EMPLOYMENT (CHANGE OF CONTROL) AGREEMENT
AGREEMENT made as of this 1st day of November, 1997 by and between Diamond
Brands Incorporated, a Minnesota corporation ("DBI") and Xxxxxxxxxxx Xxxxxxxx
(the "Employee").
WHEREAS, DBI considers the establishment and maintenance of a sound and
vital management to be essential to protecting and enhancing the best interests
of DBI and its shareholders; and
WHEREAS, the Employee has made and is expected to make, due to Employee's
intimate knowledge of the business and affairs of DBI, its policies, methods and
personnel, a significant contribution to the profitability, growth and financial
strength of DBI; and
WHEREAS, it is in the best interest of DBI and its shareholders to
reinforce and encourage the continued attention and dedication of management
personnel, including Employee, to their assigned duties without distraction and
to ensure the continued availability to DBI of the Employee in the event of a
Change in Control.
THEREFORE, in consideration of the foregoing and other respective covenants
and agreements of the parties herein contained, the parties hereto agree as
follows:
1. Term of Agreement. This Agreement shall commence on the date hereof
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and shall continue in effect until May 1, 1998. Notwithstanding the preceding
sentence, if a Change in Control occurs, this Agreement shall continue in effect
for a period of 36 months from the date of the occurrence of a Change in
Control. Notwithstanding anything herein to the contrary, the Employee's
employment shall be at all times at the will of DBI, and nothing in this
Agreement shall prohibit or limit the right of DBI or Employee, prior to a
Change in Control, to terminate the employment of Employee for any reason or for
no reason.
2. Change in Control. No benefits shall be payable hereunder unless there
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shall have been a Change in Control, as set forth below.
(a) For purposes of this Agreement, a "Change in Control" of DBI
shall mean (i) a corporate reorganization of DBI which results in the
shareholders of DBI immediately prior to such reorganization owning less
than 50% of the combined voting power of the capital stock of the surviving
company immediately following such reorganization, (ii) the sale of 50% or
more of the combined voting power of the capital stock of DBI, or (iii) the
sale of all or substantially all of the assets of DBI.
(b) Provided Employee is employed by DBI on the date of the
occurrence of a Change in Control (the "Effective Date"), Employee shall be
entitled to receive a bonus ("Retention Bonus") equal to .25% of the
Aggregate Consideration in excess of $160,000,000 received by DBI or its
Shareholders in the Change in Control, provided Employee shall not in any
event receive less than $250,000. Aggregate Consideration shall be equal to
the aggregate amount of consideration received by DBI or its Shareholders
plus
(i) the assignment to Employee of any duties materially
inconsistent with Employee's status or position with DBI, or a
substantial reduction in the nature or status of Employee's
responsibilities from those in effect immediately prior to the Change
in Control;
(ii) a reduction by DBI in Employee's annual base salary in
effect immediately prior to a Change in Control;
(iii) the relocation of DBI's principal executive offices to a
location more than fifty miles from Cloquet, Minnesota or DBI
requiring Employee to be based anywhere other than DBI's principal
executive offices except for required travel on DBI's business to an
extent substantially consistent with Employee's prior business travel
obligations;
(iv) the failure by DBI to continue to provide Employee with
benefits at least as favorable to those enjoyed by Employee under any
of DBI's life insurance, medical, health and accident, disability,
or savings plan in which Employee was participating immediately prior
to the Effective Date;
(v) the failure of DBI to obtain an agreement from any
successor to assume and agree to perform this Agreement, as required
by Section 7; or
(vi) any purported termination of Employee's employment which
is not made pursuant to a Notice of Termination satisfying the
requirements of Section 3(d) below; for purpose of this Agreement, no
such purported termination shall be effective.
(d) Notice of Termination. Any purported termination of Employee's
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employment by DBI or by Employee shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 8. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth the facts and circumstances claimed to
provide a basis for termination of Employee's employment.
4. Compensation Upon Termination or During Disability. Following a Change
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in Control of DBI, as defined in subsection 2(a), upon termination of Employee's
employment or during a period of Disability, Employee shall be entitled to the
following benefits:
(a) During any period that Employee fails to perform full-time duties
with DBI as a result of a Disability, DBI shall pay Employee the base
salary of the rate in effect at the commencement of any such period, until
such time as the Employee is eligible for and begins receiving long term
disability benefits in accordance with DBI's insurance programs then in
effect.
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(b) If Employee's employment shall be terminated by DBI for Cause or
by Employee other than for Good Reason or Retirement, DBI shall pay to
Employee his full base salary through the date of termination at the rate
in effect at the time Notice of Termination is given and DBI shall have no
further obligation to Employee under this Agreement.
(c) If Employee's employment shall be terminated by DBI for
Disability or by Employee for Retirement, or by reason of Death, DBI shall
immediately commence payment to the Employee (or Employee's designated
beneficiaries or estate, if no beneficiary is designated) any and all
benefits to which the Employee is entitled under DBI's retirement and
insurance programs then in effect.
(d) If Employee's employment by DBI shall be terminated (A) by DBI
other than for Cause or Disability or (B) by Employee for Good Reason, then
Employee shall be entitled to the benefits provided below:
(i) DBI shall pay Employee the Employee's full base salary
through the date of and at the rate in effect at the time the Notice
of Termination is given;
(ii) In lieu of any further salary payments for periods
subsequent to the date of termination, DBI shall pay a severance
payment (the "Severance Payment") equal to (X) one times Employee's
regular annual base salary in effect immediately prior to the Change
in Control or in effect at the time the Notice of Termination is
given, whichever is greater, plus (Y) an amount equal to Employee's
annual target bonus in effect immediately prior to the Change in
Control or in effect at the time the Notice of Termination is given,
whichever is greater. The Severance Payment shall be made within 30
days after the date of termination; and
(iii) For a period of 12 months after the date of termination,
Employee shall be entitled to continue participation in the health
insurance benefit plans of DBI substantially similar to those which
Employee is receiving or entitled to receive immediately prior to the
Notice of Termination. DBI and Employee shall share the cost
associated with such coverage as if Employee was still actively
employed by DBI.
(e) Employee shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided for in
this Section 4 be reduced by any compensation earned by Employee as the
result of employment by another employer or by retirement benefits after
the date of termination, or otherwise.
(f) In addition to all other amounts payable to Employee under this
Section 4, Employee shall be entitled to receive all benefits payable to
the Employee under any other plan or agreement relating to retirement
benefits or otherwise generally applicable to executive employees.
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5. Nondisclosure. In consideration of this Agreement, including the
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Retention Bonus in Section 2, Employee represents and agrees that, except by
prior written permission from DBI, Employee shall never during his employment or
at any time thereafter, directly or indirectly use or disclose (except in the
execution of his duties as an employee consistent with this Agreement and then
only in strict accordance with his obligations of service and loyalty hereunder)
any of DBI's Confidential Information, as hereinafter defined. "Confidential
Information" shall include, but not be limited to, trade secrets, formulations,
recipes, compounds, customer lists, pricing agreements, product specifications,
credit information, production or processing know-how, or other information not
generally known to the public acquired or learned by Employee during the course,
and on account, of his employment with DBI, whether or not developed by
Employee. Confidential Information also includes any confidential information
relating to any business of any company affiliated with DBI which is disclosed
to Employee either purposely or inadvertently in the course of his employment
with DBI. Employee agrees that such information shall be considered secret and
disclosed to him in confidence. Employee further recognizes that such
information in the sole property of DBI and shall be used for the exclusive
benefit of DBI. While some of the Confidential Information may be generally
public knowledge, its compilation in a form useful to DBI and their competitors
makes it unique and valuable. Upon termination of employment, Employee agrees to
deliver to DBI all Confidential Information. Without limiting the foregoing,
Employee agrees not to disclose to any person, other than DBI's advisors, either
the fact that discussions or negotiations are taking place concerning a possible
Change in Control or any of the terms, conditions or other facts with respect to
any possible Change in Control, including the status thereof. This provision
shall survive any Change in Control and any termination of this Agreement.
6. Noncompetition.
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(a) In consideration of this Agreement, including the addition of the
Retention Bonus described in Section 2, Employee represents and agrees that
during his employment and for a period of one (1) year from and after the
termination of his employment for any reason, Employee will not, directly or
indirectly, alone or in any capacity with another legal entity, (i) engage in
any activity that directly competes in any material respect with DBI, including
specifically, but without limitation, the manufacture, sale, marketing or
distribution of clothespins, toothpicks, matches, firestarters, wooden crafts,
plastic cutlery, candles or aromatherapy products; (ii) contact or in any way
interfere or attempt to interfere with the relationship of DBI with any current
or potential customers or any current vendors of DBI; (iii) employ or attempt to
employ, on behalf of Employee or any other person or entity, any employee of DBI
(other than a former employee thereof after such employee has terminated
employment with DBI).
(b) Employee acknowledges that DBI market products throughout the
United States and Canada (the "Territory") and that DBI would be harmed if
Employee conducted any of the activities described in this Section 6 anywhere in
the Territory. Therefore, Employee agrees that the covenants contained in this
Section 6 shall apply to all portions of, and throughout, the Territory.
(c) Employee acknowledges that the duration and scope of the
covenants contained in this Section 6, as well as the Territory to which such
covenants apply are reasonable
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under the circumstances. Employee further acknowledges that he understands that
his willingness to enter the covenants contained in Sections 5 and 6 were
inducements for DBI to enter into this Agreement, and that the consideration he
is receiving hereunder is fair and reasonable.
(d) Employee acknowledges that if he fails to fulfill his obligations
under Sections 5 and 6, the damages to DBI would be very difficult to determine.
Therefore, in addition to any other rights or remedies available to DBI at law,
in equity, or by statute, Employee hereby consents to the specific enforcement
of the provisions of Sections 5 and 6 by DBI through an injunction or
restraining order issued by the appropriate court.
(e) If for any reason any court of competent jurisdiction determines
any provision of Sections 5 and 6 to be unenforceable as written, the parties
expressly grant the court the authority to modify those provisions and to
enforce those provisions to the maximum extent possible. In furtherance and not
in limitation of the foregoing, should the duration or geographic extent of, or
business activities covered by, any provisions of Sections 5 and 6 be in excess
of that which is valid and enforceable under applicable law, then such
provision shall be construed to cover only that duration, extent or activities
which are validly and enforceably covered. Employee acknowledges the uncertainty
of the law in this respect and expressly stipulates that this Section 6 be given
the construction which renders its provisions valid and enforceable to the
maximum extent (not exceeding its expressed terms) possible under applicable
laws.
(f) Employee may make a written request for a modification of his
obligations under this Section 6 if, in his opinion, his intended activities
will not adversely affect DBI's legitimate interests, DBI will consider such
written request, determine in its sole discretion whether the request is adverse
to its legitimate business interests, and notify Employee in writing of any
approved modification to Employee's obligations under this Section 6 or its
rejection of Employee's request.
7. Successors; Binding Agreement.
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(a) DBI will require any successor (whether direct or indirect, by
purchase, merger (other than a merger in which DBI is the surviving
company), consolidation or otherwise) to all or substantially all of the
business and/or assets of DBI to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that DBI would be
require to perform it if no such succession had taken place. Failure of DBI
to obtain such assumption and agreement prior to the effectiveness of any
such succession shall be a breach of this Agreement and shall entitle
Employee to compensation from DBI in the same amount and on the same terms
as he would be entitle hereunder if he terminated his employment for Good
Reason following a Change in Control, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the date of termination.
(b) This Agreement shall inure to the benefit of and be enforceable
by Employee's personal or legal representatives, successors, heirs, and
designated beneficiaries. If Employee should die while any amount would
still be payable to Employee hereunder if the Employee
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had continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the
Employee's designated beneficiaries, or, if there is no such designated
beneficiary, to the Employee's estate.
8. Notice. For the purpose of this Agreement, notices and all other
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communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage pre-paid,
addressed to the last known residence address of the Employee or in the case of
DBI, to its principal office to the attention of the President, or to such other
address as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
9. Miscellaneous. No provision of this Agreement may be modified, waived
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or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the parties. No waiver by either party thereto at anytime
of any breach by the other party to this Agreement of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or similar time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Minnesota.
10. Validity. The invalidity or unenforceability of any provision of this
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Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
11. Arbitration and Award of Attorneys' Fees.
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(a) Any dispute arising between the parties relating to this Agreement
shall be resolved by binding arbitration held in the City of Minneapolis
pursuant to the Rules of the American Arbitration Association, except as
hereinafter expressly modified. If the disputing and responding parties are
unable to agree upon a resolution within forty-five business days after the
responding party's receipt of written notice from the disputing party setting
forth the nature of the dispute, within the following ten business days the
disputing and responding parties shall select a mutually acceptable single
arbitrator to resolve the dispute or, if the parties fail or are unable to do
so, each shall within the following ten business days select a single
arbitrator, and the two so selected shall select a third arbitrator within the
following ten business days. Such single arbitrator or, as the case may be,
panel of three arbitrators acting by majority decision, shall resolve the
dispute within sixty days after the date such arbitrator, or the last of them so
selected, is selected, or as soon thereafter as practicable. If either party
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refuses or fails to select an arbitrator within the time therefor, the
other party may do so on such refusing or failing party's behalf. The
arbitrators shall have no power to award any punitive or exemplary damages
but may construe or interpret but shall not ignore or vary the terms of
this Agreement and shall be bound by controlling law. The parties
acknowledge the Employee's failure to comply with any confidentiality, non-
solicit, and non-compete provisions of any agreement to which the Employee
is bound will cause immediate and irreparable injury to DBI and that
therefore the arbitrators, or a court of competent jurisdiction if an
arbitration panel cannot be immediately convened, will be empowered to
provide injunctive relief, including temporary or preliminary relief, to
restrain any such failure to comply. The arbitration award or other
resolution may be entered as a judgment at the request of the prevailing
party by any court of competent jurisdiction in Minnesota or elsewhere.
(b) In the event DBI fails to pay Employee any amounts owing to
Employee under this Agreement or to provide Employee any benefits to which
Employee is ultimately determined, by settlement, mediation, arbitration,
or by any court or other decision making body with jurisdiction, to be
entitled to under this Agreement, DBI shall pay the legal expenses
(including reasonable attorneys' fees, court costs and other out-of-pocket
expenses), incurred by Employee to enforce his rights under this Agreement
and collect or obtain such amounts or benefits.
DIAMOND BRANDS INCORPORATED
By /s/ Xxxxxx X. Xxxxxxx
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EMPLOYEE
/s/ Xxxxxxxxxxx Xxxxxxx
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Xxxxxxxxxxx Xxxxxxx
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