Exhibit 11.1
EMPLOYEE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made by and between Royal BodyCare, Inc.
("Employer") located at 0000 Xxxxx Xxxxx, Xxxxxx, Xxxxx 00000 and Xxxxx X.
Xxxxxxxx ("Employee"), residing at 0000 Xxx Xxxx Xxxxx, Xxxxxx, Xxxxx 00000.
The parties to this Agreement declare that:
The Employer is engaged in, among other things, the international
distribution of nutritional supplements and personal care products through the
network marketing distribution model.
The Employee is willing to be employed by the Employer, and the
Employer is willing to employ the Employee, on the terms, covenants, and
conditions set forth in this Agreement.
In consideration of the mutual promises set forth in this Agreement,
the Employer and the Employee agree as follows:
Section 1. Effective Date. The Effective Date of this Agreement shall
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be February 1, 2003.
Section 2. Employment Title and Duties. The Employer shall employ the
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Employee in the capacity of President. As President, the Employee shall have the
responsibility to perform all duties that are customarily performed by one
holding such position in other, same, or similar businesses or enterprises as
that engaged by Employer. The Employee's shall be responsible for the Employer's
network marketing business and operations conducted in the US, Canada and all
other international territories, whether operations are conducted through a
license agreement, or through an entity owned by or affiliated with the
Employer. The Employee shall not be responsible for the Employer's manufacturing
operations, research and development operations, or the business or operations
of MPM Medical, Inc. A diagram of the Employee's functional responsibility is
attached as Exhibit A. The Employee accepts this employment, subject to the
general supervision and pursuant to the orders and direction of the Employer.
The Employee shall also render such other and unrelated services and duties as
may be assigned from time to time by the Employer.
Section 3. Compensation of the Employee. The Employer shall pay the
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Employee in full payment for the Employee's services under this Agreement, the
following compensation:
a. An annual base salary of Two Hundred Fifty Thousand Dollars
($250,000.00) per year payable bi-weekly.
b. Personal time off, holidays, retirement benefits, and other
employee benefits as stated in the Employer's manual for other
employees employed for more than five years.
c. A Bonus based on the increase in Operating Margin earned by RBC
each month. For purposes of this section, Operating Margin shall
be defined as sales minus the sum of cost of goods sold and
distributor commissions. Sales, cost of goods
Employee Employment Agreement
Page 2
sold and distributor commissions shall be reported each month on
the same basis as that used to report the Employer's results of
operations in its audited financial statements, and in accordance
with generally accepted accounting principles. For purposes of
this section, RBC shall mean the network marketing business
conducted in the US, Canada and any other international
territory, whether through a license agreement or through an
entity owned by the Employer or affiliated with the Employer. The
Bonus shall be based on the monthly increase in RBC's Operating
Margin over RBC's Base Operating Margin, which shall be defined
as RBC's Operating Margin earned in January 2003. For each
increment of $84,000 that RBC's Operating Margin increases over
the Base, the Employee shall receive a Bonus of $4,200. Employee
shall be paid this Bonus the month following the month in which
the bonus is earned.
If the Employee earns a Bonus of $8,400 or more for three
consecutive months, his annual base salary shall be adjusted
according to the following calculation, up to a maximum annual
rate of $750,000. This adjustment shall be calculated by
multiplying by 12, the difference between the lowest Bonus earned
during the preceding three-month period and $4,200. For example,
if the Employee earns monthly Bonuses of $8,400, $12,600 and
$12,600 in three consecutive months, the Employee's annual base
salary shall be increased by $50,400 ($8,400 - $4,200 = $4,200;
$4,200 x 12 = $50,400). If the Employee earns monthly Bonuses of
$4,200, $8,400 and $8,400 in three consecutive months, the
Employee's annual base salary shall not be increased ($4,200 -
$4,200 = $0; $0 x 12 = $0). For each incremental increase of
$50,400 in the Employee's annual base salary, RBC's Base
Operating Margin shall increase by an increment of $84,000. An
increase in the Employee's annual base salary pursuant to this
section shall become effective the first full pay period of the
second month following the last month in the three consecutive
month period that gave rise the to the increase. For example, if
an increase in the Employee's annual base salary is warranted by
Bonuses earned for the months of February, March and April, the
increase will become effective during the first full pay period
of June. Accordingly, RBC's Base Operating Margin for the month
during which the Employee's annual base salary is adjusted shall
be prorated based on the number of days paid at the old and new
annual base salary rates.
Not withstanding any other provisions of this Section 3, the
Employer shall not be obligated to pay the Employee in any month,
a rate of base salary plus Bonus that, if annualized, would
result in annual compensation exceeding $750,000.
If RBC's Operating Margin is below RBC's Base Operating Margin,
as adjusted pursuant to the previous paragraph, in any month, the
Employee's annual base salary shall be reduced effective the
first full pay period following determination of this result.
This reduction shall be calculated as follows: the difference
between RBC's Operating Margin and the Base Operating Margin
shall be divided by $84,000 and rounded up to the next highest
whole number; this whole number shall then be multiplied by
$50,400. For example, assume RBC's Operating Margin is $1,400,000
and RBC's Base Operating Margin is $1,500,000. In this example,
the Employee's annual base salary would be reduced $100,800
($1,500,000 - $1,400,000 = $100,000; $100,000 / $84,000 = 1.2;
1.2 is rounded to 2; 2 x $50,400 = $100,800). Accordingly, RBC's
Base Operating Margin for the month during which the Employee's
annual base salary
Employee Employment Agreement
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is adjusted shall be prorated based on the number of days paid at
the old and new annual base salary rates. In addition, the
Employer shall have the right to deduct from future Bonus
payments, any amounts paid to the Employee as increased annual
base salary that were not earned. Notwithstanding any provision
of this paragraph, the Employee's annual base salary shall in no
case be less than $250,000.
d. A nine-year option to purchase 500,000 shares of the Employer's
common stock at an exercise price equal to the average closing
prices of such stock during the month of February 2003. This
option shall be issued as of March 1, 2003, and shall become
exercisable as follows: 20% at the time of issuance, and an
additional 20% on each anniversary of the issuance date until the
entire option is exercisable. This option shall also provide that
in the event of a change in control of the Employer, the option
shall become immediately exercisable in its entirety. It is the
express intent of the parties that this option shall be issued
under a stock option plan qualified under the laws and
regulations of the Internal Revenue Service such that no taxable
income will accrue to the Employee until such time as shares
acquired through the exercise of a portion or all of the option
are sold. It is also the express intent of the parties that such
stock option plan shall be registered pursuant to the laws and
regulations of the Securities and Exchange Commission such that
shares acquired through exercise of an option issued under the
plan shall be registered and bear no restrictive legend related
to their sale. The Employee acknowledges that the Employer is
unable as of the date of this Agreement to issue an option with
the aforementioned attributes; the Employer agrees to take all
reasonable actions to enable it to issue such an option.
Section 4. Additional Undertakings of the Employer. The Employer
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agrees to the following:
a. MPM Medical, Inc. Cash Flow - The Employer agrees that MPM
Medical, Inc. will be operated in a manner that will not require
its cash flow to be subsidized by RBC (as defined in Section 3
above), excluding payment of general and administrative expenses
that are allocated to MPM Medical, Inc. from RBC other than
warehouse salaries and personal property taxes. Whether MPM is
being subsidized by RBC shall be determined by reference to the
intercompany payable/receivable accounts maintained in the
general ledgers of the respective companies.
b. Executive and Employee Incentive Plan - The Employer agrees to
use its best efforts, as may reasonably be required, to design,
draft and adopt an incentive plan for Employer's executives and
all other employees by March 1, 2003.
Section 5. Best Efforts of the Employee. The Employee agrees to
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perform all of the duties pursuant to the express and implicit terms of this
Agreement to the reasonable satisfaction of the Employer. The Employee further
agrees to perform such duties faithfully and to the best of his ability, talent,
and experience.
Section 6. Place of Employment. The Employee shall render such duties
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at 0000 Xxxxx Xxxxx, Xxxxxx, Xxxxx 00000 and at such other places as the
Employer shall in good faith require or as the interest, needs, business, or
opportunity of the Employer shall require.
Employee Employment Agreement
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Section 7. Non-Competition with the Employer during the Term of
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Employment. The Employee shall devote all his time, attention, knowledge, and
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skills solely to the business and interest of the Employer, and the Employer
shall be entitled to all of the benefits and profits arising from the work of
the Employee. The Employee shall not, during the term of this Agreement, be
interested directly or indirectly, in any manner, as partner, officer, director,
shareholder, advisor, employee, or in any other capacity in any other business
similar to the Employer's business or any allied trade. However, nothing
contained in this section shall prevent or limit the right of the Employee from
investing in the capital stock or other securities of any corporation whose
stock or securities are publicly owned and traded on any public exchange, nor
shall anything contained in this section prevent or limit the Employee from
investing in real estate.
Section 8. Restrictions on the Use of Trade Secrets and Records. During
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the term of employment under this Agreement, the Employee may have access to
various trade secrets, consisting of formulas, patterns, devices, inventions,
processes, and compilations of information, records and specifications, all of
which are owned by the Employer and regularly used in the operation of the
Employer's business. All files, records, customer lists, documents, drawings,
specifications, equipment, and similar items relating to the business of the
Employer, whether they are prepared by the Employee or come into the Employee's
possession in any other way and whether or not they contain or constitute trade
secrets owned by the Employer, are and shall remain the exclusive property of
the Employer and shall not be removed from the premises of the Employer under
any circumstances whatsoever without the prior written consent of the Employer.
The Employee agrees not to divulge, misappropriate, or disclose any of these
trade secrets and records directly or indirectly, to any person, firm,
corporation, or other entity in any manner whatsoever, either during the term of
this Agreement or at any time thereafter except as required in the course of
employment.
Section 9. Term. This Agreement shall be effective for the two-year
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period ending January 31, 2005. This Agreement shall be automatically renewed
for an additional one-year period upon expiration of its initial term and each
anniversary thereafter, unless terminated by either Employer or Employee upon
thirty (30) days prior written notice to the other. If the Employer elects to
terminate this Agreement, the Employee, if requested by the Employer, shall
continue to render services, and shall be paid compensation as provided in this
Agreement up to the date of termination. In addition, the Employee shall
continue to be paid his base salary for a period of three months following the
date of termination, less all amounts required to be held and deducted. If the
Employee elects to terminate this Agreement, no additional amounts shall be paid
to the Employee, but the Employee shall continue to render services and shall be
paid compensation as provided in this Agreement up to the date of termination.
Section 10. Termination for Breach, Neglect, or Incapacity. If the
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Employee willfully breaches or habitually neglects the performance of duties
required under the terms of this Agreement, or demonstrates continued incapacity
to perform those duties, the Employer may terminate this Agreement by giving
written notice of termination to the Employee without prejudice to any other
remedy to which the Employer may be entitled either at law, in equity, or under
this Agreement. If the Employer willfully breaches any material term of this
Agreement, Employee may terminate this Agreement by giving written notice of
termination to the Employer without prejudice to any other remedy to which the
Employee may be entitled either at law, in equity, or under this Agreement.
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Section 11. Inability to Perform Work. Should the Employee be unable to
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perform his duties under this Agreement, including by reason of disability,
death, or any other cause, the Employer shall be obligated to pay compensation
pursuant to Section 3 of the Agreement only to the extent that the Employee is
entitled to receive compensation for (i) time worked, (ii) other paid time
provided in the Employer's manual for other employees employed for more than
five years, or (iii) time otherwise required to be paid by law.
Section 12. Indemnity. The Employer shall indemnify the Employee and
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hold the Employee harmless for any acts or decisions made by the Employee in
good faith while performing services for the Employer and will use its best
efforts, as may reasonably be required, to obtain coverage in the amount of
$1,000,000 for the Employee under an insurance policy covering the officers and
directors of the Employer against lawsuits. The Employer shall pay all expenses,
including attorney's fees, actually and necessarily incurred by the Employee in
connection with any appeal thereon, including the cost of court settlements.
Section 13. Effect of Partial Invalidity. The invalidity of any portion
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of this Agreement shall not affect the validity of any other provision. In the
event that any provision of this Agreement is held to be invalid, the parties
agree that the remaining provisions shall remain in full force and effect.
Section 14. Entire Agreement. This Agreement contains the complete
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Agreement between the parties and shall supersede all other agreements, either
oral or written, between the parties. The parties stipulate that neither of them
has made any representations except as are specifically set forth in this
Agreement and each of the parties acknowledges that they have relied on their
own judgment in entering into this Agreement.
Section 15. Assignment. Neither party to this Agreement may assign
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their rights under this Agreement unless the other party so consents to the
assignment in writing.
Section 16. Notices. All notices, requests, demands, and other
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communications shall be in writing and shall be given by registered or certified
mail, postage prepaid, to the addresses shown on the first page of this
Agreement, or to such subsequent addresses as the parties shall so designate in
writing.
Section 17. Arbitration. Any controversy or claim arising out of this
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Agreement, or the breach of this Agreement shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and judgment upon the award rendered by the Arbitrator may be
entered in any court having jurisdiction.
Section 18. Attorney's Fees. If any action at law or in equity,
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including an action for declaratory relief is brought to enforce or interpret
the provisions of this Agreement, the prevailing party will be entitled to
reasonable attorney's fees as determined by the court in the same action.
Section 19. Amendment. Any modification, amendment or change of this
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Agreement will be effective only if it is in a writing signed by both parties.
Section 20. Governing Law. This Agreement, and all transactions
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contemplated by this Agreement, shall be governed by, construed, and enforced in
accordance with the laws of the State of Texas.
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Section 21. Headings. The titles to the paragraphs of this Agreement
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are solely for the convenience of the parties and shall not affect in any way
the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on this
5th day of February, 2003.
EMPLOYEE: EMPLOYER:
Royal BodyCare, Inc.
/s/ Xxxxx X. Xxxxxxxx By: /s/ Xxxxxxx X. Xxxxxx
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(Signature) (Signature)
Xxxxx X. Xxxxxxxx Xxxxxxx X. Xxxxxx
Chief Executive Officer
