Exhibit 10.2
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of August 1, 1997 (the "Agreement")
between Discovery Zone, Inc. (the "Company") and Xxxxxx X. Xxxxxx (the
"Executive").
WHEREAS, the Company desires to employ the Executive, and the
Executive desires to be employed by the Company, upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, the parties hereto agree as follows:
1. EMPLOYMENT AND DUTIES
1.1. GENERAL. The Company hereby employs the Executive, and the
Executive agrees to serve, as Senior Vice President, Chief Financial and
Administrative Officer upon the terms and conditions herein contained. In
such capacity, the Executive agrees to serve the Company faithfully and to
the best of his ability under the direction of and reporting to the Chief
Executive Officer of the Company (the "CEO"). The Executive also agrees to
serve, if elected, at no compensation in addition to that provided for in
this Agreement, in the position of officer or director of any subsidiary of
the Company.
1.2. TERM OF EMPLOYMENT. The Executive's employment under this
Agreement shall commence on August 1, 1997 (the "EFFECTIVE DATE") and shall
terminate on the earlier of (i) December 31, 2000, which term shall be
automatically extended for successive one-year periods unless, not later than
60 days prior to December 31, 2000 or any extension thereof pursuant to this
Section 1.2, the Company or the Executive shall have given notice to the
other party that it does not wish to extend the term, or (ii) the termination
of the Executive's employment pursuant to Article 4 or 5 of this Agreement.
The term commencing on the Effective Date and ending on December 31, 2000 or
any extension thereof pursuant to this Section 1.2 is hereinafter referred to
as the "EMPLOYMENT TERM".
1.3. PLACE OF EMPLOYMENT. The Executive's principal place of
employment will be in the New York metropolitan area (as defined herein).
"NEW YORK METROPOLITAN AREA" for purposes of this Agreement shall mean New
York City, Westchester County, southern Connecticut or northern New Jersey.
1.4. EXCLUSIVE SERVICES. During the Executive's employment under
this Agreement, the Executive shall devote substantially all of his business
time and best efforts to the performance of his duties hereunder and will not
engage in any other business, profession or occupation for compensation or
otherwise that would conflict with the rendition of such services, either
directly or indirectly, without the prior written consent of the Board of
Directors of the Company (the "BOARD"); PROVIDED that nothing herein will
preclude the Executive from continuing to serve on the board of directors of
any business corporation or
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any charitable organization on which he now serves and that has been
disclosed to the Company in writing, or subject to the prior approval of the
Board, from accepting appointment to additional boards of directors, in
either case, PROVIDED that such activities do not materially interfere with
the performance of the Executive's duties hereunder.
1.5. INDEMNIFICATION. The Company shall indemnify the Executive
against any directors' and officers' liability with respect to the Company to
the fullest extent permitted by law.
2. COMPENSATION
2.1. BASE SALARY. From the Effective Date, the Executive shall be
entitled to receive a base salary ("BASE SALARY") at a rate of $185,000 per
annum, payable in arrears in equal installments not less frequently than
monthly in accordance with the Company's payroll practices, with such annual
increases as may be provided in accordance with Section 2.2. Once increased,
such higher amount shall constitute the Executive's annual Base Salary.
2.2. ANNUAL REVIEW. The Executive's Base Salary shall be reviewed by
the Company annually, and such Base Salary may be increased in the sole
discretion of the Company (but not decreased) upon such review during the
remainder of the Employment Term. The Company has no obligation to increase the
Executive's Base Salary during the Employment Term.
2.3. BONUS. For the Company's fiscal years after 1997, the
Executive shall be eligible to participate in the Company's annual Management
Incentive Plan ("MIP"). Under the MIP, the Executive's annual target bonus
for achievement of all individual and Company goals shall be $90,000. The
MIP shall provide that the portion of the Executive's potential bonus tied to
the Company's achieving its EBITDA goal for that year (as determined by the
CEO with the approval of the Board) will increase or decrease proportionately
to the extent that the Company's actual EBITDA for that year exceeds or is
less than, as the case may be, such EBITDA goal. In addition, the Executive
shall be eligible to receive such additional bonus, if any, as the Company in
its sole discretion may grant the Executive. The Executive's 1997 annual
bonus, if any, will be discretionary.
2.4. STOCK OPTIONS.
2.4.1. OPTION GRANT. On or as soon as practicable after July 29,
1997 (the "REORGANIZATION DATE"), the effective date of the plan of
reorganization of the Company (the "PLAN OF REORGANIZATION"), the Executive
shall be granted an option (the "OPTION") to purchase 89,500 shares of the
common stock of the reorganized Company ("COMMON STOCK") at an exercise price
of $11.88 per share in accordance with the terms of the employee stock
incentive plan that is incorporated in the Plan of Reorganization.
2.4.2. MATERIAL TERMS. On January 1 of each of 1998, 1999 and
2000, the Option shall vest and become exercisable with respect to 331/3% of
the aggregate amount of
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shares of Common Stock subject to the Option (the "INITIAL AMOUNT"). The
period commencing on the Reorganization Date and ending on January 1, 2000 is
referred to herein as the "VESTING PERIOD." Subject to the provisions of the
next paragraph, to the extent vested, the Option is exercisable at any time
during the period ending on the tenth anniversary of the Reorganization Date
(such period, the "EXERCISE PERIOD").
If the Executive's employment with the Company is terminated during
the Vesting Period by the Company for Cause (as defined in Section 4.3) or
during the Vesting Period by the Executive without Good Reason (as defined in
Section 4.4), the Option shall, to the extent not previously exercised, be
canceled without consideration and any shares of Common Stock previously
acquired by the Executive upon the exercise in whole or in part of the Option
shall be subject to redemption by the Company at a redemption price per share
equal to the exercise price per share under the Option. If the Executive's
employment with the Company is terminated during the Vesting Period due to
his death or disability, the then unvested portion of the Option, if any,
will be canceled without consideration and the Executive will be entitled to
retain the then vested portion of the Option which will remain exercisable
for the remainder of the Exercise Period. Following the Vesting Period, the
Option is not subject to cancellation, and no termination of the Executive's
employment with the Company for any reason, whether by the Executive or
Company, will affect the remainder of the Exercise Period and no shares of
Common Stock acquired by the Executive upon the exercise of the Option are
subject to forced redemption by the Company.
If a Change of Control (as defined in that certain Indenture dated
as of July 22, 1997, between the Company and State Street Bank and Trust
Company, as trustee, in respect of the Company's 131/2% Senior Secured Notes)
occurs during the term of the Executive's employment with the Company or the
Executive's employment is terminated by the Company without Cause or by the
Executive for Good Reason, any unvested portion of the Option will vest and
become exercisable immediately (or, in the case of a Change of Control,
immediately prior to such Change of Control) and will remain exercisable for
the remainder of the Exercise Period; provided that in connection with the
consummation of any such Change of Control in which the selling holders of
Common Stock are receiving cash consideration for their shares, the Company
may elect to cancel the unexercised portion of the Option (the "Unexercised
Portion") in exchange for a cash payment to the Executive equal to the excess
of (x) the fair market value of the shares of Common Stock covered by the
Unexercised Portion over (y) the aggregate exercise price of the Unexercised
Portion. For purposes or this Section 2.4.2, "fair market value" shall be
determined by the Board in good faith and, in the event of a Change of
Control involving the sale of shares of Common Stock, shall be based upon the
price per share of Common Stock paid by the acquiror in connection with such
Change of Control.
2.4.3. TAG ALONG RIGHTS. If at any time (x) Birch Holdings LLC and
its successors and assigns (collectively, "BIRCH") intends to transfer all or
a portion of the shares of Common Stock then held by Birch to any person or
persons other than an affiliate of Birch and (y) Birch has previously
received aggregate proceeds in excess of $32 million in respect of prior
transfers of Common Stock, then Birch shall notify the Executive of such
intended transfer and its terms and conditions. Within 15 days of the date
of receipt of such notice, the
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Executive shall notify Birch in writing whether he elects to participate in
such transfer. If the Executive timely notifies Birch in writing of his
election to participate in such transfer, the Executive will have the right
to sell, at the same price and on the same terms as Birch, such number of
shares of Common Stock then beneficially owned by the Executive equal to the
product of (i) the number of shares of Common Stock Birch actually proposes
to transfer multiplied by (ii) a fraction, the numerator of which is the
number of shares of Common Stock then beneficially owned by the Executive and
the denominator of which is the aggregate number of shares of Common Stock
then beneficially owned by Birch and the Executive.
3. EMPLOYEE BENEFITS
3.1. GENERAL. The Executive shall be included, to the extent
eligible thereunder by virtue of his position, tenure, salary, age and other
qualifications, in all employee benefit plans, programs or arrangements
(including, without limitation, any plans, programs or arrangements providing
for retirement benefits, incentive compensation, profit sharing, bonuses,
disability benefits, health and life insurance, or vacation and paid
holidays) which the Company may establish or maintain from time to time for,
or make available to, its senior executives of equal or lower positions.
3.2. REIMBURSEMENT OF EXPENSES. The Company will reimburse the
Executive for reasonable travel and other business expenses incurred by him
in the fulfillment of his duties hereunder upon presentation by the Executive
of an itemized account of such expenditures, in accordance with Company
policies and practices consistently applied.
3.3. AUTOMOBILE ALLOWANCE. The Company shall provide the Executive
with an automobile allowance of $1,000 per month.
4. TERMINATION OF EMPLOYMENT
4.1. TERMINATION WITHOUT CAUSE; RESIGNATION FOR GOOD REASON.
4.1.1. GENERAL. Subject to the provisions of Section 4.1.2, if,
prior to the expiration of the Employment Term, the Executive's employment is
terminated by the Company without Cause (as defined in Section 4.3), or if
the Executive resigns from his employment hereunder for Good Reason (as
defined in Section 4.4), the Company shall continue to pay the Executive his
Base Salary as of the date of termination or resignation for the duration of
the Severance Period (as defined in this Section 4.1.1) and shall pay a pro
rata bonus to the Executive for the year of termination or resignation. The
Company will also provide the Executive (i) medical and dental insurance
coverage under COBRA until the end of the Severance Period or, if earlier,
the date on which the Executive becomes eligible for medical and dental
coverage from a third-party employer; (ii) continued life and disability
insurance coverage (if such coverage was provided to the Executive
immediately prior to the Executive's termination or resignation) until the
end of the Severance Period; and (iii) continuation of the Executive's
automobile allowance under Section 3.3 until the end of the Severance Period.
Any stock options the Executive holds will be governed by Section 2.4.2.
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The Executive shall have no further right to receive any other compensation
or benefits after such termination or resignation except as determined in
accordance with the terms of the employee benefit plans or programs of the
Company. The "Severance Period" shall mean (i) if the Executive's date of
termination or resignation occurs prior to the expiration of the Employment
Term and within 18 months after the Reorganization Date, the period beginning
on the date of termination or resignation and ending 18 months thereafter, or
(ii) if the Executive's date of termination or resignation occurs prior to
the expiration of the Employment Term and after the date that is 18 months
after the Reorganization Date, the period beginning on the date of
termination or resignation and ending on the later of the last day of the
Employment Term or the date that is one year after the date of termination or
resignation.
4.1.2. CONDITIONS APPLICABLE TO THE SEVERANCE PERIOD. If, during
the Severance Period, the Executive materially breaches his obligations under
Section 6 of this Agreement, the Company may, upon written notice to the
Executive, terminate the Severance Period and cease to make any further
payments, or to provide any further benefits, described in Section 4.1.1.
4.1.3. DEATH DURING SEVERANCE PERIOD. In the event of the
Executive's death during the Severance Period, payments of Base Salary under
Section 4.1.1 shall continue to be made during the remainder of the Severance
Period to the Executive's estate.
4.1.4. MITIGATION. The Executive shall be required to mitigate the
amount of any payment provided for in Section 4.1 by seeking other
employment; provided, however, that the Executive shall not be required to
accept a lesser position, and any such payment or benefit shall be reduced by
the amount of the Executive's compensation from such other employment.
4.2. TERMINATION FOR CAUSE; RESIGNATION WITHOUT GOOD REASON. If,
prior to the expiration of the Employment Term, the Executive's employment is
terminated by the Company for Cause, or if the Executive resigns from his
employment hereunder other than for Good Reason, the Executive shall be
entitled only to payment of his Base Salary earned through and including the
date of termination or resignation. The Executive shall have no further
right to receive any other compensation, or to participate in any other plan,
arrangement, or benefit, after such termination or resignation of employment.
4.3. CAUSE. Termination for "CAUSE" shall mean termination of the
Executive's employment because of (i) the Executive's conviction of, or plea
of guilty or NOLO CONTENDERE to, a felony, (ii) a breach by the Executive of
his covenants contained in Section 6 of this Agreement, (iii) the Executive's
theft of funds or property from the Company or otherwise engaging in
fraudulent conduct against the Company or (iv) the continued failure or
refusal of the Executive to substantially perform the material duties
required of him as an employee of the Company under this Agreement after
specific directive by the CEO.
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4.4. GOOD REASON. For purposes of this Agreement, "GOOD REASON"
shall mean (i) a material diminution in the Executive's Base Salary, duties,
responsibilities or title as Chief Financial and Administrative Officer (it
being understood that a change in reporting of legal, real estate and
business development shall not be a diminution), (ii) the failure of the
Company to pay the Executive's bonus in accordance with Section 2.3 or (iii)
a breach by the Company of the reporting provision set forth in Section 1.1
or the location provision set forth in Section 1.3; PROVIDED, HOWEVER, that
no resignation for Good Reason shall be effective unless the Executive shall
have given notice thereof to the Company specifically identifying the basis
therefor, and the Company shall have failed to cure the event or condition
identified in the notice within 30 days after its receipt of the notice.
5. DEATH OR PERMANENT DISABILITY
If the Executive's employment is terminated by reason of his death
or Permanent Disability (as defined herein), the Company will pay the
Executive or his estate or beneficiary, as applicable, his Base Salary
through the date of termination and a pro rata bonus under Section 2.3 for
the year of termination, plus one additional year of Base Salary (or three
additional years of Base Salary if the Executive's death or Permanent
Disability occurred as the result of an accident while on Company business),
PROVIDED that such payments shall be reduced by the aggregate amount of
payments received or to be received by the Executive or his estate or
beneficiary under any Company-paid benefit plans or policies. For purposes
hereof, "PERMANENT DISABILITY" means a physical or mental disability or
infirmity of the Executive that prevents the normal performance of
substantially all his duties under this Agreement, which disability or
infirmity has lasted or can be expected to last for a continuous period of
180 days.
6. CONFIDENTIALITY; NONSOLICITATION; NONCOMPETITION
6.1. CONFIDENTIALITY. The Executive covenants and agrees with the
Company that he will not at any time, except in performance of his
obligations to the Company or hereunder or with the prior written consent of
the Company, directly or indirectly, disclose any secret or confidential
information that he may learn or has learned by reason of his association
with the Company or any of its subsidiaries and affiliates. The term
"CONFIDENTIAL INFORMATION" includes material information not previously
disclosed to the public or to the trade by the Company's management, or
otherwise in the public domain, with respect to the Company's or any of its
affiliates' or subsidiaries' products, facilities, applications and methods,
trade secrets and other intellectual property, systems, procedures, manuals,
confidential reports, product price lists, customer lists, technical
information, financial information (including the revenues, costs or profits
associated with any of the Company's products), business plans, prospects or
opportunities.
6.2. NONSOLICITATION. For so long as the Executive is employed by
the Company and continuing for one year thereafter, the Executive shall not,
without the prior written consent of the Company, directly or indirectly, as
a sole proprietor, member of a partnership, stockholder or investor, officer
or director of a corporation, or as an employee,
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associate, consultant or agent of any person, partnership, corporation or
other business organization or entity other than the Company, solicit or
endeavor to entice away from the Company, or any of its subsidiaries or
affiliates, any person or entity who is employed by the Company, or any of
its subsidiaries or affiliates.
6.3. NO COMPETING EMPLOYMENT. For so long as the Executive is
employed by the Company, and continuing for one year thereafter (or, if the
Executive is entitled to a continuation of his Base Salary under Section
4.1.1, the period during which such Base Salary is continued, if less), the
Executive shall not, directly or indirectly, as a sole proprietor, member of
a partnership, stockholder, investor, officer or director of a corporation,
or as an employee, associate, consultant or agent of any person, partnership,
corporation or other business organization or entity other than the Company
or any of its subsidiaries, render any service to or in any way be affiliated
with a competitor of the Company or any of its subsidiaries or affiliates in
the family entertainment center business (or any person or entity that is
reasonably anticipated, to the general knowledge of the Executive or the
public, to become a competitor in such business). For the purposes of this
Section 6.3, ownership of securities having no more than one percent of the
outstanding voting power of any competitor which is listed on any national
securities exchange or traded actively in the national over-the-counter
market shall not be deemed to be in violation of this Section 6.3 so long as
the Executive has no other connection or relationship with such competitor.
6.4. EXCLUSIVE PROPERTY. The Executive confirms that all
confidential information is and shall remain the exclusive property of the
Company. All business records, papers and documents kept or made by
Executive relating to the business of the Company shall be and remain the
property of the Company.
6.5. INJUNCTIVE RELIEF. Without intending to limit the remedies
available to the Company, the Executive acknowledges that a breach of any of
the covenants contained in this Section 6 may result in material and
irreparable injury to the Company or its affiliates or subsidiaries for which
there is no adequate remedy at law, that it will not be possible to measure
damages for such injuries precisely and that, in the event of such a breach
or threat thereof, the Company shall be entitled to obtain a temporary
restraining order and/or a preliminary or permanent injunction restraining
the Executive from engaging in activities prohibited by this Section 6 or
such other relief as may be required specifically to enforce any of the
covenants in this Section 6. If for any reasons a final decision of any
court determines that the restrictions under this Section 6 are not
reasonable or that consideration therefor is inadequate, such restrictions
shall be interpreted, modified or rewritten by such court to include as much
of the duration and scope identified in this Section 6 as will render such
restrictions valid and enforceable.
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7. MISCELLANEOUS
7.1. NOTICES. All notices and communications hereunder shall be in
writing, addressed, if to the Company, at its corporate headquarters, to the
attention of the CEO, and, if to the Executive, at 00 Xxxxxxxx Xxxx, Xxx Xxx,
Xxxxxxxxxxx 00000, or such other address as the Executive has most recently
filed with the Company. Any such notice or communication shall be delivered in
person, by cable, by telecopy (with confirmation copy of such telecopied
material delivered in person or by registered or certified mail, return receipt
requested) or by certified or registered mail, return receipt requested,
addressed as above (or to such other address as such party may designate in
writing from time to time), and the actual date of receipt, as shown by the
receipt therefor, shall determine the time at which notice was given.
7.2. SEVERABILITY. If a court of competent jurisdiction determines
that any term or provision hereof is invalid or unenforceable, (a) the
remaining terms and provisions hereof shall be unimpaired and (b) such court
shall have the authority to replace such invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable
term or provision.
7.3. ENTIRE AGREEMENT. This Agreement represents the entire
agreement of the parties and shall supersede any and all previous contracts,
arrangements or understandings between the Company and the Executive. This
Agreement may be amended at any time by mutual written agreement of the
parties hereto.
7.4. WITHHOLDING. The Company shall be entitled to withhold, or
cause to be withheld, from payment any amount of withholding taxes required
by law with respect to payments made to the Executive in connection with his
employment hereunder.
7.5. GOVERNING LAW. This Agreement shall be construed, interpreted,
and governed in accordance with the law of the State of New York without
reference to rules relating to conflict of law.
7.6. SUCCESSORS. This Agreement shall be binding upon and inure to
the benefit of, and shall be enforceable by the Executive and the Company,
their respective heirs, executors, administrators and assigns. In the event
the Company is merged, consolidated, liquidated by a parent corporation, or
otherwise transferred to or combined into one or more entities, the
provisions of this Agreement shall be binding upon and inure to the benefit
of the parent corporation or the entity resulting from such merger or to
which the assets shall be sold or transferred (and any such transfer by
operation of law or otherwise is expressly permitted hereunder), which entity
from and after the date of such merger, consolidation, sale or transfer shall
be deemed to be the Company for purposes of this Agreement. In the event of
any other assignment of this Agreement by the Company, by operation of law or
otherwise, the Company shall remain primarily liable for its obligations
hereunder. This Agreement shall not be assignable by the Executive.
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7.7. HEADINGS. The headings of sections herein are included solely
for convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
7.8. COUNTERPARTS. This Agreement may be executed by either of the
parties hereto in counterparts, each of which shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed and the Executive has hereunto set his hand, as of the day and year
first above written.
DISCOVERY ZONE, INC.
By: /s/ Xxxxx Xxxxxxxxx
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Title: President & CEO
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EXECUTIVE
/s/ Xxxxxx X. Xxxxxx
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Xxxxxx X. Xxxxxx
