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EXHIBIT 10.28
[XXXXX COMPANIES, INC. LETTERHEAD]
CONFIDENTIAL TREATMENT
October 31, 1996
Xxxxxx X. Xxxxxx
Subject: EMPLOYMENT AGREEMENT
Dear Xxxxxx:
As we discussed, in recognition of your promotion to President, the Compensation
Committee of the Board of Directors has approved an increase in your base salary
to $350,000. This increase will be retroactive to August 1, 1996.
As in the past, you will continue to be eligible for an annual cash bonus based
on pre-established performance goals. This bonus may not exceed 100% of your
base salary.
The Committee also approved the attached Performance Based Retention Plan. This
Plan will be for six years and will supersede all others in effect. It will
commence November 1, 1996. Accruals made for the Plan must be included in the
company's basic business plan.
A two year non-compete provision will accompany this Agreement and will take
effect should you leave the company. At that time I may, at my discretion,
invoke the non-compete. In doing so, I will declare the number of months up to
two years that it will remain in effect. You will be paid on a monthly basis an
amount equal to your base salary for each month the non-compete is invoked.
I have also included the provision that in the event of your death or permanent
disability, you or your estate will be vested in all stock options granted
through that date under the terms of the agreement and you will be provided a
one-time stock grant in an amount equal to that which you would have received
had you achieved plan in the year your death or disability occurred. In the
event of a change in control in which your service will no longer be needed by
the new owners, you will be provided a one-time stock grant in an amount equal
to that which you would have received had you achieved plan in the next two
years of the remaining contract.
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Xxxxxx Xxxxxx
October 31, 1996
Page 2
Should the company desire for any reason to terminate your contract prior to the
six year arrangement outlined, you will be provided severance pay equal to your
current annual pay for two years.
As an additional incentive and return for your signing the six year Performance
Based Retention Plan, we are prepared to provide you with a one-time signing
bonus of $3MM. This signing bonus will be deposited to an irrevocable interest
bearing Rabbi Trust Account in your name. You will be eligible to withdraw
$500,000 per year from the Trust, at your discretion, over the life of the six
year agreement. In the event of your death, permanent disability, or change in
control, all remaining proceeds in the Trust will be provided to you with no
limitation. Should you leave the company for any reason prior to the completion
of your six year agreement, you will receive the amount of funds remaining in
the trust at the time you depart.
Please review the attached in detail. Should you have any questions, please
discuss them with me. If you are in agreement, please indicate so below and I
will ask that the necessary documents be prepared for presentation to the Board.
Sincerely,
Xxxx X. Xxxxx
Approved Compensation Committee of the
Board of Directors of Xxxxx Companies, Inc.
October 29, 1996
Agreed and Acknowledged By:
/s/ Xxxxxx X. Xxxxxx Date: 10/31/96
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Xxxxxx X. Xxxxxx
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EXAMPLE
PERFORMANCE BASED RETENTION PLAN
XXXXXX X. XXXXXX
1. Each year for a period of six years you will be eligible to receive a
performance award. This award will be paid in a combination of stock
and stock options.
2. The amount of stock granted will be directly related to your
performance against plan; however, the maximum cash value of stock
issued may not exceed $1,500,000 in any plan year.
3. Each year a target "pre-tax" net income goal will be established. This
target goal, if achieved, will equal 100% of the plan payout. The
payout will be increased or decreased by use of a performance modifier
as shown below.
4. The annual target plan payout will equal $1MM plus your cash bonus
based on performance results.
5. In the first example below, we have used [*] as the pre-tax net
income goal. With a cash target award of $1,000,000 and a stock price
of $15 that would equal an award of 66,667 shares of stock at the end
of the performance year if the pre-tax net income target is achieved.
PRE-TAX NET VALUE OF
PRE-TAX NET INCOME AS PERFORMANCE STOCK
INCOME % OF TARGET MODIFIER AWARD
------------ ----------------- ----------- ----------
[*] 150%+ 150% $1,500,000
[*] 125% 125% $1,250,000
[*] 100% 100% $1,000,000
[*] 75% 75% $750,000
[*] 50% 50% $500,000
[*] Less Than 50% 0% $0
------------ ----------------- ----------- ----------
The value of the performance modifier and the resulting value will be
pro-rated on a straight-line basis for pre-tax net income as a percent
of target which falls between the cells in this table.
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* Confidential portions omitted and filed separately with the Commission.
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6. In the second example, if pre-tax net income is 125% of plan, the
performance modifier is 125%, and the adjusted performance award is
$1,250,000 (125% X $1,000,000 = $1,250,000).
If the stock price at the end of the year increased to $25/share,
50,000 shares of stock would be granted ($1,250,000 / by $25 = 50,000).
These shares will be granted without any resale restrictions.
An annual stock option grant will also be made in an amount equal to
the number of shares paid in stock. These non qualified options will
have a vesting schedule which precludes exercise until the end of a six
year retention period.
The above example would result in a grant of 50,000 options with an
exercise price equal to the fair market value of $25/share vesting six
years from date of grant.
To illustrate the potential value to you, we have attached a copy of a six year
summary example in which you achieved plan for the first two years and then
achieved 125% of plan for the remaining three years. In this example, the stock
price also continues to grow at a rate of 10% per year.
We have used our annual target goal of $1,000,000.
As you will note, this plan will provide to you significant income and wealth
accumulation if performance goals are achieved.
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EXAMPLE
YEAR 1 2 3 4 5 6
PLAN RESULTS 100% 100% 125% 125% 125% 125%
STOCK PRICE $15.00 $16.50 $18.15 $19.97 $21.96 $24.15
(10% GROWTH)
CASH VALUE $1,000,000 $1,000,000 $1,250,000 $1,250,000 $1,250,000 $1,250,000
OF AWARD
SHARES AWARDED 66,667 60,606 68,870 62,594 56,922 51,738
OPTIONS GRANTED 66,667 60,606 68,870 62,594 56,922 51,738
VEST 6 years 5 years 4 years 3 years 2 years 1 year
EXERCISE PRICE $15.00 $16.50 $18.15 $19.97 $21.96 $24.15
OF OPTIONS
CASH VALUE OF $1,610,008 $1,463,635 $1,663,211 $1,511,645 $1,374,666 $1,249,473
STOCK - YEAR 6
REALIZABLE VALUE OF $610,003 $463,636 $413,220 $261,643 $124,659 $0
OPTION - YEAR 6
TOTAL STOCK AND $2,220,011 $1,927,271 $2,076,431 $1,773,288 $1,499,325 $1,249,473
OPTIONS
PLUS BONUS FOR $350,000 $350,000 $350,000 $350,000 $350,000 $350,000
PLAN ACHIEVEMENT
$12,845,799
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