EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made as of January 1,
2000, by and among Xxxxxx X. Xxxx (the "Executive"), Donnkenny Apparel, Inc., a
Delaware corporation (the "Company"), and Donnkenny, Inc., a Delaware
corporation which is the parent corporation of the Company ("Donnkenny").
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company (the "Board") expects that
the Executive will make substantial contributions to the growth and prospects
of Donnkenny, the Company and its subsidiaries; and
WHEREAS, the Board desires to obtain for the Company the services of the
Executive, and the Executive desires to be employed by the Company, all on the
terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained, the Company and the Executive agree as follows:
1. EMPLOYMENT.
a. Position. On the terms and subject to the conditions set forth
herein, the Company hereby employs the Executive as its Chairman of the
Board and Chief Executive Officer throughout the Employment Term (as
defined below). In addition, the Company shall immediately cause each of
its subsidiaries to designate Executive to the offices of Chairman of the
Board and Chief Executive Officer throughout the Employment Term.
Donnkenny hereby designates Executive as its Chief Executive Officer
throughout the
Employment Term and agrees that during the Employment Term, it shall
(i) nominate the Executive for election to its Board of Directors
at each annual meeting of shareholders and use its best efforts to cause
the Executive to be duly elected to the Board at each such meeting, and
(ii) elect the Executive to the position of Chairman of the Board.
b. Duties and Responsibilities. The Executive shall have such duties
and responsibilities consistent with his position as the Board determines
and shall perform such duties and carry out such responsibilities to the
best of his ability for the purpose of advancing the business of the
Company and its subsidiaries and Donnkenny. Subject to the provisions of
Section 1.c. below, and excluding any periods of vacation and sick leave
to which Executive is entitled, during the Employment Term the Executive
shall devote his full business time, skill and attention to the business
of the Company and its subsidiaries and Donnkenny, and, except as
specifically approved by the Board, shall not engage in any other business
activity or have any other business affiliation. During the Employment
Term, Executive shall report directly to the Board and all other executive
officers of Donnkenny, the Company or any of its subsidiaries shall report
to the Executive.
c. Other Activities. Notwithstanding anything else to the contrary
set forth herein, Executive shall have the right to manage his personal
investments and, as part of the Executive's business efforts and duties on
behalf of Donnkenny, the Company or any of its subsidiaries, Executive may
participate fully in social, charitable and civic activities and may serve
on the boards of directors of other companies provided that such
activities do not unreasonably and materially interfere with the
performance of and do not involve a conflict of interest with his duties
or responsibilities hereunder. Donnkenny and the Company each
2
acknowledge that Executive serves as of the date hereof as a director of
Whitehall Jewellers, Inc. and Domain Home Fashions, Inc., which service is
hereby approved.
2. EMPLOYMENT TERM. Subject to the termination provisions of Section 5
hereof, the "Employment Term" hereunder shall be a period of three (3) years,
commencing on January 1, 2000, and expiring at the close of business on
December 31, 2002.
3. COMPENSATION. During the Employment Term, the Company will pay and/or
otherwise provide the Executive with compensation and related benefits as
follows:
a. Relocation Payment. In consideration of Executive's execution of
this Agreement and Executive's temporary relocation to New York City to
perform his services hereunder, the Company, on or before January 31,
2000, shall pay to the Executive (i) the sum of Twenty Five Thousand
Dollars ($25,000) (the "Relocation Payment"); and (ii) the federal, state
and local income taxes for which Executive is liable on account of the
Relocation Payment, together with an amount sufficient to satisfy any
additional federal, state or local income taxes for which Executive is
liable on account of the amounts received pursuant to this Section
3.a.(ii). The parties hereto agree that the amounts provided for in this
Section 3.a. have been earned by the Executive and that the Company shall
not be entitled to any refund or repayment of any portion thereof
notwithstanding any termination of the Executive's employment for any
reason whatsoever.
b. Base Salary. During the Employment Term, the Company agrees to pay
the Executive, for services rendered hereunder, a base salary at the
annual rate of Five Hundred Thousand Dollars ($500,000) or such higher
rate as the Compensation Committee of the Board (the "Compensation
Committee") may designate in its sole and absolute discretion (the
3
"Base Salary"). The Base Salary shall be payable in equal periodic
installments, not less frequently than monthly, less any sums which may be
required to be deducted or withheld under applicable provisions of law. The
Base Salary for any partial year shall be prorated based upon the number of
days elapsed in such year.
c. Bonus. As soon as practicable after the date hereof, the Company
shall adopt a bonus plan for its senior executives in which Executive
shall participate on the terms generally set forth in such plan from time
to time, or in any plan substituted therefor or in addition thereto,
during the Employment Term.
d. Restricted Stock and Stock Options. In addition to the payments
provided above, on Monday, January 3, 2000, the Compensation Committee
granted to the Executive, subject to the execution of this Agreement, (i)
an award of 150,000 restricted shares of the Common Stock of Donnkenny
pursuant to Donnkenny's Restricted Stock Plan (the "Restricted Stock
Plan") at a purchase price equal to the aggregate par value of such shares
(i.e., $.01 per share); and (ii) options to purchase 150,000 shares of
Donnkenny Common Stock pursuant to Donnkenny's Incentive Stock Option Plan
(the "Stock Option Plan"), with the purchase price upon exercise of such
options equal to $11/16 (i.e. $0.6875) per share i.e. the closing price of
the Common Stock on the date of such grant.
The shares of restricted stock and options shall vest as follows: (A)
100,000 options are deemed fully vested, exercisable and nonforfeitable on
June 30, 2000, and the remaining 50,000 options will become fully vested,
exercisable and nonforfeitable on December 31, 2000, and (B) 150,000
shares of restricted stock shall vest on December 31, 2002 and, with
respect to the options, such options shall remain exercisable during the
remainder of their
4
respective terms notwithstanding any termination of the Executive's
employment except as otherwise provided in the grant agreements referred to
below; provided, however, that, anything herein or in the grant agreements
to the contrary notwithstanding, the vesting of such shares of restricted
stock and options shall be accelerated in the event of a Change in Control
(as defined herein), a termination of Executive's employment by the Company
without Cause (as defined below), a termination of Executive's employment
for Good Reason (as defined below), or a termination of Executive's
employment as a result of the death or disability of Executive and, in the
case of certain of the options, in certain other circumstances set forth in
the grant agreement referred to below. With respect to the options, such
options shall be incentive stock options to fullest extent permitted by
applicable law and the Stock Option Plan. The grant of the shares of
restricted stock and options has been made by the Compensation Committee
pursuant to the grant agreements attached hereto as Annexes A, B-1 (with
respect to incentive stock options) and B-2 (with respect to non-qualified
stock options), respectively.
Anything herein to the contrary notwithstanding, in the event a
Change of Control shall not be consummated on or before June 30, 2000
then, no later than July 5, 2000, (i) in addition to the aforesaid 150,000
shares of restricted stock granted to Executive pursuant to the Restricted
Stock Plan Executive shall be awarded an additional 150,000 restricted
shares of the Common Stock of Donnkenny pursuant to the Restricted Stock
Plan (subject to the same vesting provisions as is described above with
respect to the initial award of restricted shares); and (ii) Donnkenny and
the Company shall take whatever steps are required to amend the Restricted
Stock Plan, and shall take any other required corporate action, to permit
5
the award and issuance of the additional restricted shares hereunder and
pursuant to the Restricted Stock Plan.
All shares of common stock of Donnkenny issued to Executive as
restricted shares or pursuant to stock options upon the vesting thereof
from time to time shall be duly registered and fully and freely tradeable
by Executive without restriction. In the event Executive shall require a
resale prospectus in connection with any intended sale of shares,
Donnkenny and the Company shall promptly furnish such resale prospectus to
Executive at the Company's expense.
e. Automobile Allowance. During the Employment Term the Company shall
pay to Executive the sum of One Thousand Two Hundred Dollars ($1,200) per
month for Executive's automobile expenses including, without limitation,
gasoline, tolls, insurance, parking, maintenance, repairs and similar
expenses.
f. Reimbursement of Expenses and Administrative Support. The Company
shall pay or reimburse the Executive, upon the presentation of appropriate
documentation of such expenses, for all reasonable travel and other
expenses incurred by the Executive in performing his obligations under
this Agreement. The Company further agrees to furnish the Executive with
office space and administrative support, and any other assistance and
accommodations as shall be reasonably required by the Executive in the
performance of his duties under this Agreement.
g. Vacation. Executive shall be entitled to four (4) weeks paid
vacation in each calendar year. Any vacation not taken in any calendar
year shall accrue and shall increase the paid vacation to which Executive
is entitled in subsequent calendar years until such excess
6
shall be taken or paid for by the Company, as the case may be. Any
vacation to which Executive is entitled and which has not been fully taken
by Executive at the time his employment with the Company shall terminate
for any reason, shall be fully paid to Executive within thirty (30) days
after the effective date of Executive's termination of employment.
h. Deductions. All payments made under this Agreement shall be
subject to such deductions at the source as from time to time may be
required to be made pursuant to any law, rule, regulation or order.
i. Change in Control. For purposes of this Agreement, a "Change in
Control" of the Company or Donnkenny shall be deemed to have occurred upon
any of the following events:
(A) A person or entity or group of persons or entities, acting
in concert, shall become the direct or indirect beneficial owner
(within the meaning of Rule 13d-3 of the Securities Exchange Act of
1934, as amended), of securities of the Company or Donnkenny
representing more than fifty percent (50%) of the combined voting
power of the issued and outstanding common stock of Donnkenny or the
Company; or
(B) The majority of the Board, or the majority of the board of
directors of Donnkenny, is no longer comprised of the incumbent
directors who constitute such board on the date of this Agreement and
any other individual(s) who becomes a director subsequent to the date
of this Agreement whose initial election or nomination for election
as a director, as the case may be, was approved by at least a
7
majority of the directors who comprised the incumbent directors as of
the date of such election or nomination; or
(C) The Board shall approve a sale of all or substantially all
of the assets of the Company, or the board of directors of Donnkenny
shall approve a sale of all or substantially all of the assets of
Donnkenny; or
(D) The Board, or the board of directors of Donnkenny, shall
approve any merger, consolidation, or like business combination or
reorganization of the Company, or of Donnkenny, the consummation of
which would result in the occurrence of any event described in clause
(A) or (B) above, and such transaction shall have been consummated.
4. Participation in Benefit Plans. The Executive shall be entitled to
participate, during the term of this Agreement, in the Company's and
Donnkenny's benefit programs, including but not limited to qualified or
non-qualified pension plans, other qualified or nonqualified retirement plans,
supplemental pension plans, group hospitalization, health, dental care, death
benefit, post-retirement welfare plans, or other present or future group
employee benefit plans or programs of the Company or Donnkenny for which key
executives are or shall become eligible (collectively, the "Benefit Plans"), on
the same terms as other key executives of the Company or Donnkenny, as the case
may be. If participation in any of such Benefit Plans is subject to or based on
length of service, the Executive, upon execution of this Agreement, shall be
credited with whatever number of years or period of service shall be required
in order for Executive to immediately commence participation therein. In
addition to and without limiting the generality of the foregoing, (i) the
Company (x) may obtain and maintain a "key man" life insurance policy under
which the Company is the named
8
beneficiary in the amount of $2,500,000, and (y) in the event Executive
shall be in the employ of the Company on December 31, 2000, shall promptly
obtain and maintain a term life insurance policy in the amount of $2,500,000,
which policy shall be owned by the Executive, in each case from a
nationally-recognized insurance carrier reasonably acceptable to the Executive,
and (ii) the Company shall provide, in addition to any such insurance regularly
provided to the Company's executives and/or employees, long-term disability
insurance which will pay at least sixty percent (60%) of Executive's Base Salary
until the Executive reaches age 65. Upon termination of the employment of the
Executive with the Company or on or after December 31, 2000 for any reason other
than for Cause or the death of Executive, the Company shall continue to pay the
premiums on any of such policies, when due, for a period of five (5) years after
the effective date of termination and, at the expiration of such five (5) year
term, the Executive shall be entitled to purchase from the Company any life
insurance policy then owned by the Company on the life of the Executive and the
aforementioned disability insurance policy (if permitted under the terms of such
policy) for a purchase price equal to the cash surrender value of each policy,
if any.
5. TERMINATION OF EMPLOYMENT.
a. By the Company For Cause. The Company may terminate the
Executive's employment under this Agreement at any time for Cause (as
defined below) by delivery of written notice of termination to the
Executive (which notice shall specify in reasonable detail the basis upon
which such termination is made and the specific provision(s) of the
Agreement upon which it relies, and further stating the date, time and
place of the special meeting of the Board or the Board of Directors of
Donnkenny at which the issue of Cause
9
shall be addressed) at least ten days prior to the termination date
set forth in such notice. No such termination shall become effective until
the Executive, after receipt of such notice, shall have been offered the
opportunity to attend a meeting of the Board of Directors of the Company
(or the Board of Directors of Donnkenny, whichever is applicable) at which
a quorum is present (with the Executive's counsel present and
participating, if desired by the Executive) regarding such termination
notice and the allegations set forth therein and, based upon such meeting,
such Board of Directors shall have elected to proceed with such
termination. Except as provided for in Section 23 below, in the event the
Executive's employment is terminated for Cause, all provisions of this
Agreement and the Employment Term shall be terminated; provided, however,
that such termination shall not divest the Executive of any previously
vested benefit or right. In addition, the Executive shall be entitled only
to payment of his earned and unpaid Base Salary to the date of termination,
earned and unpaid bonus for the prior fiscal year, additional salary
payments in lieu of the Executive's accrued and unused vacation,
unreimbursed business and entertainment expenses in accordance with the
Company's policy, and unreimbursed medical, dental and other employee
benefit expenses incurred, and other vested and accrued benefits payable in
accordance with the Company's or Donnkenny's employee benefit plans
(hereinafter referred to as the "Standard Termination Payments"). For
purposes of this Agreement, "Cause" means (x) the conviction of the
Executive for the commission of (A) any felony, or (B) a misdemeanor
involving moral turpitude, or (y) willful misconduct by the Executive that
results in material and demonstrable damage to the business or reputation
of the Company. No act or failure to act on the part of the Executive shall
be considered "willful" unless it is done, or omitted to be done, by the
Executive in bad faith or without reasonable belief that
10
the Executive's action or omission was in the best interests of the
Company. Any act or failure to act that is based upon authority given
pursuant to a resolution duly adopted by the Board or the Board of
Directors of Donnkenny, or the advice of counsel for the Company or
Donnkenny, shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the
Company.
b. Upon Death or Disability. If the Executive dies, all provisions of
this Agreement (other than rights or benefits arising as a result of such
death) and the Employment Term shall be automatically terminated;
provided, however, that the Standard Termination Payments and pro rata
Bonus for the fiscal year during which such death occurs shall be paid to
the Executive's surviving spouse or, if none, his estate, and the death
benefits under the Company's and Donnkenny's employee benefit plans shall
be paid to the Executive's beneficiary or beneficiaries as properly
designated in writing by the Executive. If the Executive is unable to
perform his responsibilities under this Agreement by reason of physical or
mental disability or incapacity and such disability or incapacity shall
have continued for six consecutive months or any period aggregating six
months within any 12 consecutive months (a "Disability'), the Company may
terminate this Agreement and the Employment Term at any time thereafter.
In such event, the Executive shall be entitled to receive his normal
compensation hereunder during said six (6) month period, and shall
thereafter be entitled to receive the Standard Termination Payments and
the pro rata Bonus for the fiscal year during which such disability
occurs. Pro rata Bonus, in the event of the Executive's death or
disability, shall be an amount equal to the Bonus at the amount payable
upon fully achieving the figure targeted in the annual business plan or
other documents relating to the Bonus approved by the Board, the
Compensation Committee or any other duly
11
authorized designee of the Board for such year (the "Target Amount")
(regardless of the company's actual performance) for the fiscal year during
which such death or disability occurs, prorated by a fraction, the
numerator of which is the number of days of employment elapsed during the
fiscal year prior to termination of employment and the denominator of which
is 365. A termination of the Executive's employment by the Company for
Disability shall be communicated to the Executive by written notice, and
shall be effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), unless the Executive returns
to full-time performance of the Executive's duties before the Disability
Effective Date.
In the event Executive shall become disabled or shall die on or after
December 31, 2000, then the Company shall continue to provide the
Executive and the spouse and dependents of the Executive, at the expense
of the Company, with the medical insurance then provided generally to
dependents of employees of the Company, for a period of five (5) years
following the termination of the employment of the Executive, which
medical insurance coverage shall be included as part of any required COBRA
Coverage; provided, however, that the COBRA Coverage shall terminate with
respect to the Executive, the spouse and/or dependents of the Executive as
of the date that any such individual receives equivalent coverage and
benefits under any plans, programs and/or arrangements of a subsequent
employer. The rights and benefits of the Executive under the benefit plans
and programs of the Company shall be determined in accordance with the
provisions of such plans and programs. The rights and benefits of the
Executive with respect to the shares of restricted stock and options
referred to in Section 3.c. above shall be determined in accordance with
the
12
provisions of this Agreement and the plans and grant agreements
governing such shares and options. Except as otherwise specified in this
Agreement, neither the Executive nor the Company shall have any further
rights or obligations under this Agreement.
c. By the Company Without Cause.
13
i. The Company may terminate the Executive's employment under
this Agreement without Cause, and other than by reason of his death
or disability, at March 31, 2000 ("March Termination Date"), June 30,
2000 ("June 30, 2000 ("June Termination Date") or December 31, 2000
("December Termination Date") by sending written notice of
termination to the Executive, which notice shall specify a date
within 30 days after the date of such notice as the effective date of
such termination (the "Termination Date"). Subsequent to December 31,
2000 the Company may only terminate the employment of the Executive
for Cause or upon the death or disability of the Executive. From the
date of such notice through the Termination Date, the Executive shall
continue to perform the normal duties of his employment hereunder,
and shall be entitled to receive when due all compensation and
benefits applicable to the Executive hereunder. Thereafter, and
within thirty (30) days after the Termination Date, the Company shall
pay the Executive, by wire transfer of immediately available funds,
an amount equal to the Base Salary that he would have been entitled
to receive (A) for a period of 3 months following such termination,
in the event of a termination as of the March Termination Date, or
(B) for a period of 6 months following such termination, in the event
of a termination as of the June Termination Date; or (c) for a period
of 12 months following such termination, in the event of a
termination as of the December Termination Date. The Executive shall
have no obligation whatsoever to mitigate any damages, costs or
expenses suffered or incurred by the Company or Donnkenny with
respect to the severance obligations set forth in this Section,
5.c.i., and no such severance payments
14
received or receivable by the Executive shall be subject to any
reduction, offset, rebate or repayment as a result of any subsequent
employment or other business activity by the Executive including,
without limitation, self employment.
ii. In the event of a termination of Executive's employment by
the Company without Cause on or after December 31,2000, the Company
shall continue to provide the Executive and the spouse and dependents
of the Executive, at the expense of the Company, with the medical
insurance then provided generally to dependents of employees of the
Company, for a period of five (5) years following the termination of
the employment of the Executive, which medical insurance coverage
shall be included as part of any required COBRA Coverage; provided,
however, that the COBRA Coverage shall terminate with respect to the
Executive, the spouse and/or dependents of the Executive as of the
date that any such individual receives equivalent coverage and
benefits under any plans, programs and/or arrangements of a
subsequent employer. The rights and benefits of the Executive under
the benefit plans and programs of the Company or Donnkenny shall be
determined in accordance with the provisions of such plans and
programs. The rights and benefits of the Executive with respect to
the shares of restricted stock and options referred to in Section
3.c. above shall be determined in accordance with the provisions of
this Agreement and the plans and grant agreements governing such
shares and options. Except as otherwise specified in this Agreement,
neither the Executive nor the Company or Donnkenny shall have any
further rights or obligations under this Agreement. The Company shall
also be obligated to pay to the Executive the
15
Standard Termination Payments and pro rata Bonus for the fiscal
year during which such termination of employment occurs. Pro rata
Bonus, in the event the Executive's employment is terminated by the
Company without Cause, shall be an amount equal to the Bonus at Target
Amount (regardless of the Company's actual performance) for the fiscal
year during which such termination of employment occurs, pro rated by
a fraction, the numerator of which is the number of days of employment
elapsed during the fiscal year prior to termination of employment and
the denominator of which is 365.
d. By the Executive.
i. The Executive may terminate his employment, and any further
obligations which Executive may have to perform services on behalf of
Donnkenny or the Company and any of its subsidiaries hereunder at any
time after the date hereof, (i) without Good Reason (as defined
below) by sending written notice of such termination to the Company
not less than sixty (60) days prior to the effective date of such
termination (during such sixty (60) day period, the Executive shall
continue to perform the normal duties of his employment hereunder and
shall be entitled to receive when due all compensation and benefits
applicable to the Executive hereunder); or (ii) for Good Reason
pursuant to the procedure set forth in Section 5(d)iii below).
ii. For purposes of this Agreement, "Good Reason" shall be
defined as any of the following:
16
A. failure by the Company or Donnkenny to re-elect the
Executive as a director, Chairman of the Board and Chief
Executive Officer, or the assignment to the Executive of any
duties or responsibilities inconsistent in any respect with
those customarily associated with the positions to be held by
the Executive pursuant to this Agreement, or any other action by
the Company that results in a diminution in the Executive's
position, authority, duties or responsibilities, other than an
isolated, insubstantial and inadvertent action that is not taken
in bad faith and is remedied by the Company promptly after
receipt of notice thereof from the Executive;
B. any failure by the Company or Donnkenny to comply with
any provision of Section 3 of this Agreement, other than an
isolated, insubstantial and inadvertent failure that is not
taken in bad faith and is remedied by the Company or Donnkenny,
as the case may be, promptly after receipt of notice thereof
from the Executive;
C. Any requirement by the Company that the Executive's
services be rendered primarily at a location or locations other
than that provided for in New York City;
D. any purported termination of the Executive's employment
by the Company or Donnkenny for a reason or in a manner not
expressly permitted by this Agreement;
17
E. any failure by the Company or Donnkenny to comply with
paragraph (c) of Section 14 of this Agreement;
F. any Change in Control of the Company or Donnkenny;
G. the institution of bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings by or against
the Company or Donnkenny (which proceedings, if instituted
against the Company or Donnkenny, have been consented to by the
Company or Donnkenny, as the case may be, or have remained
undismissed for a period of sixty (60) days after the filing
date thereof); or
H. any other material breach of this Agreement by the
Company or Donnkenny that either is not taken in good faith or
is not remedied by the Company or Donnkenny, as the case may be,
within five (5) business days after receipt of notice thereof
from the Executive.
iii. A termination of employment by the Executive for Good
Reason shall be effectuated by giving the Company written notice
("Notice of Termination for Good Reason") of the termination, setting
forth in reasonable detail the specific conduct of the Company or
other event(s) that constitutes Good Reason and the specific
provision(s) of this Agreement on which the Executive relies. A
termination of employment by the Executive for Good Reason shall be
effective on the fifth business day following the date when the
Notice of Termination for Good Reason is given, unless the notice
sets forth a later date (which date shall in no event be later than
thirty (30) days after the notice is given.
18
iv. The Executive shall elect to terminate his employment
hereunder (other than as a result of his death or disability) without
Good Reason, then the Executive shall remain vested in all vested
benefits provided for hereunder or under any benefit plan of the
Company in which Executive is a participant and shall be entitled to
receive the Standard Termination payments, but the Company shall have
no further obligation to make payments or provide benefits to the
Executive.
v. Subject to the provisions of Section 0.x.xx. below, if the
Company terminates the Executive's employment, other than for Cause
(except as permitted pursuant to Section 5.c. above), death or
Disability, or the Executive terminates employment for Good Reason,
the Company shall, at the option of the Company, (i) continue to pay
to the Executive, until the expiration of the Employment Term then in
effect, the Base Salary then in effect (but in no event less than one
year of Base Salary) plus the pro rata Bonus (calculated in the
manner described in Section 5.b. above) or (ii) pay the Executive a
lump sum amount equal to the present value of the amount referred to
in 5.d.v(i) above. In addition to the foregoing, the Company shall
also be obligated to pay to the Executive the Standard Termination
Payments as and when they shall become due. Furthermore, if such
termination occurs on or after December 31, 2000, the Company shall
continue to provide the Executive and the spouse and dependents of
the Executive, at the expense of the Company, with the medical
insurance then provided generally to dependents of employees of the
Company, for a period of five (5) years following the termination of
the employment of the Executive, which medical insurance coverage
shall be included as part of any
19
required COBRA Coverage; provided, however, that the COBRA
Coverage shall terminate with respect to the Executive, the spouse
and/or dependents of the Executive as of the date that any such
individual receives equivalent coverage and benefits under any plans,
programs and/or arrangements of a subsequent employer. The rights and
benefits of the Executive with respect to the shares of restricted
stock and options referred to in Section 3.c. above shall be
determined in accordance with the provisions of this Agreement and the
plans and grant agreements governing such shares and options. Except
as otherwise specified in this Agreement, neither the Executive nor
the Company shall have any further rights or obligations under this
Agreement. Except as is provided for in Section 0.x.xx. below, the
payments and benefits provided pursuant to this Section 5.d.v. are
intended as liquidated damages for a termination of the Executive's
employment by the Company other than for Cause or Disability or for
the actions of the Company leading to a termination of the Executive's
employment by the Executive for Good Reason and shall be the sole and
exclusive remedy therefor. Executive shall have no obligation
whatsoever to mitigate any damages, costs or expenses suffered or
incurred by the Company with respect to any payments made pursuant to
this Section 5.d..v., and no such payment shall be subject to any
reduction, offset, rebate or repayment as a result of any subsequent
employment or other business activity by the Executive including,
without limitation, self employment.
20
vi. If, during the Employment Term and upon or after the
occurrence of a Change in Control other than a Change in Control
proposed, sponsored or supported by the Executive, the Executive's
employment is terminated by the Company or the Executive for any or
no reason other than by the Company for Cause, death or Disability,
the Company shall pay to the Executive, by wire transfer of
immediately available funds within ten (10) days after the
Termination Date, an amount equal to three times the sum of (x) the
Executive's Base Salary in effect on the Date of Termination, and (y)
the Bonus, if any, paid to the Executive with respect to the calendar
year immediately preceding the calendar year in which the Date of
Termination occurs. In addition to the foregoing, the Company shall
also be obligated to pay to the Executive the Standard Termination
Payments as and when they shall become due. Furthermore, if no Bonus
is included in the calculation of the amount referred to in the
preceding sentence, then, in addition to the payment provided for
therein, the Company shall pay to Executive, contemporaneously with
the payment provided for in the prior sentence, and in the same
manner, an amount equal to the Bonus at Target Amount (regardless of
the Company's actual performance) for the entire year in which the
Termination Date occurs (which shall not be reduced pro rata for less
than a full year's service). The Company shall continue to provide
the Executive and the spouse and dependents of the Executive, at the
expense of the Company, with the medical insurance then provided
generally to dependents of employees of the Company, for a period of
five (5) years following the termination of the employment of the
Executive, which medical insurance coverage
21
shall be included as part of any required COBRA Coverage;
provided, however, that the COBRA Coverage shall terminate with
respect to the Executive, the spouse and/or dependents of the
Executive as of the date that any such individual receives equivalent
coverage and benefits under any plans, programs and/or arrangements of
a subsequent employer. The rights and benefits of the Executive under
the benefit plans and programs of the Company shall be determined in
accordance with the provisions of such plans and programs. The rights
and benefits of the Executive with respect to the shares of restricted
stock and options referred to in Section 3.c. above shall be
determined in accordance with the provision of this Agreement and the
plans and grant agreements governing such shares and options. Except
as otherwise specified in this Agreement, neither the Executive nor
the Company shall have any further rights or obligations under this
Agreement. The payments and benefits provided pursuant to this Section
0.x.xx. are intended as liquidated damages for a termination of the
Executive's employment by the Company other than for Cause or
Disability or for the actions of the Company leading to a termination
of the Executive's employment by the Executive for Good Reason, in
each case on or after the occurrence of a Change in Control, and shall
be the sole and exclusive remedy therefor. Executive shall have no
obligation whatsoever to mitigate any damages, costs or expenses
suffered or incurred by the Company with respect to any payments made
pursuant to this Section 0.x.xx., and no such payment shall be subject
to any reduction, offset, rebate or repayment as a result of any
subsequent employment or
22
other business activity by the Executive including, without
limitation, self employment.
e. Upon the Expiration of the Employment Term. In the event the
employment of Executive hereunder shall terminate as a result of the
expiration of the Employment Term (or any extension period mutually agreed
upon by Donnkenny, the Company and the Executive), then Executive shall be
entitled to receive from the Company and Donnkenny the same amounts and
benefits, upon the same terms and conditions, as are applicable to a
termination by the Company without Cause as of the December Termination
Date, as are more particularly set forth in Section 5.c. above, but
calculated and determined as of Executive's actual Date of Termination (as
defined below).
f. No Waiver. The failure to set forth any fact or circumstance in a
Notice of Termination for Cause or a Notice of Termination for Good Reason
shall not constitute a waiver of the right to assert, and shall not
preclude the party giving notice from asserting, such fact or circumstance
in an attempt to enforce any right under or provision of this Agreement.
g. Date of Termination. The "Date of Termination" means the date of
the Executive's death, the Disability Effective Date, the date on which
the termination of the Executive's employment by the Company for Cause or
without Cause or by the Executive for Good Reason is effective, the date
on which the Executive gives the Company notice of a termination of
employment without Good Reason, or the date upon which the Employment Term
(or any mutually agreed extension thereof shall expire) as the case may
be.
23
6. TAX INDEMNIFICATION. If the compensation, benefits, payment
accelerations, share option acceleration, appreciation rights or loan
forgiveness received by Executive from Donnkenny or the Company hereunder, or
otherwise, (the "Payments") will be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code and any successor provision, or any
comparable provision of state or local tax law (collectively, "Section 4999"),
or any interest, penalty or addition to tax will be incurred by Executive with
respect to such excise tax (such excise tax, together with any such interest,
penalty or addition to tax being referred to herein as the "Excise Tax"), then
Executive shall receive an additional cash payment (a "Gross-Up Payment") in an
amount such that after the payment by Executive of all taxes, interest,
penalties, and additions to tax imposed with respect to the Gross-Up Payment
(including, without limitation, any income tax, employment tax payable by
Executive and Excise Tax imposed upon the Gross-Up Payment), Executive retains
an amount of the Gross-Up Payment equal to the Excise Tax imposed upon such
Payments. In calculating the Gross-Up Payment, Executive will be deemed to pay
Federal income taxes at the highest marginal rate of Federal income taxation as
of the year in which the Gross-Up Payment is to be made and state and local
taxes at the highest marginal rate of taxation in the state or locality of the
Gross-Up Payment recipient's state of residence as of the date the tax
obligation is incurred, net of the maximum reduction in Federal income taxes
which could be obtained from deducting the state and local taxes if paid in the
year in which the tax obligation is incurred.
7. Representations and Warranties of the Company and Donnkenny. Each of
the Company and Donnkenny represents and warrants to the Executive as follows:
i. the options have been duly granted to the Executive by the Company
or Donnkenny, as the case may be, at the opening of business on Monday,
January 3, 2000,
24
pursuant to the express provisions of the Stock Option Plan, and all
necessary corporate action with respect thereto has been duly taken;
ii. the shares of restricted stock of Donnkenny have been granted to
the Executive by the Company or Donnkenny, as the case may be, pursuant to
the express provisions of the Restricted Stock Plan, and all necessary
corporate action with respect thereto has been duly taken;
iii. the Option Plan and the Restricted Stock Plan are in full force
and effect in accordance with their respective terms, and the options and
shares of restricted stock granted to the Executive under each such Plan
were available for grant thereunder;
iv. the aforesaid grant of the options and shares of restricted stock
to the Executive does not violate or breach any provision of the Articles
of Incorporation or Bylaws of Donnkenny or the Company or any agreement to
which Donnkenny or the Company is subject or by which it is bound, and no
shareholder approval of such grant or the exercise of any options or
shares of restricted stock thereunder is required; and
v. the options, the shares of restricted stock and all agreements
related thereto to be entered into by the Company or Donnkenny shall be
duly executed and delivered by the Company or Donnkenny and shall
constitute valid and binding obligations of the Company or Donnkenny,
enforceable against the Company, as the case may be, in accordance with
their terms (except as the enforceability thereof may be limited or
otherwise affected by bankruptcy, insolvency, reorganization,
25
moratorium or other similar laws generally affecting the rights of
creditors and subject to general equity principles, whether considered at
law or in equity).
8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan,, program,
policy or practice provided by the Company or any of its affiliated companies
for which the Executive may qualify, nor shall anything in this Agreement limit
or otherwise affect such rights as the Executive may have under any contract or
agreement with the Company or any of its affiliated companies. Vested benefits
and other amounts that the Executive is otherwise entitled to receive under the
Restricted Stock Plan, the Stock Option Plan, or any other plan, policy,
practice or program of, or any contract of agreement with, the Company or any
of its affiliated companies on or after the Date of Termination shall be
payable in accordance with the terms of each such plan, policy, practice,
program, contract or agreement, as the case may be.
9. INVENTIONS. Any and all inventions, innovations or improvements
("inventions") made, developed or created by the Executive (whether at the
request or suggestion of the Company (which, as used in this Section 9, shall
be deemed to include the Company and each of its subsidiaries) or otherwise,
whether alone or in conjunction with others, and whether during regular hours
of work or otherwise) during the period of his employment with the Company
which may be directly or indirectly useful in, or relate to, the business of
the Company, shall be promptly and fully disclosed by the Executive to the
Board and shall be the Company's exclusive property as against the Executive,
and the Executive shall promptly deliver to an appropriate representative of
the Company as designated by the Board all papers, drawings, models, data and
other material relating to any inventions made, developed or created by him as
aforesaid. The Executive shall, at the request of the
26
Company and without any payment therefor, execute any documents necessary
or advisable in the opinion of the Company's counsel to direct issuance of
patents or copyrights to the Company with respect to such inventions as are to
be the Company's exclusive property as against the Executive or to vest in the
Company title to such inventions as against the Executive. The expense of
securing any such patent or copyright shall be borne by the Company.
10 CONFIDENTIAL INFORMATION. The Executive shall hold in strict confidence
all secret or confidential information, knowledge or data relating to the
Company or any of its affiliated companies and their respective businesses that
the Executive obtains during the Executive's employment by the Company or any
of its affiliated companies; provided, however, that Executive's obligations
under this Section 10 with respect to any specific Confidential Information
shall cease when that specific Confidential Information becomes public
knowledge (other than as a result of the Executive's violation of this Section
10) ("Confidential Information") or when it is disclosed by any person, firm,
corporation or business entity which is not bound by the terms of a
confidentiality agreement with the Company which contains substantially
identical provisions as the terms hereof. Except as is otherwise provided for
herein, the Executive shall not communicate, divulge or disseminate
Confidential Information at any time during or after the Executive's employment
with the Company, except with the prior written consent of the Company or as
otherwise required by law or regulation or by legal process. If the Executive
is requested pursuant to, or required by, applicable law or regulation or by
legal process to disclose any Confidential Information, the Executive shall
provide the Company, as promptly as the circumstances reasonably permit, with
notice of such request or requirement and, unless a protective order or other
appropriate relief is previously obtained, the Confidential Information,
subject to such request, may be disclosed pursuant to and in
27
accordance with the terms of such request or requirement, provided that the
Executive, at the Company's expense, shall use his best efforts to limit any
such disclosure to the precise terms of such request or requirement.
11 NON-COMPETITION. The Executive acknowledges that the services to be
rendered by him to the Company (which, as used in this Section 11 shall be
deemed to include the Company and each of its subsidiaries) are of a special
and unique character. In consideration of his employment hereunder, the
Executive agrees, for the benefit of the Company, that he will not, during the
term of this Agreement and (except in a case where the Executive's employment
is terminated (x) by the Company other than for Cause, (y) by the Executive for
Good Reason, or (z) by the Executive or the Company for any or no reason
following the occurrence of a Change in Control) thereafter until the
expiration of a period of twelve (12) months commencing on the date of
termination of his employment with the Company (a) engage, directly or
indirectly, whether as principal, agent, distributor, representative,
consultant, employee, partner, stockholder, limited partner or other investor
(other than an investment of not more than (i) five percent (5%) of the stock
or equity of any corporation the capital stock of which is publicly traded or
(ii) five percent (5%) of the ownership interest of any limited partnership or
other entity) or otherwise, within the United States of America, in any apparel
business which is competitive with the business now, or at any time during the
term of this Agreement, conducted by the Company, (b) solicit or entice to
endeavor to solicit or entice away from the Company any person who was an
officer, employee or sales representative of the Company, either for his own
account or for any individual, firm or corporation, whether or not such person
would commit any breach of his contract of employment by reason of leaving the
service of the Company, and the Executive agrees not to employ, directly or
indirectly, any person who was an
28
officer, employee or sales representative of the Company or who by reason
of such position at any time is or may be likely to be in possession of any
confidential information or trade secrets relating to the businesses or products
of the Company; provided, however, that nothing herein shall be deemed to
restrict or prohibit the solicitation and hiring of any individual who responds
to general solicitation or advertising of employment which is not specifically
directed or targeted to employees of the Company or its subsidiaries, or (c)
solicit or entice or endeavor to solicit or entice away from the Company any
customer or prospective customer of the Company, either for his own account or
for any individual, firm or corporation with respect to the business of the
Company. In addition, the Executive shall not, at any time during the term of
this Agreement or at any time thereafter, engage in the business which uses as
its name, in whole or in part, Donnkenny, Xxxxx Classics or any other tradename
or trademark or corporate name used by Donnkenny, the Company or any of their
subsidiaries during the Employment Term.
12 INDEMNIFICATION.
a The Company and Donnkenny shall indemnify the Executive to the
fullest extent permitted by Delaware law in effect as of the date
hereof against all costs, expenses, liabilities and losses (including,
without limitation, attorneys' fees, judgments, fines, penalties,
ERISA excise taxes, penalties and amounts paid in settlement)
reasonably incurred by the Executive in connection with a Proceeding.
For the purposes of this Section 12, a "Proceeding" shall mean any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, in which the Executive is made, or is threatened to be
made, a party to, or a witness in, such action, suit or proceeding by
reason of the fact that he is or was an officer, director or employee
of the Company or Donnkenny, or is or was serving as an
29
officer, director, member, employee, trustee or agent of any
other entity at the request of the Company or Donnkenny, whether or
not the basis of such Proceeding arises out of or in connection with
the Executive's alleged action or omission in an official capacity.
b The Company and Donnkenny shall advance to the Executive all
reasonable costs and expenses incurred by him in connection with a
Proceeding within 20 days after receipt by the Company or Donnkenny,
as the case may be, of a written request for such advance. Such
request shall include an itemized list of the costs and expenses and
an undertaking by the Executive to repay the amount of such advance
if it shall ultimately be determined that he is not entitled to be
indemnified against such costs and expenses. Upon a request under
subsection (b), the Executive shall be deemed to have met the
standard of conduct required for such indemnification unless the
contrary shall be established by a court of competent jurisdiction.
c The Executive shall not be entitled to indemnification under
this Section 12 unless he meets the standard of conduct specified in
the Delaware General Corporation Law. Any indemnification under
subsection a. (unless ordered by a court) shall be made by the
Company or Donnkenny only as authorized in the specific case upon a
determination that indemnification of the Executive is proper in the
circumstances because he has met the applicable standard of conduct
set forth in the Delaware Corporation Law. Such determination shall
be made (1) by the Board or the Board of Directors of Donnkenny, as
the case may be, by a majority vote of a quorum consisting of
directors who were not parties to such Proceeding, or (2) if such a
quorum is not obtainable, or, even if obtainable a quorum of
30
disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
d Neither the Company nor Donnkenny shall settle any Proceeding
or claim in any manner which would impose on the Executive any
penalty or limitation without his prior written consent. Neither the
Company nor Donnkenny nor the Executive will unreasonably withhold
its or his consent to any proposed settlement.
e The indemnification in this Section 12 shall inure to the
benefit of the Executive's heirs, executors and administrators.
f The Company and Donnkenny agree to use their respective best
efforts to obtain, continue and maintain an adequate directors and
officers' liability insurance policy and shall cause such policy to
cover the Executive to the extent the Company or Donnkenny provides
such coverage for its other executive officers. Upon request by
Executive, the Company and Donnkenny shall furnish Executive with
written evidence that such coverage is in full force and effect.
g Donnkenny and the Company agree to indemnify and hold
Executive harmless from all losses, costs, fees and expenses
including, without limitation, reasonable legal fees and litigation
expenses, which Executive shall suffer, sustain or incur as a result
of, in connection with or arising from any breach of this Agreement
by Donnkenny or the Company.
13 ATTORNEYS' FEES. The Company agrees to pay, as incurred, all legal fees
and expenses incurred by the Company and the Executive in connection with the
preparation of this Agreement. The Company further agrees to pay, as incurred,
to the fullest extent permitted by law, all legal fees
31
and expenses that the Executive may reasonably incur as a result of any
contest (regardless of the outcome) by Donnkenny, the Company, the Executive or
others of the validity or enforceability of or liability under, or otherwise
involving, any provision of this Agreement, together with interest on any
delayed payment at the applicable federal rate provided for in Section
7872(f)(2)(A) of the Code.
14 SUCCESSORS; BENEFICIARIES.
a This Agreement is personal to the Executive and, without the
prior written consent of the Company, shall not be assignable by the
Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall insure to the benefit of and be
enforceable by the Executive's legal representatives.
b This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
c The Company or Donnkenny, as the case may be, shall require any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company or Donnkenny expressly to assume
and agree to perform this Agreement in the same manner and to the same
extent that Donnkenny or the Company would have been required to
perform it if no such succession had taken place; provided, however,
that no such assignment or transfer shall have the effect of releasing
or relieving Donnkenny or the Company of any liability or obligation
to the Executive hereunder or in any other agreement, plan or document
contemplated herein. As used in this Agreement, "Company" shall mean
both the Company as defined above and any such successor that assumes
and agrees to perform this Agreement, by operation of law or otherwise
and "Donnkenny" shall mean both Donnkenny as defined above and any
such
32
successor that assumes and agrees to perform this Agreement by
operation of law or otherwise.
d The Executive shall be entitled, to the extent permitted under
any applicable law, to select and change the beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder
following the Executive's death by giving the Company written notice
thereof. In the event of the Executive's death or a judicial
determination of his incompetence, reference in this Agreement to the
Executive shall be deemed, where appropriate, to refer to his
beneficiary, estate or other legal representative.
15 NOTICES. All notices and other communications under this Agreement
shall be in writing and shall be given by hand delivery to the other party or
by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
Xx. Xxxxxx X. Xxxx
0000 Xxxxx Xxxx Xxxx
Xxxxxxxx Xxx, Xxxxxxx 00000
With a copy to:
Xxxxx Xxxxxxx Xxxxxxx & Xxxxx
Suite 1800
000 Xxxxx XxXxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000-0000
Attn: Xxxxxxx X. Xxxxxxxx, Esq.
If to Donnkenny or the Company:
Donnkenny Apparel, Inc.
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: President
33
or to such other address as either party furnishes to the other in writing
in accordance with this Section 15. Notices and communications shall be
effective when actually received by the addressee.
16 MODIFICATION OR WAIVER. No amendment, modification, waiver, termination
or cancellation of this Agreement shall be binding or effective for any purpose
unless it is made in a writing signed by the party against whom enforcement of
such amendment, modification, waiver, termination or cancellation is sought. No
course of dealing between or among the parties to this Agreement shall be
deemed to affect or to modify, amend or discharge any provision or term of this
Agreement. No delay on the part of Donnkenny, the Company or the Executive in
the exercise of any of their respective rights or remedies shall operate as a
waiver thereof, and no single or partial exercise by Donnkenny, the Company or
the Executive of any such right or remedy shall preclude other or further
exercises thereof. A waiver of a right or remedy on any one occasion shall not
be construed as a bar to or waiver of any such right or remedy on any other
occasion.
17 GOVERNING LAW; JURISDICTION. This Agreement and all rights, remedies
and obligations hereunder, including, but not limited to, matters of
construction, validity and performance shall be governed by the laws of the
State of Delaware without regard to its conflict of laws principles or rules.
18 SEVERABILITY. Whenever possible each provision and term of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision or term of this Agreement shall be
held to be prohibited by or invalid under such applicable law, then such
provision or term shall be ineffective only to the extent of such prohibition
or invalidity, without invalidating or affecting in any manner whatsoever the
remainder of such provisions or term or the remaining provisions or terms of
this Agreement.
34
19 COUNTERPARTS. This Agreement may be executed in separate counterparts,
each of which is deemed to be an original and all of which taken together
constitute one and the same Agreement.
20 HEADINGS. The headings of the Sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute a part hereof and
shall not affect the construction or interpretation of this Agreement.
21 ENTIRE AGREEMENT. This Agreement (together with all documents and
instruments referred to herein) constitutes the entire agreement and supersedes
all other prior agreements and undertakings, both written and oral, among the
parties with respect to the subject matter hereof.
22 ARBITRATION. If any controversy or dispute shall arise between the
parties hereto in connection with, arising from, or in respect to this
Agreement, any provision hereof, or any provision of any instrument, document,
agreement or other writing delivered pursuant hereto, or with respect to the
validity of this Agreement or any such document, agreement or other writing,
and if such controversy or dispute shall not be resolved within thirty (30)
days after the same shall arise, then such dispute or controversy shall be
submitted for arbitration to the New York, New York office of the American
Arbitration Association in accordance with its commercial arbitration rules
then in effect. Any such dispute or controversy shall be determined by one (1)
arbitrator. Such arbitrator may award any relief which such arbitrator shall
deem proper in the circumstances, without regard to the relief which would
otherwise be available to either party hereto in a court of law or equity,
including, without limitation, an award of money damages (including interest on
unpaid amounts, calculated from the due date of any such amount, at a rate per
annum determined by said arbitrator), specific performance and injunctive
relief. The award and findings of such arbitrator shall be conclusive and
35
binding upon the parties thereto, and judgment upon such award may be entered
in any court of competent jurisdiction. Any party against whom an arbitrator's
award shall be issued shall not, in any manner, oppose or defend against any
suit to confirm such award, or any enforcement proceedings brought against such
party, whether within or outside of the United States of America, with respect
to any judgment entered upon the award, and such party hereby consents to the
entry of a judgment against such party, in the full amount thereof, or other
relief granted therein, in any jurisdiction in which such enforcement is
sought.
23 SURVIVAL. The respective obligations of Donnkenny and the Company and
the Executive under Sections 5 (with respect to amounts owing as a result of
any termination), 6, 8 (with respect to amounts owing), 9, 10, 11, 12, 13,
14.c., 22 or this Section 23 shall survive any termination of Executive's
employment; provided, however, that the Executive's obligations under Section
11 (Non-Competition) shall terminate and shall not survive in the event (i) the
Executive's employment is terminated by the Company other than for Cause or by
the Executive for Good Reason, or (ii) the Executive's employment is terminated
for any or no reason following a Change in Control.
36
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
DONNKENNY, INC., a Delaware
corporation
By:
--------------------------------
Name:
Title:
DONNKENNY APPAREL, INC., a
Delaware corporation
By:
--------------------------------
Name:
Title:
EXECUTIVE
--------------------------------
XXXXXX X. XXXX
