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Exhibit 10.7
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of March 31, 1996, by and between
Sovereign Engineered Adhesives, L.L.C., a Delaware limited liability company
(the "Company"), and Xxxxxx X. Xxxxxx ("Executive").
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and Executive
hereby accepts employment with the Company, upon the terms and conditions set
forth in this Agreement for the period beginning on the date hereof and ending
as provided in paragraph 4 hereof (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the
President of the Company and shall have the normal duties, responsibilities and
authority of the President, subject to the power of the Manager to expand or
limit such executive duties, responsibilities and authority and to override
actions of the President. During the Employment Period, Executive shall render
such administrative, sales, marketing and other executive and managerial
services which are consistent with Executive's position to the Company and its
Subsidiaries as the Manager may from time to time direct.
(b) Executive shall report to the Manager, and Executive shall
devote his best efforts and his full business time and attention (except for
permitted vacation periods and reasonable periods of illness or other
incapacity) to the business and affairs of the Company and its Subsidiaries.
Executive shall perform his duties and responsibilities to the best of his
abilities in a diligent, trustworthy, businesslike and efficient manner.
3. Base Salary and Benefits.
(a) During the Employment Period, the Company shall pay to Executive
a base salary equal to $100,000 (the "Base Salary") or such higher rate as the
Manager may designate from time to time. The Base Salary shall be payable in
regular installments in accordance with the Company's general payroll practices
and shall be subject to customary withholding. In addition, during the
Employment Period, Executive shall be entitled to participate in all of the
Company's employee benefit programs for which senior executive employees of the
Company and the Parent Partnership are generally eligible.
(b) The Company shall reimburse Executive for all reasonable
expenses incurred by him in the course of performing his duties under this
Agreement which are consistent with the
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Company's policies in effect from time to time with respect to travel,
entertainment and other business expenses, subject to the Company's requirements
with respect to reporting and documentation of such expenses.
(c) Within three months after the date hereof, the Company and
Executive shall in good faith develop a bonus plan applicable to Executive which
shall provide for Executive to receive an annual bonus not exceeding 50% of his
Base Salary for the year to which such annual bonus relates if the Company and
its Subsidiaries achieve specified financial measures established by the Manager
as part of its annual operating budget for a calendar year.
4. Term.
(a) Except as otherwise provided in the following sentence, the
Employment Period shall end on the third anniversary of the date hereof;
provided that (i) the Employment Period shall terminate prior to such date upon
Executive's resignation, death or Disability and (ii) the Employment Period may
be terminated by the Company at any time prior to such date for Cause (as
defined below) or without Cause. The Employment Period shall be automatically
renewed and extended for successive one year terms beginning on the third
anniversary of the date hereof and on each anniversary date thereafter unless
the Company or Executive receives within three months prior to such anniversary
date written notice of an election not to renew the Employment Period as of such
anniversary date.
(b) If the Employment Period is terminated as a result of a
nonrenewal pursuant to paragraph 4(a) above or by the Company without Cause or
with Performance Shortfall Cause or by Executive with or without Good Reason,
Executive shall be entitled to receive his Base Salary, payable in accordance
with the Company's normal payroll practices, and to continue to participate in
the Company's health, insurance and disability plans and programs during the
Noncompete Period, if any; provided that Executive shall be entitled to receive
such compensation and benefits during the Noncompete Period if and only if
Executive has complied with and continues to comply with the provisions of
paragraphs 5, 6 and 7 hereof. The amounts payable pursuant to this paragraph
4(b) shall be reduced by the amount of any compensation Executive earns with
respect to any other employment during the Noncompete Period. Upon reasonable
request from time to time, Executive shall furnish the Company with a true and
complete certificate specifying any such compensation due to or received by him
during the Noncompete Period.
(c) If the Employment Period is terminated by the Company with Cause
(other than Performance Shortfall Cause) or as a result of Executive's death or
Disability, Executive shall be entitled to receive his Base Salary through the
date of termination and accrued but unpaid vacation in accordance with the
policy of the Company and to continue to participate in the Company's health,
insurance and disability plans and programs through the date of termination and
thereafter only to the extent permitted under the terms of such plans and
programs.
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(d) Except as otherwise expressly provided herein, all of
Executive's rights to salary, employee benefits, fringe benefits and bonuses
hereunder (if any) which accrue after the termination of the Employment Period
shall cease upon such termination. The Company and its Subsidiaries may offset
any loans, cash advances or fixed amounts which Executive owes the Company or
its Subsidiaries against any amounts it owes Executive.
5. Trade Secret Information. Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
concerning the business or affairs of the Company, the Parent Partnership or any
of their Subsidiaries (or any of their predecessors) which the Company, the
Parent Partnership or any such Subsidiary considers to be confidential and which
is proprietary to the Company, the Parent Partnership or any such Subsidiary
("Trade Secret Information") are the property of the Company, the Parent
Partnership or any such Subsidiary. Therefore, Executive agrees that he shall
not disclose to any unauthorized Person (except (i) to any entity which shall
succeed to the business of the Company, the Parent Partnership or any such
Subsidiary, (ii) as may be required in the regular course of business of the
Company, the Parent Partnership or any such Subsidiary or (iii) as required by
law) or use for his own purposes any Trade Secret Information without the prior
written consent of the Manager, unless and to the extent that the aforementioned
matters become generally known to and available for use by the public or Persons
knowledgeable in the Company's industry other than as a result of Executive's
acts or omissions which constitute a breach hereof. Executive shall deliver to
the Company at the termination of the Employment Period, or at any other time
the Company may request, all memoranda, notes, plans, records, reports, computer
tapes, printouts and software and other documents and data (and copies thereof)
relating to the Trade Secret Information, Work Product (as defined below) or the
business of the Company, the Parent Partnership or any such Subsidiary (or any
of their predecessors) which he may then possess or have under his control.
6. Inventions and Patents. Executive acknowledges that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) which (i) relate to the Company's or any of its Subsidiaries' (or
any of their predecessors') actual or anticipated business, research and
development or existing or future products or services or (ii) result from any
work performed by Executive for the Company and its Subsidiaries (or any of
their predecessors), and which are conceived, developed or made by Executive
while employed by the Company (or any of its predecessors) ("Work Product")
belong to the Company or such Subsidiaries; provided that this Section of this
Agreement regarding the Company's and its Subsidiaries' ownership of Work
Product does not apply to any invention for which no equipment, supplies,
facilities or trade secret information of the Company or any of its Subsidiaries
was used and which was developed entirely on Executive's own time, unless (i)
the invention relates to the business of the Company or any of its Subsidiaries
or to the Company's or any of its Subsidiaries' (or any of their predecessors')
actual or demonstrably anticipated research or development or (ii) the invention
results from any work performed by Executive for the Company or any of its
Subsidiaries (or any of their predecessors).
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Executive shall promptly disclose such Work Product to the Manager and perform
all actions reasonably requested by the Manager (whether during or after the
Employment Period) to establish and confirm such ownership (including, without
limitation, assignments, consents, powers of attorney and other instruments).
7. Non-Compete, Non-Solicitation.
(a) In further consideration of the compensation to be paid to
Executive hereunder and his exposure to or involvement in the Trade Secret
Information, Executive acknowledges that in the course of his employment with
the Company he shall become familiar with trade secrets and other Trade Secret
Information concerning the Company and its Subsidiaries and that his services
have been and shall be of special, unique and extraordinary value to the Company
and its Subsidiaries. Therefore, Executive agrees that, during the Noncompete
Period, he shall not directly or indirectly own any interest in, manage,
control, participate in, consult with, render services for, or in any manner
engage in any business competing with the businesses of the Company or its
Subsidiaries, as such businesses exist or are in process on the date of the
termination of Executive's employment, within any states or geographical regions
in which the Company or its Subsidiaries engage or plan to engage in such
businesses on the date of the termination of Executive's employment; provided
that nothing herein shall prohibit Executive from being a passive owner of not
more than 2% of the outstanding stock of any class of a corporation which is
publicly traded, so long as Executive has no active participation in the
business of such corporation.
(b) During the Noncompete Period, Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any employee
of the Company or any of its Subsidiaries to leave the employ of the Company or
such Subsidiaries, or in any way interfere with the relationship between the
Company or any of its Subsidiaries and any employee thereof, (ii) hire any
person who was a management employee of the Company or any of its Subsidiaries
at any time during the one year period prior to the termination of the
Employment Period or (iii) induce or attempt to induce any customer, supplier,
licensee, licensor, franchisee or other business relation of the Company or any
of its Subsidiaries to cease doing business with the Company or such
Subsidiaries, or in any way materially interfere with the relationship between
any such customer, supplier, licensee or business relation and the Company or
any of its Subsidiaries (including, without limitation, making any negative
statements or communications about the Company or its Subsidiaries).
(c) If, at the time of enforcement of this paragraph 7, a court
shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law. Executive agrees that the restrictions
contained in this paragraph 7 are reasonable.
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(d) In the event of any breach or threatened breach by Executive of
any of the provisions of this paragraph 7, the Company and its Subsidiaries, in
addition and supplementary to other rights and remedies existing in its favor,
may apply to any court of competent jurisdiction for specific performance and/or
injunctive or other relief in order to enforce or prevent any violations of the
provisions hereof (without posting a bond or other security). In addition, in
the event of an alleged breach or violation by Executive of this paragraph 7,
the Noncompete Period shall be tolled until such breach or violation has been
duly cured.
8. Executive's Representations. Executive hereby represents and
warrants to the Company that (i) the execution, delivery and performance by
Executive of this Agreement and all other agreements contemplated hereby and
thereby to which Executive is a party do not and shall not conflict with,
breach, violate or cause a default under any contract, agreement, instrument,
order, judgment or decree to which Executive is a party or by which he is bound,
(ii) Executive is not a party to or bound by any employment agreement,
noncompete agreement or confidentiality agreement with any other person or
entity (or if a party to such an agreement, Executive has disclosed the material
terms thereof to the Manager prior to the execution hereof and promptly after
the date hereof shall deliver a copy of such agreement to the Manager), and
(iii) upon the execution and delivery of this Agreement by the Company, this
Agreement shall be the valid and binding obligation of Executive, enforceable in
accordance with its terms. Executive hereby acknowledges and represents that (i)
he has consulted with independent legal counsel regarding his rights and
obligations under this Agreement and that he fully understands the terms and
conditions contained herein and (ii) subject to change by the Manager at any
time, the Company's headquarters are in, and substantially all of the services
to be performed by Executive for the Company and its Subsidiaries shall be
performed in, the State of Ohio.
9. Definitions.
"Cause" means (i) the commission of a felony or a crime involving
moral turpitude or the commission of any other act or omission involving
dishonesty, disloyalty or fraud with respect to the Company or any of its
Subsidiaries, (ii) conduct which brings the Company or any of its Subsidiaries
into substantial public disgrace or disrepute (including abuse of drugs or
alcohol), (iii) substantial and repeated failure to perform duties as reasonably
directed by the Manager, (iv) gross negligence or willful misconduct with
respect to the Company or any of its Subsidiaries, (v) any other material breach
of this Agreement which is not cured within 15 days after written notice thereof
to Executive or (vi) for purposes of paragraph 4 of this Agreement only, a
Performance Shortfall (clause (vi) of this definition being "Performance
Shortfall Cause"); provided that a termination of Executive's employment by the
Company shall not be deemed a termination for Cause unless and until (A) in the
case of a termination pursuant to any one or more of clauses (i) through (v)
above, there shall have been delivered to Executive a copy of a resolution duly
adopted by the Manager at a meeting of the board of directors of the Manager
called and held for that purpose (after reasonable notice to and an opportunity
for Executive to be heard before the Manager) finding that
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in the good faith opinion of the Manager, Executive was guilty of the conduct
set forth in any one or more of such clauses (B) in the case of a termination
pursuant to clause (vi) above, Executive shall have been given written notice
thereof not more than 60 days following the date that EBITDA was finally
determined for the applicable period.
"Disability" means Executive's inability, because of injury, illness
or other incapacity to perform the services to the Company or its Subsidiaries
contemplated hereby (as determined by the Manager in its good faith judgment)
for a continuous period of 90 days or for 120 days out of a continuous period of
360 days. Such Disability shall be deemed to have occurred on the 90th
consecutive day or the 120th day within the specified period, as applicable.
"EBITDA" means, for any period, the net income of the Company and
its Subsidiaries for any such period plus the amount deducted (or in the case of
extraordinary gains, minus any amount added) in the computation thereof for (i)
all federal, state and local income taxes, (ii) interest expense, (iii) any
extraordinary gains or losses, (iv) management fees and corporate overhead of
the Parent Partnership, (v) depreciation and (vi) amortization of goodwill and
other intangibles, determined in accordance with generally accepted accounting
principles consistently applied. For purposes of this Agreement, EBITDA shall be
determined from the audited financial statements of the Company and its
Subsidiaries (or, if audited financial statements are unavailable for such
period, from the financial statements of the Company and its Subsidiaries for
such period, which statements shall be reviewed at the election of the Manager
by the Company's independent public accountants) and the components of EBITDA
contained in the financial statements shall be conclusive and binding upon the
parties.
"Executive Note" means the promissory note delivered by Executive to
the Parent Partnership substantially in the form of Annex A attached hereto in
an aggregate principal amount of $110,000.
"Forecasted EBITDA" means (i) with respect to the last three
calendar quarters in calendar year 1996 and the first calendar quarter in
calendar year 1997, the amounts set forth below and (ii) with respect to each
calendar quarter thereafter, amounts to be determined in good faith by the
Manager from time to time, which amounts shall be based on the Company's annual
budget created in good faith by Executive and reasonably acceptable to the
Manager:
Second calendar quarter in calendar
year 1996 $940,000
-------
Third calendar quarter in calendar
year 1996 $908,000
-------
Fourth calendar quarter in calendar
year 1996 $895,000
-------
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First calendar quarter in calendar year 1997 $1,096,000
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In the event that the Company or any of its Subsidiaries acquires a company or
business through merger, stock purchase, asset purchase or otherwise, or
disposes of any operating unit, during the Employment Period, the amounts set
forth above with respect to the quarter during which the transaction occurs and
all subsequent quarters shall be equitably adjusted to reflect such acquisition
or disposition, as reasonably determined in good faith by the Manager and the
Chief Executive Officer of the Company.
"Good Reason" means (i) the removal without Cause of Executive as
the President of the Company, or its imposition upon him of substantial
additional or different duties which are inconsistent with such position, (ii)
either the reduction of Executive's salary or a material reduction of other
benefits under any employee benefit plan, program or arrangement of the Company
(other than a change that affects all senior executives of the Company) from the
level in effect upon Executive's commencement of participation therein or (iii)
the relocation of the executive offices of the Company from the Akron, Ohio
metropolitan area.
"Manager" shall have the meaning given to such term in that certain
Operating Agreement, dated as of the date hereof, by and among the Parent
Partnership, as managing member, and the other members listed on Schedule A
thereto, as amended and modified from time to time.
"Noncompete Period" means the Employment Period and (i) in the case
of a nonrenewal of the Employment Period pursuant to paragraph 4(a) hereof or a
termination of the Employment Period by Executive with Good Reason or by the
Company without Cause or with Performance Shortfall Cause, a period of time, to
be determined by the Manager in its sole discretion within 30 days after such
nonrenewal or termination, of no less than one additional year and no more than
two additional years thereafter, (ii) in the case of a termination of the
Employment Period by Executive without Good Reason, a period of time, to be
determined by the Manager in its sole discretion within 30 days after such
termination, of no more than two additional years thereafter, (iii) in the case
of a termination of the Employment Period by the Company with Cause (other than
Performance Shortfall Cause), two additional years thereafter and (iv) in the
case of a termination of the Employment Period as a result of Executive's
Disability, one additional year thereafter.
"Parent Partnership" means Sovereign Specialty Chemicals, L.P., a
Delaware limited partnership.
"Performance Shortfall" means, with respect to any four consecutive
calendar quarters beginning with the four-quarter period consisting of the last
three calendar quarter of 1996 and the first calendar quarter of 1997, the
aggregate EBITDA for such quarters is less than 70% of the aggregate Forecasted
EBITDA for such quarters.
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"Subsidiaries" means, with respect to any person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such person or entity or one or more of
the other Subsidiaries of such person or entity or a combination thereof, or
(ii) if a limited liability company, partnership, association or other business
entity, a majority of the partnership or other similar ownership interest
thereof is at the time owned or controlled, directly or indirectly, by any
person or entity or one or more Subsidiaries of such person or entity or a
combination thereof. For purposes hereof, a person or persons shall be deemed to
have a majority ownership interest in a limited liability company, partnership,
association or other business entity if such person or persons shall be
allocated a majority of limited liability company, partnership, association or
other business entity gains or losses or shall be or control any managing
director or general partner of such limited liability company, partnership,
association or other business entity.
10. Survival. Paragraphs 4 through 19 shall survive and continue in
full force in accordance with their terms notwithstanding any termination of the
Employment Period.
11. Notices. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, sent by first class mail,
return receipt requested, or sent by reputable overnight courier service
(charges prepaid) to the recipient at the address indicated below:
Notices to Executive:
Xxxxxx X. Xxxxxx
0000 Xxxxxxxxxxx Xxxxx
Xxxxxxxxx Xxxxxxx, Xxxx 00000
with copies to:
Xxxxxxxx & Xxxxxxx
1000 Bank One Tower
000 Xxxxxxx Xxxxx Xxxxx
Xxxxxx, Xxxx 00000-0000
Attn: Xxxxx Xxxxxxxx
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Notices to the Company:
Sovereign Engineered Adhesives, L.L.C.
000 Xxxx Xxxxxxx
Xxxxx, Xxxx 00000
Attn: President
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with copies to:
First Capital Corporation of Chicago
Three First Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxxx
and
Waud Capital Partners, L.L.C.
Suite 103
000 Xxxxxxx Xxxxxx
Xxxx Xxxxxx, Xxxxxxxx 00000
Attn: Xxxxx X. Xxxx
and
Xxxxxxxx & Xxxxx
000 Xxxx Xxxxxxxx Xxxxx
Xxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxx
Xxxx X. Xxxxxxxxx
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or, if mailed, three days after deposit in the U.S. mail and one day after
deposit with a reputable overnight courier service.
12. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. Executive Note. Executive authorizes and directs the Company to
pay certain amounts owed to Executive hereunder to the Parent Partnership for
application to the unpaid balance of the Executive Note as set forth in the
Executive Note.
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14. Complete Agreement. This Agreement embodies the complete
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
15. No Strict Construction. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
16. 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.
17. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
his rights or delegate his obligations hereunder without the prior written
consent of the Company.
18. Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by, and construed in accordance with, the laws of the State of Ohio,
without giving effect to any choice of law or conflict of law rules or
provisions (whether of the State of Ohio or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
Ohio.
19. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
* * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first written above.
SOVEREIGN ENGINEERED ADHESIVES, L.L.C.
By Sovereign Specialty Chemicals, L.P.
Its Managing Member
By Sovereign Chemicals Corporation
Its General Partner
By /s/ Xxxxxx X. Xxxxxx
-------------------------------------
Its C.E.O.
-------------------------------------
/s/ Xxxxxx X. Xxxxxx
-----------------------------------------
XXXXXX X. XXXXXX
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