EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of the 22nd day of March,
2000, between Xxxxx Educational Systems, Inc. (hereinafter referred to as
"Employer"), and Xxxxxxx X. Xxxxx (hereinafter referred to as "Employee").
In consideration of the mutual promises hereinafter set forth, the
parties hereto agree as follows:
1. Employment. Employer agrees to employ Employee and Employee agrees
to serve Employer to perform such duties as may be appointed from time to time
by the Board of Directors of the Employer. The Employee's employment shall be
upon the terms and conditions hereinafter set forth. During the term of this
Agreement, Employee shall be engaged as the President and Chief Executive
Officer. Employee's powers and duties in those capacities to be those as set
forth in the Bylaws of Employer and the powers and duties customary to such
position in similar companies. The Employee shall report to the Board of
Directors of the Employer and shall become a member of the Board of Directors of
Employer. If Employee is elected or appointed with the Employee's consent to an
office with any of Employer's subsidiaries or affiliates during the term of this
Agreement, the Employee will serve in such capacity or capacities without
additional compensation.
2. Term. The employment of Employee hereunder and this Employment
Agreement shall commence the date hereof and shall continue in effect
indefinitely until terminated pursuant to Section 7 hereof.
3. Extent of Services. Employee shall devote Employee's entire
productive time, attention, knowledge and skills solely to the business and
interest of Employer, and Employer shall be entitled to all of the benefits and
profits arising from the work, services and advice of Employee. Employee shall
not, during the term of this Agreement, directly or indirectly render any
services of a business, commercial or professional nature to any other person or
organization, whether for compensation or otherwise, and whether or not such
other person or organization competes with the business of Employer, without the
prior written consent of Employer. However, Employee shall be free to spend time
during non-business hours on matters of market investment by himself and members
of his family.
4. Conformity to Employer's Systems and Procedures. Employee agrees to
follow, obey and observe all of the rules, regulations, policies, procedures and
systems of Employer, to observe the workdays and hours as specified by Employer,
to work for the best interest of Employer in the business in which it is
engaged, and to strive to further the goodwill and professional standing of
Employer with its clients, customers and the public generally, to attend to the
duties of employment hereunder regularly and not to be absent therefrom except
on account of illness or other conditions beyond the control of Employee.
5. Compensation.
5.1 Base Salary. Employer will pay Employee during the
Employee's term of service hereunder compensation for the Employee's
services (sometimes hereinafter referred to as the "Base Salary"), in
the amount of $10,000 per month. Employee's salary will be reviewed at
least annually and adjustments made as Employer may determine.
5.2 Bonus. An annual bonus of up to 100% of base salary will
be paid annually within 90 days after the end of Employer's fiscal
year, upon achieving the following targeted amounts of earnings before
deduction for interest, taxes, depreciation and amortization ("EBITDA")
during each fiscal year during the term of this Agreement (or partial
year thereof):
Annual Fiscal Bonus Percentage
EBITDA of Base Salary
--------------------- ----------------
Less than $250,000 -0-
$250,000-$749,999 25%
$750,000-$1,249,999 50%
$1,250,000-$1,749,999 75%
more than $1,750,000 100%
The bonus formula shall be subject to review by the Board of Directors
from time to time.
5.3 Stock Awards. Employee shall receive grants of Employers
Common Stock and options to purchase same as follows:
5.3.1 Employer shall issue a total of 2,385,000
shares upon execution hereof (based upon the number of shares
outstanding on March 1, 2000, referred to herein as "pre-split
shares,"), subject to the risk of forfeiture, as follows:
(i) 1,130,000 shares will be issued upon execution of
this Agreement, subject to forfeiture if the closing of an
offering of $1,400,000 of Employer's Series A Convertible
Preferred Stock does not occur on or before May 1, 2000; and
(ii) 1,255,000 shares will be issued upon execution
of this Agreement, subject to forfeiture if all actions to
enable the Employer to be ready to receive and fill live
orders via the Internet, call center and inbound fax lines are
not taken by March 1, 2001; a determination of such readiness
will be made by the unanimous approval of the Board of
Directors.
2
5.3.2 Employer shall issue to Employee a Stock Option
Agreement to acquire up to 5,430,000 shares of common stock
for an exercise price of $0.061, for an exercise period of ten
years, exercisable upon the occurrence of the following
vesting events:
(i) 1,575,000 shares shall vest upon the first to
occur of 48 months of consecutive employment under this
Agreement or when the Employer shall report cumulative gross
revenue of $2,000,000;
(ii) 1,900,000 shares shall vest upon the first to
occur of 48 months of consecutive employment under this
Agreement or the Company shall report quarterly gross revenue
of $1,250,000; and
(iii) 1,955,000 shares shall vest upon the passage of
36 months of consecutive employment under this Agreement.
5.4 Withholding. Employer and Employee each recognize and
acknowledge that Employer is obligated to withhold payroll taxes from
the salary of Employee, and that Employee shall receive compensation
after deduction of all payroll taxes which Employer is required by law
to withhold from the compensation of Employee.
6. Expenses. During the term of employment provided for herein,
Employer shall pay or reimburse Employee, in accordance with its standard policy
in effect from time to time, upon submission of vouchers by the Employee for all
reasonable expenses incurred by the Employee in the interest of Employer's
business.
7. Termination.
7.1 Termination Events. Subject to the provisions of Paragraph
7.2 of this Section, this Agreement shall terminate:
7.1.1 Upon death of Employee.
7.1.2 At the option of the Employer if Employee shall become
disabled and remain disabled for a period of six (6) months. Disability
shall be defined as Employee's inability through illness or other cause
to perform his normal work load as measured by the twelve (12) months
preceding the commencement of such disability. During such disability,
Employee shall be compensated in accordance with Employer's standard
policy regarding disability.
7.1.3 Upon mutual agreement.
7.1.4 At any time at the option of Employee.
7.1.5. At the Employer's option for any good cause. For
purposes of this Section, "good cause" for termination shall mean: (a)
the conviction of Employee of any act involving moral turpitude, or (b)
any material breach by Employee of any of the terms of, or the failure
to perform any covenant contained in, this Agreement.
3
7.1.6. By the Employee for "Good Reason." For purposes of this
Agreement, "Good Reason" shall mean the occurrence after a Change in
Control of any of the events or conditions described in Subsections (1)
through (9) hereof:
(1) a change in the Employee's status, title, position or
responsibilities (including reporting
responsibilities) which, in the Employee's reasonable
judgment, represents an adverse change from his
status, title, position or responsibilities as in
effect immediately prior thereto; the assignment to
the Employee of any duties or responsibilities which,
in the Employee's reasonable judgment, are
inconsistent with his status, title, position or
responsibilities; or any removal of the Employee from
or failure to reappoint or reelect him to any of such
offices or positions, except in connection with the
termination of his employment pursuant to Sections
7.1.1, 7.1.2, 7.1.3, 7.1.4 or 7.1.5, other than Good
Reason;
(2) a reduction in the Employee's base salary or any
failure to pay the Employee any compensation or
benefits to which he is entitled within five days of
the date due;
(3) a failure to increase the Employee's base salary at
least annually at a percentage of base salary no less
than the average percentage increases (other than
increases resulting from the Employee's promotion)
granted to the Employee during the three full years
ended prior to a Change in Control (or such lesser
number of full years during which the Executive was
employed);
(4) the Employer's requiring the Employee to be based at
any place outside 50 miles from the Employee's place
of business on the date hereof, except for reasonably
required travel on the Employer's business;
(5) the failure by the Employer to (a) continue in effect
(without reduction in benefit level, and/or reward
opportunities) any material compensation or employee
benefit plan in which the Employee was participating
immediately prior to the Change in Control, unless a
substitute or replacement plan has been implemented
which provides substantially identical compensation
and benefits to the Employee or (b) provide the
Employee with compensation and benefits, in the
aggregate, at least equal (in terms of benefit levels
and/or reward opportunities) to those provided for
under each other compensation or employee benefit
plan, program and practice as in effect at any time
within ninety (90) days preceding the Change in
Control Date or at any time thereafter;
4
(6) the insolvency or the filing (by any party, including
the Employer) of a petition for the bankruptcy of the
Employer;
(7) any material breach by the Employer of any provisions
of this Agreement;
(8) any purported termination of the Employee's
employment for Cause by the Company which does not
comply with the terms of Section 7.1.5.; or
(9) the failure of the Employer to obtain an agreement,
satisfactory to the Employee, from any successor or
assign of the Employer to assume and agree to perform
this Agreement.
Any event or condition described in Section 7.1.6 (1)-(9) which occurs
prior to a Change in Control but which the Employee reasonably demonstrates (a)
was at the request of a third party who had indicated an intention or taken
steps reasonably calculated to effect a Change in Control (a "Third Party"), or
(b) otherwise arose in connection with, or in anticipation of a Change in
Control, shall constitute Good Reason for purposes of this Agreement
notwithstanding that it occurred prior to the Change in Control. The Executive's
right to terminate his employment pursuant to Section 7.1.6 shall not be
affected by his incapacity due to physical or mental illness.
7.1.7. For any reason other than those set forth in Sections
7.1.1., 7.1.2., 7.1.3., 7.1.4, 7.1.5 or 7.1.6, upon giving Employee 60
days advance notice, or, in lieu thereof, 60 days severance pay.
7.2 Consequences of Termination.
7.2.1. Upon termination by mutual agreement under Section
7.1.3, by the Employee under Section 7.1.4., or for good cause under
Section 7.1.5, the Employee shall be paid all salary prorated to the
date of termination.
7.2.2 Upon termination under Section 7.1.1., 7.1.2., 7.1.6. or
7.1.7, Employee(or his estate) shall be entitled to receive (1)
severance compensation in lieu of any further compensation after the
termination date in a single payment in cash in an amount equal to one
year of the Employee's base salary at the highest rate in effect at any
time subsequent to the 90th day prior to the termination date; and (2)
for eighteen (18) months, the Employer's current cost sharing shall
continue on behalf of the Employee and his dependents and beneficiaries
in regard to the life insurance, disability, medical, dental and
hospitalization benefits provided to the Employee at any time during
the 90-day period prior to the termination date.
5
The amounts provided for in Section 7.2 shall be paid within five days
after the Employee's Termination Date. The Employee shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking
other employment or otherwise and no such payment shall be offset or reduced by
the amount of any compensation or benefits provided to the Employee in any
subsequent employment. The severance pay and benefits provided for in Sections
7.2.4 shall be in lieu of any other severance pay to which the Executive may be
entitled under any Company severance plan, program or arrangement.
8. Trade Secrets and Confidential Information. During the term of this
Agreement, Employee will have access to customer lists and compilations of
information and records specific to and regularly used in the operation of the
business of Employer. Employee acknowledges that such information constitutes
valuable and confidential information of the Employer. Employee shall not
disclose any of the aforesaid private company secrets, directly or indirectly,
nor use them in any way, either during the term of this Agreement or after
termination of employment. All files, records, electronic and magnetic files,
documents, specifications, equipment and similar information relating to the
business of Employer, whether prepared by Employee or otherwise coming into
Employee's possession, shall remain the exclusive property of Employer and shall
not be removed from the premises of Employer except as shall be necessary for
Employee to perform Employee's duties under this Agreement. Upon termination of
this Agreement for any reason, Employee will deliver all such materials in his
possession and all copies thereof to Employer.
9. Work Product. All elements of proprietary products and intellectual
property developed by Employee during the term of this Agreement shall
constitute "Exploited Property" under the terms of the Licensing and Royalty
Agreement dated August 13, 1997 between the Employer and the Licensor named
therein. Any copyrights, trademarks, tradenames or service marks relating to
products developed by Employee shall be owned by Licensor and registered in the
name of Licensor and shall be subject to the License.
10. Restrictive Covenants. In consideration of the provision to
Employee of the Employer's trade secrets and confidential information, and in
order to protect the rights of Employer to its trade secrets, confidential
information, and client relationships, the Employee hereby agrees as follows:
10.1 Employee agrees that during a period of two (2) years
following any termination of employment, Employee shall not be an
officer, director, employee, agent or representative, or an owner of
more than five percent (5%) of the outstanding capital stock of any
corporation, or an owner of any interest in, or employee, agent or
representative of, any other form of business association, sole
proprietorship or partnership that solicits, hires (whether or not
solicited) or otherwise attempts to induce any employees, agents or
representatives of Employer to terminate their position as employee,
agent or representative therewith.
6
10.2 Employee agrees that, during the term of this Agreement
and for a period of two (2) years following termination for any reason,
Employee shall not, directly or indirectly by being an officer,
director, employee, agent, representative or consultant, or a record or
beneficial owner of more than five percent of the outstanding capital
stock of any corporation or an owner of any interest in, or employee
of, any other form of business association, sole proprietorship or
partnership, conduct a business in competition with the business
conducted by Employer on the date of termination.
10.3 In the event that any adjudicative body shall finally
hold that this Section 10 constitutes an unreasonable restriction upon
Employee, the parties hereby expressly agree that the provisions of
this Section 10 shall not be rendered void, but shall apply as to time
and territory or to such other extent as such body may indicate
constitutes a reasonable restriction under the circumstances involved.
11. Arbitration. Any controversy between the parties to this Agreement
involving the construction or application of any of the terms, covenants or
conditions of this Agreement or arising out of any section hereof or any
condition in connection with the termination of employment, shall, on the
written request of one party served on the other, be submitted to binding
arbitration in Dallas, Texas, and such arbitration shall comply with and be
governed by the Commercial Arbitration Rules of the American Arbitration
Association. Each party hereto shall appoint one person as an arbitrator within
30 days after service of the request for arbitration, and the two arbitrators so
chosen shall select a third impartial arbitrator with fifteen days of the date
on which the second arbitrator is selected. The arbitrators shall decide all
questions presented to them by majority vote. The decision of a majority of the
arbitrators shall be final and conclusive on all parties hereto. The expenses of
arbitration conducted pursuant to this Section shall be borne by the parties in
such proportions as the arbitrators may decide. All parties shall be entitled to
be represented by counsel of their choosing throughout the arbitration
proceedings.
12. General Provisions.
12.1 Notice. Any notice required or permitted to be given
under this Agreement shall be sufficient if in writing and
sent by certified mail by Employer to the residence of
Employee, or by Employee to Employer's principal office.
12.2 Assignability. This Agreement and the rights, interests
and benefits hereunder shall not be assignable or in any way alienated
by Employee. Employer shall have the right of assignment and transfer
of its rights hereunder to any successor to the majority of its assets
and any such successor shall be bound by the terms hereof.
7
12.3 Waiver of Breach. The waiver by Employer or Employee of a
breach of any provisions of this Agreement by the other shall not
operate or be construed as a waiver of any subsequent breach.
12.4 Entire Agreement. This instrument contains the entire
agreement of the parties. It may not be changed orally, but only by an
agreement in writing, signed by the party against whom enforcement of
any waiver, change, modification, extension or discharge is sought.
12.5 Attorneys' Fees. In the event that there shall be any
litigation or court proceeding with respect to this Agreement or the
obligations of the parties hereunder, the prevailing party shall be
entitled to recover reasonable attorneys' fees and costs from the other
party.
12.6 Governing Law. This Employment Agreement shall be
governed by the laws of the State of Texas.
12.7 Survival. Sections 5.4, 7, 8, 9, 10, 11 and 12 shall
survive the termination of this Agreement and remain applicable to and
enforceable against Employer, Employee, and their respective heirs,
personal representatives, successors and assigns.
12.8 Definition of Change in Control. For purposes of this
Agreement, a "Change in Control" shall mean any one or more of the
following events:
(a) An acquisition (other than directly from the Employer) of
any voting securities of the Employer (the "Voting
Securities") by any "Person" (the term person is used for the
purposes of Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), immediately after which
such Person has "Beneficial Ownership" (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of twenty-five
percent (25%) or more of the combined voting power of the
Employer's then outstanding Voting Securities; provided,
however, in determining whether a Change in Control has
occurred, Voting Securities which are acquired in a
"Non-Control Acquisition" (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in
Control. A "Non-Control Acquisition" shall mean an acquisition
by (i) an employee benefit plan (or trust forming a part
thereof) maintained by (A) the Employer or (B) any corporation
or other Person of which a majority of its voting power or its
voting equity securities or equity interest is owned, directly
or indirectly, by the Employer (for purposes of this
definition, a "Subsidiary" (ii) the Employer or its
Subsidiaries, or (iii) any Person in connection with a
"Non-Control Transaction" (as hereinafter defined);
(b) The Individuals who, as of the date of this Agreement, are
members of the Board (the "Incumbent Board"), cease to
constitute at least two-third of the members of the Board.
Provided, however, that if after the election, or nomination
for election by the Employer's common stockholders, if any new
director was approved by a vote of at least two-thirds of the
8
Incumbent Board, such new director shall, for purposes of this
Plan, be considered as a member of the Incumbent Board;
provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual
initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11
promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf
of a Person other than the board (a "Proxy Contest") including
by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
(c) Approval by stockholders of the Employer of:
(1) a merger, consolidation or reorganization
involving the Employer, unless such a merger,
consolidation or reorganization is a "Non-Control
Transaction." A "Non-Control Transaction" shall mean
a merger, consolidation or reorganization of the
Employer where:
(i) the stockholders of the
Employer, immediately before such merger,
consolidation or reorganization, own
directly or indirectly immediately following
such merger, consolidation or
reorganization, seventy percent (70%) of the
combined voting power of the outstanding
Voting Securities of the corporation
resulting from such merger or consolidation
or reorganization (the "Surviving
Corporation") in substantially the same
proportion as their ownership of the Voting
Securities immediately before such merger,
consolidation or reorganization,
(ii) the individuals who were
members of the Incumbent Board immediately
prior to the execution of the agreement
providing for such merger, consolidation or
reorganization constitute at least two-third
of the members of the board of directors of
the Surviving Corporation, or a corporation
beneficially directly or indirectly owning a
majority of the Voting Securities of the
Surviving Corporation, and
(iii) no Person other than (a) the
Employer, (b) any Subsidiary, (c) any
employee benefit plan (or any trust forming
a part thereof) maintained by the Employer,
the Surviving Company, the Surviving
Corporation, or any Subsidiary, or (d) any
Person who, immediately prior to such
merger, consolidation or reorganization had
Beneficial Ownership of fifty-one percent
9
(51%) or more of the then outstanding Voting
Securities, has Beneficial Ownership of
fifty-percent (51%) or more of the combined
voting power of the Surviving Corporation's
then outstanding Voting Securities.
(2) A plan of complete liquidation or
dissolution of the Company, or
(3) An agreement for the sale or other
disposition of all or substantially all of
the assets of the Employer to any Person
(other than a transfer to a Subsidiary):
(d) Notwithstanding the foregoing, a Change in Control shall
not be deemed to occur solely because any Person (the "Subject
Person") acquired Beneficial Ownership of more than the
permitted amount of the then outstanding Voting Securities as
a result of the acquisition of Voting Securities by the
Employer which, by reducing the number of shares Beneficially
Owned by Subject Persons, provided that if a Change in Control
would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the
Employer, and after such share acquisition by the Employer,
the Subject Person becomes the Beneficial Owner of any
additional Voting Securities which increases the percentage of
the then outstanding Voting Securities Beneficially Owned by
the Subject Person, then a Change in Control shall occur.
IN WITNESS WHEREOF, Employer has caused this Employment Agreement to be
executed in its corporate name by its corporate officers thereunto duly
authorized, and Employee has executed this Employment Agreement.
EMPLOYEE:
/s/ Xxxxxxx X. Xxxxx
------------------------
Xxxxxxx X. Xxxxx
Xxxxx Education Systems, Inc.:
By: /s/ Xxxxx X. Xxxxx
------------------------
Xxxxx X. Xxxxx, Chairman
10
