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EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") made effective as
of the 4th day of April, 1997 (the "Effective Date") by and between Tekni-Plex,
Inc., a Delaware corporation (the "Employer"), having its principal offices at
000 Xxxxxxxxxx Xxxxxxx, Xxxxxxxxxx, XX 00000, and Xxxxxxx X.X. Xxxxx, an
individual (the "Executive"), residing at 00 Xxxxxx Xxxx Xxxx, Xxxxxxxxxx, Xxx
Xxxxxx 00000.
W I T N E S S E T H:
WHEREAS, the Employer desires to retain the Executive as the
President and Chief Operating Officer of Employer, and the Executive is willing,
upon the terms and conditions herein set forth, to serve as President and Chief
Operating Officer of Employer.
WHEREAS, this Agreement supersedes the original Employment
Agreement between Employer and Executive dated as of April 4, 1994 (the "Prior
Agreement").
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants contained in this Agreement, the Employer and the Executive,
intending to be legally bound hereby, agree as follows:
1. Employment. Subject to the terms and conditions
hereinafter set forth, the Employer hereby employs the Executive
as President and Chief Operating Officer of Employer, and the
Executive hereby accepts such employment.
2. Term. The term of employment of the Executive by the
Employer pursuant to this Agreement (the "Employment Term") shall commence as of
the effective date hereof, and shall reflect continuing and continuous
employment of Executive by Employer from April 4, 1994. The term of employment
pursuant to this agreement shall terminate upon the earlier of: (a) June 30,
2000, to coincide with the fiscal year-end of Employer, or (b) the date on which
the employment of the Executive is terminated pursuant to Section 9 hereof.
Absent written notice of intent not to renew by either party at least 90 days
prior to the end of each fiscal year, the term of this Agreement shall be
automatically extended at the end of each fiscal year of Employer, for a period
of one year, beginning with the end of fiscal year 1998.
3. Duties. During the Employment Term, the Executive shall
render his services to the Employer as President and Chief Operating Officer to
perform the duties and services usually pertaining to such offices and to
perform such other administrative and managerial functions as may be assigned to
Executive from time to time by the Chief Executive Officer or by
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the Board of Directors of the Corporation. In addition to the foregoing, the
Executive shall hold, without additional compensation therefor, such other
offices, directorships or memberships of committees of the Employer and/or any
subsidiary or affiliate of the Employer to which, from time to time during the
Employment Term, the Executive may be elected or appointed. During the
Employment Term, the Executive shall devote his full business time, efforts and
entire energy and skill to the business of the Employer in accordance with the
reasonable directions and orders of the Chief Executive Officer of the Employer
and will use his best efforts to promote the interests of Employer.
4. Salary Compensation. In consideration of the services to be
rendered by the Executive, including, without limitation, any services which may
be rendered by the Executive as an officer, director or member of any committee
of the Employer or any subsidiary or affiliate of the Employer, the Employer
shall pay or cause to be paid to the Executive during the Employment Term, and
the Executive shall accept, compensation at the rate of two hundred seventy-five
thousand ($275,000.00) dollars per annum (the current "Base Salary"). The Base
Salary shall be reviewed annually by the Board of Directors and shall be subject
to increase at the sole discretion of the Board of Directors. In no event shall
the Base Salary be decreased during the Employment Term. The Employer's
obligation to pay the Base Salary shall be payable in equal installments in
accordance with the usual payroll practices of the Employer which are in effect
from time to time during the Employment Term, but in no event less frequently
than monthly. The Executive's Base Salary shall be subject to all applicable
withholding and other taxes.
5. Bonus Compensation. At the end of each of the
Employer's fiscal years, the Executive shall be entitled to
receive from the Employer a performance bonus (the "Performance
Bonus").
(a) The amount of the Performance Bonus shall be determined by
the level of actual earnings before interest, taxes, depreciation and
amortization, and extraordinary items ("EBITDA") of Employer, reduced
by actual capital expenditures ("Cap-Ex") incurred in such year (actual
EBITDA reduced by actual Cap-Ex defining the "Actual Performance").
Extraordinary items shall include management fees, board of directors
fees and expenses, executive management bonuses, investment income,
expenses incurred in pursuit of acquisitions not consummated,
expenditures associated with the consummation of acquisitions, and any
other expense categories determined by the Employer's independent
auditors to be properly so classified according to generally accepted
accounting principles. The determination of the Employer's actual
EBITDA for purposes of calculating the amount of the Performance Bonus
to which the Executive is entitled, and the amount of such Performance
Bonus, shall be made by the
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independent public accountants then auditing the books and records of
the Employer (the "Auditors") and shall be based on audited financial
statements of the Employer. Such determination shall be made in
accordance with generally accepted accounting principles applied on a
consistent basis, and the determination of the Auditors shall be final
and binding on the parties hereto.
(b) The Performance Bonus to which the Executive is entitled
for any fiscal year of Employer shall be determined by the degree to
which the Actual Performance (actual EBITDA reduced by actual Cap-Ex as
defined above) compares with the Targeted Performance for that fiscal
year. The term "Targeted Performance" is defined as the targeted EBITDA
reduced by the targeted Cap-Ex for any given fiscal year. For fiscal
years ended June 27, 1997 and beyond, the targeted EBITDA and targeted
Cap-Ex are listed in Exhibit A, attached hereto and incorporated
herein. Upon the consummation of future acquisitions or divestitures,
targeted EBITDA and targeted Cap-Ex are subject to modification by the
Employer, and, in such event, Exhibit A shall be modified accordingly.
Calculation of the Executive's Performance Bonus shall be accomplished
by comparison of the Actual Performance and Targeted Performance for
any given fiscal year, and shall be determined by calculation of the
performance percentage (the "Performance Percentage") for such year.
The Performance Percentage is a ratio, the numerator of which is the
Actual Performance, and the denominator of which is the Targeted
Performance, adjusted per Section 5(c) below, for the same fiscal year.
The amount of the Performance Bonus for any given fiscal year shall be
the amount that corresponds to the Performance Percentage for that
year, as set forth on Exhibit B, attached hereto. If the Performance
Percentage achieved in a given fiscal year is an amount not
specifically enumerated on Exhibit B, then the Performance Bonus shall
be determined by the process of linear interpolation between the two
Performance Percentage values on Exhibit B most closely equal to the
actual Performance Percentage.
(c) The Chief Executive Officer of Employer may, in his sole
discretion, identify and reclassify any capital expenditures, targeted
but not spent during any fiscal year under consideration, as capital he
expects to be spent during the following fiscal year ("Delayed
Cap-Ex"). For any such year for which Delayed Cap-Ex has been so
identified, the Actual Performance for the fiscal year under
consideration shall be reduced, dollar-for-dollar, and the Targeted
Cap-Ex for the following fiscal year shall be increased by the same
amount. The calculation of the Performance Percentage for each fiscal
year shall reflect such adjustments accordingly. Employer hereby
acknowledges that, for fiscal year 1996, the Chief Executive Officer
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identified Delayed Cap-Ex in the amount of $1,600,000.00, and
Executive's Actual Performance for fiscal year 1996 was reduced by that
amount prior to calculation of Executive's Performance Percentage for
fiscal year 1996. Accordingly, the Targeted Cap-Ex for fiscal year 1997
shall be increased by $1,600,000.00 over the amount shown in Exhibit A,
for purposes of calculating Executive's Performance Bonus for fiscal
1997.
(d) The Performance Bonus shall be determined as
follows:
(i) For Actual Performance equal to the Targeted Performance
(Performance Percentage equal to 100%), the Executive will
receive a Performance Bonus equal to 66.7% of his Base Salary.
(ii) The threshold at which a Performance Bonus shall begin to
be earned will be at 80% of the Targeted Performance (the
"Threshold Performance"). At an Actual Performance equal to
the Threshold Performance (Performance Percentage equal to
80%), the Executive will receive a Performance Bonus equal to
33.3% of his Base Salary.
(iii) Linear interpolation shall be used to calculate the
Performance Bonus for Actual Performance falling between the
Threshold Performance and the Targeted Performance (that is,
where the Performance Percentage
falls between 80% and 100%).
(iv) For Actual Performance levels in excess of Targeted
Performance (the "Excess Actual Performance," or "EAP"), the
Executive shall receive, in addition to the Performance Bonus
payable at Targeted Performance, a percentage of the EAP as
follows:
EAP as Percentage of Percentage of EAP
Targeted Performance Allocated to Executive
-------------------- ----------------------
greater than 0% but less than 10% 5.0%
greater than or equal to 10% but less than 20% 5.5%
greater than or equal to 20% but less than 30% 6.0%
greater than or equal to 30% but less than 40% 6.5%
greater than or equal to 40% but less than 50% 7.0%
greater than or equal to 50% 7.5%
Examples of calculations at various performance levels are
shown in Exhibit C attached hereto.
(e) Any Performance Bonus earned shall be payable in cash by
the Employer to the Executive within thirty (30) days following
determination by the Auditors of the amount of the Performance Bonus,
but in no event later than ninety
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(90) days following the end of the Employer's fiscal year for which
such Performance Bonus is payable, provided that the Employer is not in
default under any of its obligations pursuant to its then applicable
loan agreements (the "Loan Documents") in which case the lender must
approve the payment. In the event approval is required but not received
within the thirty day time period, then such payment will be deferred
until such time the lender permits the payment thereof, or until the
aforementioned default is cured, whichever occurs first. Any amounts
deferred pursuant to this paragraph shall earn interest as described in
Section 5(f) of this Agreement. In any event, the bonus earned is not
lost to the Executive; it is merely deferred until either the lender's
approval is received or the default is cured.
(f) The amount of any Performance Bonus deferred by operation
of Section 5(e) above, shall accrue interest at Employer's then current
average cost of borrowed funds or 8% per annum, whichever is greater.
Such Performance Bonus together with any accrued interest shall be paid
to the Executive upon satisfaction of the requirements of Section 5(e)
above.
(g) In the event that in any fiscal year for which the
Executive is employed hereunder during a period less than the full
fiscal year, the Performance Bonus for such period shall be calculated
using a Performance Percentage wherein the numerator is the Actual
Performance for the fiscal year-to-date through Executive's last date
of employment and the denominator is the Targeted Performance, pro
rated for the actual number of days the Executive was employed during
such year, and such pro rated Targeted Performance then adjusted by any
carryover of Delayed Cap-Ex from the previous fiscal year.
6. Employment Benefits. During the Employment Term, the
Executive shall be entitled to the following employment benefits:
(a) Four weeks paid vacation for each year of the Employment
Term and sick leave in accordance with the Employer's policies from
time to time in effect for executive officers of the Employer.
(b) Participation, subject to qualification requirements, in
medical, life or other insurance or hospitalization plans and long-term
disability policies which are presently in effect or hereinafter
instituted by the Employer and applicable to its executive officers
generally.
(c) Participation, subject to classification requirements and
continued maintenance thereof by Employer,
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in other employee benefit plans, such as profit sharing plans, which
are from time to time applicable to the Employer's executive officers
generally.
(d) In the event Executive is relocated at Employer's request,
reasonable temporary living expenses for a maximum of 120 days;
reasonable expenses incurred for the purpose of finding a permanent
residence at the new location, and reimbursement, upon presentation of
appropriate receipts, for all reasonable moving expenses, brokerage
commissions and closing expenses related to the sale of his current
residence and the purchase of his new residence.
(e) Reimbursement of reasonable disability insurance premiums
to provide an annual benefit equal to 50% of Executive's Base Salary to
age 65, and Executive's compensation shall be grossed-up annually to
cover any additional taxes resulting from the annual premium paid for
such policy by the Employer and treated as compensation to the
Executive.
(f) A leased full-size automobile, including insurance and
maintenance therefor.
7. Expenses. During the Employment Term, the Employer will
reimburse the Executive, upon presentation of appropriate receipts, for all
travel, entertainment and other out-of-pocket expenses which are reasonably and
necessarily incurred by the Executive in the performance of his duties
hereunder.
8. Insurance. The Executive agrees to cooperate with the
Employer in obtaining any insurance on the life or on the disability of the
Executive which the Employer may desire to obtain for its own benefit or
pursuant to Section 6(e) above, and shall undergo such physical and other
examinations, and shall execute any consents or applications, which the Employer
may request in connection with the issuance of one or more of such insurance
policies.
9. Termination.
(a) Executive's employment under this agreement may be
terminated without further liability by Employer at any time for
"extreme cause" (defined, for purposes of this Agreement, as (i)
Executive's willful refusal, after 30 days' prior written notice by
Employer (detailing with specificity the nature of such breach), to
cure any continuing material breach hereof or (ii) a final
non-appealable adjudication in a criminal or civil proceeding that
Executive has committed a fraud or felony relating to or adversely
affecting his employment, or, subject to giving the Executive full
opportunity to make a presentation to the Board of Directors, at the
instance of the Board of
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Directors upon indictment of the Executive charging him with a crime
which is a felony). The foregoing to the contrary notwithstanding, if
Executive's employment is terminated as a result of an indictment, and
such indictment is finally dismissed, the Executive shall be entitled
to receive an amount equal to the Severance Benefit (referred to in the
following clause (b), computed as of the date of termination.
(b) Employer may terminate Executive's employment hereunder at
any time, upon 30 days' notice to Executive, in the event that Employer
is in default of its payment (interest or principal) obligations under
any Loan Documents for a period of more than 30 days. In the event of
such termination, Employer's sole obligation shall be payment of a
severance benefit (the "Severance Benefit") equal to Executive's then
current annual Base Salary plus any bonus pro-rated to the date of
termination. The Severance Benefit shall be payable in 12 monthly
installments.
(c) In the event of Executive's death, the Employer will pay
an amount equal to the Severance Benefit to his designated beneficiary
(or, failing such designation, to his estate) payable in 12 monthly
installments.
(d) In the event of Executive's disability or incapacity which
renders him unable to perform his duties for a period in excess of 120
consecutive days or a total of more than 180 days in any 12-month
period, the Employer may terminate this Agreement without further
compensation.
(e) If, at any time during the Employment Term, the Executive
resigns from the employ of the Employer for any reason other than
Employer's failure to meet its obligations hereunder, the Employer
shall have no further obligations hereunder after such resignation date
other than the payment of amounts accrued and unpaid under Sections 4,
5, 6 and 7 hereof through such resignation date; provided, however,
that any bonus shall be subject to the payment conditions set forth in
Section 5(e) of this Agreement.
10. Restrictive Covenant. Without prior written consent of the
Board of Directors of Employer, Executive agrees that he will not for a period
of one year following the termination by Executive of his employment with
Employer whether before or after the expiration of the Employment Term (or to
such lesser extent and for such lesser period as may be deemed enforceable by a
court of competent jurisdiction, it being the intention of the parties that this
Section 10 shall be so enforced): (i) directly or indirectly engage, in the
United States, in any business in competition with the primary business
conducted by Employer, either as employee, independent contractor, owner,
partner, lender or stockholder, at the time of termination of the Executive
(provided that the foregoing shall
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not be construed to prohibit ownership of less than 5% of the outstanding shares
of any public corporation); (ii) solicit, canvass, or accept any business for
any other company, or business similar to any business of Employer, from any
past, present or future ("future," as used herein, shall mean at or prior to the
time of termination of employment) customer of Employer; (iii) directly or
indirectly induce or attempt to influence any employee of Employer to terminate
his employment; or (iv) directly or indirectly request any present or future (as
defined above) entities with whom Employer has significant business
relationships to curtail or cancel their business with Employer. In addition and
without limiting the foregoing, upon the termination of the Executive's
employment by the Employer for any reason, whether before or after the
expiration of the term of this Agreement, Executive shall not (x) at any time
directly or indirectly disclose to any person, firm or corporation any trade,
technical or technological secrets, or (y) for a period of one year following
termination disclose any details of organization or business affairs, or any
names of past or present customers of Employer. For purposes of this Section 10,
the term "Employer" shall be deemed to include Employer and all of its
subsidiary corporations.
11. Inventions. All inventions, discoveries, improvements,
processes, formulae and data relating to Employer's business that Executive may
make, conceive or learn during the employment of the Executive with the Employer
(during the term of this Agreement, whether during working hours or otherwise)
and relating to the Employer's lines of business shall be the exclusive property
of Employer. Executive agrees to make prompt disclosure to Employer of all such
inventions, etc., and to do at Employer's expense all lawful things necessary or
useful to assist Employer in securing their full enjoyment and protection. In
the event of any breach or threatened breach of the provisions of this Section
11 or the preceding Section 10, Employer may apply to any court of competent
jurisdiction to enjoin such breach. Any such remedy shall be in addition to
Employer's remedies at law under such circumstances.
12. Conflicting Agreements. Each of the parties hereby
represents and warrants to the other that (a) neither the execution of this
Agreement by such party nor the performance by such party of any of its
obligations or duties hereunder will conflict with or violate or constitute a
breach of the terms of any other agreement to which such party is a party or by
which it is bound, and (b) such party is not required to obtain the consent of
any person, firm, corporation or other entity in order to enter into this
Agreement or to perform any of his obligations or duties hereunder.
13. Notices. Any notice, request, information or other
document to be given under this Agreement to any party by any other party shall
be in writing and delivered personally, sent by registered or certified mail,
postage prepaid, delivered
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by a nationally-recognized overnight courier service, or transmitted by
facsimile machine followed by delivery of original documents by a
nationally-recognized overnight courier service addressed as follows:
If to Employer:
Tekni-Plex, Inc.
000 Xxxxxxxxxx Xxxxxxx
Xxxxxxxxxx, XX 00000
Attention: Dr. F. Xxxxxxx Xxxxx
Facsimile No.: (000) 000-0000
with a copy to
Winthrop, Stimson, Xxxxxx & Xxxxxxx
Xxx Xxxxxxx Xxxx Xxxxx
Xxx Xxxx, XX 00000-0000
Attention: Xxxxxxx X. Xxxxxxxx, Esq.
Facsimile No.: (000) 000-0000
If to the Executive:
Xxxxxxx X.X. Xxxxx
at his then current address
included in the employment records
of the Employer
or to such other address as a party hereto may hereafter designate in writing to
the other party, provided that any notice of a change of address shall become
effective only upon receipt thereof.
14. Assignment; Successors and Assigns. This Agreement may not
be assigned by either party. This Agreement shall be binding upon and shall
inure to the benefit of the Employer and the Executive and their respective
heirs, legal representatives, successors and assigns.
15. Entire Agreement. This Agreement contains the entire
understanding between the Employer and the Executive with respect to the
employment of the Executive and supersedes all prior negotiations and
understandings (including the Prior Agreement) between the Employer and the
Executive with respect to the employment of the Executive by the Employer. This
Agreement may not be amended or modified except by a written instrument signed
by both the Employer and the Executive.
16. Severability. In the event any one or more provisions of
this Agreement is held to be invalid or unenforceable, such illegality or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof and such other provisions shall remain in full force and
effect, unaffected by such invalidity or unenforceability.
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17. Applicable Law; Submission to Jurisdiction; Litigation
Expenses. This Agreement and the rights, obligations and relations of the
parties hereto shall be governed by and construed and enforced in accordance
with the laws of the State of New York without giving effect to the principles
of conflicts of law thereof.
The parties hereto (i) submit for themselves, and any legal
action or proceeding relating to this Agreement or for recognition and
enforcement of any judgment in respect hereof, to the exclusive jurisdiction of
the courts of the State of New York, the courts of the United States of America
for the Southern District of New York, and appellate courts from any therefor,
(ii) consent that any action or proceeding shall be brought in such courts, and
waive any objection that each may now or hereafter have to the venue of any such
action or proceeding in any such court, (iii) agree that service of process of
any such action or proceeding may be effected by certified mail (or any
substantially similar form of mail), postage prepaid, to the appropriate party
at its address as set forth herein, and service made shall be deemed to be
completed upon the earlier of actual receipt or five (5) days after the same
shall have been posted as aforesaid, and (v) agree that nothing herein shall
affect the right to effect service of process in any other manner permitted by
law.
18. Headings. The headings of sections and subsections of this
Agreement are for convenience of reference only and are not to be considered in
construing this Agreement.
19. Execution in Counterparts. This Agreement may be executed
in counterparts, each of which shall be deemed to be an original, but all of
which, when taken together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
Tekni-Plex, Inc.
By:/s/ F. Xxxxxxx Xxxxx /s/ Xxxxxxx X.X. Xxxxx
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Name: F. Xxxxxxx Xxxxx Xxxxxxx X.X. Xxxxx
Title: Chief Executive Officer
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EXHIBIT A
TARGETED PERFORMANCE
($000)
FISCAL YEAR TARGETED TARGETED
ENDED EBITDA CAP-EX
----------- -------- --------
June 27, 1997 26,811 6,807
July 3, 1998 29,173 5,700
July 2, 1999 30,625 4,700
June 30, 2000 31,806 6,900
June 29, 2001 33,030 4,075
June 28, 2002 34,238 4,075
June 27, 2003 35,554 4,100
July 2, 2004 36,922 4,100
July 1, 2005 38,273 4,100
June 30, 2006 39,643 4,100
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EXHIBIT B
PERFORMANCE BONUSES
Incremental
Performance Performance
Performance Bonus Bonus
Percentage (% Base Salary) (% EAP)
----------- --------------- -----------
80% 33.3%
85% 41.7%
90% 50.0%
95% 58.3%
100% 66.7%
105% 66.7% 5.0%
110% 66.7% 5.5%
115% 66.7% 5.5%
120% 66.7% 6.0%
125% 66.7% 6.0%
130% 66.7% 6.5%
135% 66.7% 6.5%
140% 66.7% 7.0%
145% 66.7% 7.0%
150% 66.7% 7.5%
155% 66.7% 7.5%
160% 66.7% 7.5%
165% 66.7% 7.5%
170% 66.7% 7.5%
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EXHIBIT C
EXAMPLES OF PERFORMANCE BONUS CALCULATIONS
Example Targeted Performance = $20,000,000
Assumed Base Salary = $275,000
Performance Bonus Performance
Percentage Calculation Bonus (000)
---------- ----------- -----------
75% N/A 0.0
80% 0.333 x 275 = 91.7
92% 0.533 x 275 = 146.7
100% 0.667 x 275 = 183.3
109% Incremental Performance = 0.09 x 20000 = 1800
Incremental Bonus = 0.05 x 1800 = 90
Total Bonus = 183.3 + 90 = 273.3
115% 1st Incremental Performance = 0.10 x 20000 = 2000
2nd Incremental Performance = 0.05 x 20000 = 1000
1st Incremental Bonus = 0.05 x 2000 = 100
2nd Incremental Bonus = 0.055 x 1000 = 55
Total Bonus = 183.3 + 100 + 55 = 338.3
122% 1st Incremental Performance = 0.10 x 20000 = 2000
2nd Incremental Performance = 0.10 x 20000 = 2000
3rd Incremental Performance = 0.02 x 20000 = 400
1st Incremental Bonus = 0.05 x 2000 = 100
2nd Incremental Bonus = 0.055 x 2000 = 110
3rd Incremental Bonus = 0.06 x 400 = 24
Total Bonus = 183.3 + 100 + 110 + 24 = 417.3
152% 1st Incremental Performance = 0.10 x 20000 = 2000
2nd Incremental Performance = 0.10 x 20000 = 2000
3rd Incremental Performance = 0.10 x 20000 = 2000
4th Incremental Performance = 0.10 x 20000 = 2000
5th Incremental Performance = 0.10 x 20000 = 2000
6th Incremental Performance = 0.02 x 20000 = 400
1st Incremental Bonus = 0.05 x 20000 = 100
2nd Incremental Bonus = 0.055 x 2000 = 110
3rd Incremental Bonus = 0.06 x 2000 = 120
4th Incremental Bonus = 0.065 x 2000 = 130
5th Incremental Bonus = 0.07 x 2000 = 140
6th Incremental Bonus = 0.075 x 400 = 30
Total Bonus = 183.3+100+110+120+130+140+30 813.3
