yy) in the event of a
Termination which falls within the categories described in Section 5(c) hereof
or if no Termination occurs prior to the Expiration Date, twenty-four (24)
months after the Expiration Date.
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(b) The Covenants Not To Compete shall in no way restrict the right of
Executive to own, in the aggregate, not more than five percent (5%) of the
equity securities of any corporation whose equity securities are listed on a
national securities exchange or regularly traded in the over-the-counter market
and for which quotations are available on the NASDAQ System. Any holding
acquired in reliance on the provisions of this Section 7(b) and in compliance
with the limitations hereof shall not be deemed to be in violation of the
Covenants Not To Compete if subsequent to its acquisition any such equity
securities are no longer listed on a national securities exchange or no longer
regularly traded in the over-the-counter market and quoted on the NASDAQ System.
(c) If, in any judicial proceeding, a court shall refuse to enforce the
Covenants Not To Compete, or any portion thereof, because the term is too long,
all parties hereto expressly understand and agree that for the purpose of such
proceeding, such term shall be deemed reduced to the extent necessary to permit
the enforcement of the Covenants Not To Compete.
(d) If, in any judicial proceeding, a court shall refuse to enforce the
Covenants Not To Compete, or any portion thereof, because it is more extensive
(whether as to geographic area, scope of business or otherwise) than necessary
to effectuate the purpose of this Agreement, all parties expressly understand
and agree that for the purposes of such proceeding, such limitation shall be
deemed reduced to the extent necessary to permit the enforcement of the
Covenants Not To Compete.
9. ATTORNEY'S FEES. In the event of a lawsuit or other proceeding to
enforce the terms hereof, the other party or parties hereto shall reimburse the
prevailing party upon demand for attorney's fees and disbursements reasonably
incurred by such prevailing party in connection with such lawsuit or proceeding,
as well as all associated court costs.
10. ASSIGNMENT. No party to this Agreement may assign or transfer any
obligation hereunder without the written consent of the other parties; provided,
that Company may assign and transfer all of its rights and obligations hereunder
to an entity which owns, as of the date of such assignment and transfer, one
hundred percent (100%) of the issued and outstanding capital stock of the
Company, and, from and after the effective date of such assignment and transfer,
any reference herein to Company shall from and after the effective date of such
assignment and transfer be a reference to such entity. Subject to the
foregoing, this Agreement shall inure to the benefit of and shall be binding
upon the parties and their respective heirs, successors and assigns.
11. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together shall constitute one and the
same Agreement.
13. CAPTIONS. The captions used in this Agreement are for convenience of
reference only and do not constitute a part of this Agreement and will not be
deemed to limit, characterize
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or in any way affect any provision of this Agreement, and all provisions of this
Agreement will be enforced and construed as if no caption had been used in this
Agreement.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Washington, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Washington or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of Washington; provided,
that if at any time the rights and obligations of Company under this Agreement
are assigned and transferred in accordance with the terms hereof to a
corporation incorporated under, or if prior to any such assignment the Company
is re-incorporated under, the laws of a State other than the State of
Washington (hereinafter the "Assignee State"), this Agreement shall, from and
after the effective date of such assignment and transfer (or re-incorporation,
as the case may be), be governed by the domestic laws of such Assignee State,
without giving effect to any choice of law or conflict of law provision or rule
(whether of such Assignee State or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than such Assignee State.
15. NOTICES. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable express courier service (charges
prepaid), telecopied to the recipient (with hard copy to follow) or mailed to
the recipient by certified or registered mail, return receipt requested and
postage prepaid; provided, however, that if any such notice is received other
than on a regular business day before 4:00 p.m., such notice will be deemed
given as of the next succeeding regular business day. Such notices, demands and
other communications shall be sent to the Executive and the Company at the
addresses indicated below:
NOTICES TO THE COMPANY:
Quality Food Centers, Inc.
00000 X.X. 00xx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx X. Xxxxx, Chairman and Chief Executive Officer
Facsimile No.: (000) 000-0000
with a copy to:
Xxxx/Chilmark Fund, L.P.
Xxx Xxxxx Xxxxxxxxx Xxxxx
Xxxxx 000
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxxx X. Xxxxxxxxx
Facsimile No.: 000-000-0000
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NOTICES TO THE EXECUTIVE:
Xxxxxxxxxxx X. Xxxxxxxx
000 Xxxxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxxxxx 00000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxx Xxxxxx
Xxxx, Xxxxxx & X'Xxxx, LLC
000 Xxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxxxx 00000-0000
Facsimile No.: (000) 000-0000
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
16. COMPLETE AGREEMENT. This Agreement constitutes the complete agreement
and understanding among the parties and supersedes and preempts any prior
understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject matter hereof in any way.
17. SURVIVAL. Sections 5, 7, 8 and 9 of this Agreement shall survive and
continue in full force and effect in accordance with their terms notwithstanding
any termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
QUALITY FOOD CENTERS, INC.
/s/ Xxxxxx X. Xxxxx
___________________________
By: Xxxxxx X. Xxxxx
Its: Chairman
EXECUTIVE
/s/ Xxxxxxxxxxx X. Xxxxxxxx
___________________________
Xxxxxxxxxxx X. Xxxxxxxx
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