EXTENSION AND RENEWAL OF
EMPLOYMENT AGREEMENT
THIS AGREEMENT, as of this 1st day of September, 1996 by and between DMI
FURNITURE, INC., a Delaware corporation ("DMI" or the "Corporation") and XXXXXX
X. XXXX ("Employee").
WHEREAS, Employee and DMI have entered into an Employment Agreement dated
as of September 1, 1986, which has been amended from time to time and extended
and renewed for additional terms through March 31, 1997;
WHEREAS, the Employment Agreement, as amended, extended and renewed to
date, is intended to complement the terms of the Amendment to Employment
Agreement and Officer Severance Agreement dated as of May 19, 1988 between the
Employee and DMI (the "Officer Severance Agreement"), which provides for the
payment of certain benefits to Employee in certain circumstances following a
"change in control" of DMI (as defined in the Officer Severance Agreement).
WHEREAS, Employee and DMI desire to renew and extend the Employment
Agreement between them for an additional term expiring on December 31, 1998; and
NOW, THEREFORE, intending to be legally bound hereby and in consideration
of the mutual undertakings hereinafter set forth, DMI and Employee agree as
follows, effective September 1, 1996;
1. EMPLOYMENT. DMI or its successors hereby employs Employee and
Employee hereby accepts employment as Vice President-Finance and Chief
Financial Officer of DMI for a period commencing September 1, 1996 and ending
December 31, 1998.
2. DUTIES OF EMPLOYEE. Employee further agrees as follows:
(a) To perform well and faithfully all such duties as are assigned to
him by the Board of Directors or the Chief Executive Officer of DMI; and
(b) To devote the time and attention to the performance of all matters
necessary and appropriate to the discharge of the duties so assigned to him in
the operation of DMI, it being the intention of this provision to require that
Employee serve as a "full-time" employee of DMI, to devote his best efforts to
the performance of the duties required of him; and
(c) To refrain from investment or other involvement in any business
or other activity that competes with the business of DMI other than nominal
investments as a passive investor in publicly traded companies.
3. COMPENSATION. As compensation for his services pursuant to this
Agreement, Employee shall be paid as follows:
E-64
(a) SALARY. A minimum salary of $155,000 per year payable at the
rate of $6,458.33 semi-monthly during the term of this Agreement. Each year, on
the anniversary date of this Agreement, the Compensation Committee of the
Corporation's Board of Directors will review increases in the cost of living and
may negotiate upward revisions to salary with the Employee.
(b) CASH BONUS.
(i) ADJUSTED NET PRE-TAX INCOME. For each of the Corporation's
fiscal years during the term of this Agreement, Employee shall receive an
incentive bonus based on the "adjusted net pre-tax income" for said fiscal year.
For the purposes of this subsection, "adjusted net pre-tax income" shall mean
the pre-tax income as reported to the Securities and Exchange Commission on Form
10-K excluding as expenses all dividends paid by the Corporation to the holders
of any class of its preferred stock, as well as all interest paid by the
Corporation in connection with any funds borrowed for the redemption of 675,000
shares of preferred stock at $2.49 per share or $1,680,750 on August 28, 1989
and any future redemptions of preferred stock, and also excluding (i) any gains
or losses resulting from the sale, conversion or other disposition of capital
assets; (ii) accruals made in accordance with general accepted accounting
principles to recognize the costs associated with the permanent closure of an
operation and the carrying costs prior to the sale of the assets of that
operation; (iii) gain or loss resulting from non-operational litigation; and
(iv) charges or credits resulting from the adoption of a change in accounting
principle.
Employee shall receive a fractional share of the adjusted net
pre-tax income calculated as follows: X = (.0075 + .0045 (Y)) x Z, where X
equals the bonus earned, Y equals the adjusted net pre-tax income expressed in
millions of dollars rounded to three decimal places and Z equals the adjusted
net pre-tax income.
Example:
Reported income before income tax $1,525,169
Add back: Interest on borrowing for
preferred stock redemption 201,500
Deduct: Gain on sale of building (156,000)
----------
Adjusted pre-tax income $1,570,369
then:
X = (.0075 + (.0045 x 1.570)) x $1,570,369
X = (.0075 + .0071) x $1,570,369
X = .0146 x $1,570,369
X = $22,927
(ii) CASH BONUS PREMIUM. In lieu of a cash bonus plan for asset
management as provided by prior Employment Agreements between Employee and the
Corporation, Employee shall be paid a 33.33% cash premium of amounts earned
under Section 3(b)(i) of this Agreement.
E-65
(c) STOCK BONUS. For each fiscal year during the term of this
Agreement, Employee shall be eligible to earn a stock bonus as provided herein.
All stock granted pursuant to this bonus shall be granted as of the date upon
which the cash bonus earned by Employee is paid to him and shall be valued at
the bid price of the Corporation's common stock as listed by NASDAQ on the last
day of the fiscal year. To the extent feasible, stock (or other equity
securities of the Corporation) granted pursuant to this bonus shall be issued
under a plan meeting the terms and conditions of Rule 16b-3 under the Exchange
Act.
Employee shall have the option to receive a grant of shares of common stock
with a value equal to 45.45% of Employee's Cash Bonus, and Cash Bonus Premium to
a maximum Stock Bonus of 25 percent of Employee's weighted average base salary.
Employee may decline to exercise the right to receive any stock grant by so
advising the Corporation within 10 days of the date upon which he is advised of
his bonus. The grant of stock referred to herein is subject to the
Corporation's shareholders having approved the issuance of sufficient shares of
stock to permit the grant of these shares. The Corporation agrees to seek such
approval, as and to the extent, required.
(d) BONUS PAYMENTS. Any bonus under this paragraph 3 shall be paid
within one hundred thirty days of the end of the fiscal year.
For any fiscal year of DMI during which the period of Employee's
employment set forth in paragraph 1 (or any extension thereof) expires before
completion of the fiscal year, Employee shall receive a cash bonus and a stock
bonus equal to the bonuses that would have been due Employee under paragraphs
3(b) and 3(c) had Employee remained employed until the end of DMI's fiscal year
multiplied by a fraction, the numerator of which is the number of complete
calendar months during which Employee was employed during the fiscal year and
the denominator of which is 12.
4. FRINGE BENEFITS. DMI will provide Employee with fringe benefits as
follows:
(a) DMI will maintain, without contribution by Employee, life
insurance with benefits payable as designated by Employee in a face amount equal
to three times Employee's annual base salary rate hereunder; provided, however,
the face amount of life insurance benefits is not to exceed $750,000.
(b) DMI will maintain health insurance at least as comprehensive as
provided to other key and executive employees.
(c) DMI will maintain, without contribution by Employee, travel
accident insurance with benefits payable as designated by Employee in a face
amount equal to $250,000 death benefits for accidental death in the course of
travel.
(d) DMI will provide Employee with an automobile comparable to those
furnished to other key executives, or its cash equivalent of $675 per month, for
Employee's business related use.
E-66
(e) Employee shall receive reimbursement for expenses incurred by him
in connection with Medical Care for Employee, his spouse and his dependents,
provided, however, that the amount paid by DMI to Employee pursuant to this
subsection in any fiscal year during the term of this Agreement shall not exceed
$2,000. For the purpose of this subsection the term "Medical Care" means
amounts paid for the diagnosis, care, medication, treatment, or prevention of
disease, or for the purpose of affecting any structure or function of the body
(including amounts paid for accident or health insurance), or for transportation
primarily for and essential to Medical Care. Payments hereunder may be made
from time to time as requested by Employee with or without requiring proof of
the medical expenses in questions, in the discretion of the Board of Directors,
and it is not necessary that such medical expenses have already been paid by
Employee, his spouse, or his aforesaid dependents, but merely that, if not yet
paid, there exists an obligation to pay them. Premiums paid by DMI under any
group accident or health insurance policy that may be maintained by DMI covering
or for the benefit of some or all of its employees, and payments made by
insurers pursuant to said policy, shall not to any extent be regarded as
payments made pursuant to this subsection.
(f) Employee shall receive annual reimbursement for expenses incurred
by him in connection with personal or tax financial planning, not to exceed
$2,000 per year.
(g) Employee shall be entitled to participate in any benefit plan of a
type not specifically covered by this Agreement and established by DMI for key
employees during the term of Employee's employment hereunder on a basis
consistent with his age, position, responsibilities and level of compensation.
(h) Employee shall be reimbursed for his reasonable out-of-pocket
travel and business expenses, including but not limited to, membership in
private clubs for business purposes. All such club memberships will be
approved by a majority of outside members of the Board of Directors.
5. VACATION. Employee shall be entitled to a four-week vacation with pay
in each 12-month period ending August 31. A maximum of one week of annual paid
vacation shall be cumulative and will not be deemed waived if not taken during
the applicable 12 month period. Employee's paid vacation shall be pro-rated
based on the number of months he has remained employed by DMI during any fiscal
year during which this Agreement expires or is terminated.
6. OTHER BOARD OF DIRECTORS ACTION. Nothing in this Agreement shall be
deemed to prevent the Board of Directors of DMI from taking any action it may
deem, in its sole discretion, to be desirable to make the terms and conditions
of this Employment Agreement more beneficial to Employee, or to add further
benefits to his employment with DMI, provided that Employee agrees to such
changes and additions.
7. TERMINATION. This Agreement shall terminate and, except to the extent
previously accrued or as otherwise provided in the Officer Severance Agreement,
all rights and obligations of DMI and Employee under this Agreement shall be
void, upon the earliest to occur of any of the following:
E-67
(a) Expiration of the period of employment set forth in paragraph 1,
unless the period of employment is extended by the Board of Directors, in which
event termination shall occur upon the expiration of the period of employment as
extended by the Board of Directors;
(b) Death of Employee;
(c) Mental or physical illness or disability of Employee that shall
incapacitate him, for a period of 90 successive days or for an aggregate period
of 120 days during any 12 calendar months, from fully performing the duties
assigned to him hereunder in the good faith determination of the Board of
Directors and upon written notice to Employee.
(d) If Employee (i) is found guilty of having committed against DMI
any criminal act, including criminal fraud, or (ii) is found guilty of having
committed any criminal act involving moral turpitude, or (iii) the willful and
continued failure by the Employee to substantially perform the Employee's duties
with DMI after a written demand for substantial performance is delivered to the
Employee by the Board, which demand specifically identifies the manner in which
the Board believes that the Employee has not substantially performed his duties;
or (iv) the willful engaging by the Employee in gross misconduct materially and
demonstrably injurious to the Corporation. For the purposes of this definition,
no act, or failure to act on the Employee's part shall be considered "willful"
unless done or omitted to be done by the Employee other than in good faith and
without reasonable belief that the Employee's action or omission was in the best
interests of DMI. The Employee shall not be deemed to have been terminated for
Cause (as defined in the Officer Severance Agreement) unless and until DMI has
delivered a Notice of Termination, as provided therein.
(e) Voluntary cessation by Employee of his duties and responsibilities
under this Agreement.
If DMI terminates Employee's employment other than for Cause (as defined in
the Officer Severance Agreement), and a change in control (as defined in the
Officer Severance Agreement) occurs within 9 months thereafter, then Employee
shall be entitled to all benefits provided under the Officer Severance
Agreement.
Otherwise, if Employee's employment hereunder is terminated for any other
reason than those specified in subparagraphs (a) through (e) of this paragraph
7, then DMI shall remain liable to Employee and shall pay Employee in full
settlement of DMI's obligations hereunder: (i) the full amount of the balance of
his base salary as provided in subparagraph 3(a) above, to the expiration date
of this Agreement or to such expiration date as may have been extended by action
of the Board of Directors pursuant to subparagraph 7(a), in a lump sum; plus
(ii) an amount equal to the cash bonus and the stock bonus that would have been
payable to Employee pursuant to subparagraphs 3(b) and 3(c) above had Employee
remained employed until the end of DMI's fiscal year, multiplied by a fraction,
the numerator of which is the number of complete calendar months during which
Employee was employed during the fiscal year and the denominator of which is 12.
The payments based upon the cash bonus and the stock bonus shall be paid within
130 days of the delivery to DMI of the financial statements upon which they
shall be based.
E-68
8. COORDINATION WITH OFFICER SEVERANCE AGREEMENT. For the purposes of
the Officer Severance Agreement, this Agreement shall constitute a renewal and
extension of the Employment Agreement dated as of September 1, 1986 between
Employee and DMI. If any provision of this Agreement may be viewed as
conflicting with a provision of the Officer Severance Agreement, and the
provision at issue does not specifically state that it is intended to supersede
the Officer Severance Agreement, the Officer Severance Agreement shall control.
9. NON-COMPETITION. If this Agreement is terminated for any reason
specified in subparagraphs (a) through (e) of Paragraph 7, Employee shall
refrain, for a period of one year after the termination of this Agreement, from
carrying on a business that competes with a business conducted by DMI within the
geographic area described as follows:
The 50 states of the United States of America and Puerto Rico, except
for the states of Washington, Oregon, Idaho, Colorado, Wyoming, North
Dakota and South Dakota.
For the purposes of this paragraph, a business shall be deemed carried on by
Employee if carried on by a proprietorship, partnership, association or
corporation, or other business entity with which Employee is connected, except
that Employee shall not be deemed to be connected with a business competitive to
that conducted by DMI to the extent that Employee is merely a passive investor
therein or not engaged in the business operations thereof as an officer,
director, employee, agent, consultant, sales representative, or other provider
of personal services in a capacity that would enable him to use his knowledge or
DMI's trade secrets, customer lists or unique business methods to compete
against DMI. It is agreed that in the event of a breach or a threatened breach
of the foregoing, no adequate remedy exists at law to protect DMI's interests
and that DMI shall be entitled to appropriate injunctive relief. Should the
foregoing covenant be adjudged to any extent invalid by any court of competent
jurisdiction, such covenant shall be deemed modified to the extent necessary to
make if enforceable.
10. PLACE OF EMPLOYMENT. DMI agrees that the principal location at which
Employee is to render his services hereunder will continue to be Louisville,
Kentucky.
11. NOTICES. Any notice to DMI or Employee hereunder may be given by
delivering it to, or by depositing it in the United States mail, postage
pre-paid, addressed to the parties at the following addresses:
DMI:
Xx. Xxxxxx X. Xxxxxx
DMI Furniture, Inc.
One Oxmoor Place
000 Xxxxxxx Xxxx
Xxxxxxxxxx, XX 00000
with a required copy to:
E-69
Chairman, Compensation/Stock Option Committee
DMI Furniture, Inc.
One Oxmoor Place
000 Xxxxxxx Xxxx
Xxxxxxxxxx, XX 00000
EMPLOYEE
Xx. Xxxxxx X. Xxxx
0000 Xxxxxx Xxxx
Xxxxxxxxxx, XX 00000
12. ENTIRE AGREEMENT. This Agreement and the Officer Severance Agreement
(a) contain the complete and entire understanding and agreement of DMI and
Employee respecting the subject matter hereof (b) supersede and cancel all
understandings or agreement, oral or written, respecting the employment of
Employee in connection with the business of DMI; and (c) may not be modified
except by an instrument in writing executed by DMI and Employee.
13. WAIVER OF BREACH. The waiver by either party, of a breach of any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach by either party.
14. ASSIGNMENT. Employee may not assign his rights or obligations under
this Agreement. The rights and obligations of DMI shall inure to the benefit of
and shall be binding upon the successors and assigns of DMI.
15. CAPTIONS. All captions and headings used herein are for convenient
reference only and do not form part of this Agreement.
IN WITNESS WHEREOF, DMI and Employee have caused this Agreement to be duly
executed and delivered on the day and first above written, but effective
September 1, 1996.
DMI FURNITURE, INC.
ATTEST: [illegible] By /s/ Xxxxxx X. Xxxxxx
----------------------- ---------------------------
Xxxxxx X. Xxxxxx
Chairman and President
/s/ Xxxxxx X. Xxxx
------------------------------
XXXXXX X. XXXX
E-70
