Exhibit 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of January 6, 2003, by and between
Factory 2-U Stores, Inc. (the "Company"), a Delaware corporation, and Xxxxxx
Xxxxxx, who currently resides in Phoenix, Arizona ("Executive").
W I T N E S S E T H
WHEREAS, the Company desires to employ Executive, and Executive desires to
accept such employment on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein and for other good and valuable consideration, the Company and
Executive agree as follows:
1. Term of Employment. Except upon earlier termination as provided in
Section 9 hereof, Executive's employment under this Agreement shall be for a
one-year term commencing on the date of this Agreement (the "Effective Date")
and terminating on January 6, 2004; provided, however, that at the scheduled end
of the employment term, and on each anniversary of such date, the employment
term shall automatically be extended for a one-year period unless the Company or
the Executive gives notice to the other at least 90 days before an extension is
to take effect that they do not desire the employment term to be extended. The
term of employment, as so extended from time to time, is referred to in this
Agreement as the "Employment Term."
2. Positions.
(a) Executive shall serve as Executive Vice President-Store Operations and
Distribution of the Company. Executive shall report to the Chief Executive
Officer of the Company ("CEO") and shall have such duties and authority,
consistent with his position as Executive Vice President-Store Operations and
Distribution of the Company, as shall be assigned to him from time to time by
the CEO.
(b) During the -Employment Term, Executive shall, without additional
compensation, perform such executive and consulting services for, or on behalf
of, such subsidiaries or affiliates of the Company as the CEO may, from time to
time, request. The Company and such subsidiaries and affiliates are hereinafter
referred to, collectively, as the "Company" and, individually, as a "Constituent
Corporation." For purposes of this Agreement, the term "Affiliate" shall have
the meaning given in the Securities Exchange Act of 1934, as amended (the
"Act").
(c) During the Employment Term, Executive shall devote substantially all of
his business time and efforts to the performance of his duties hereunder;
provided, however, that Executive shall be permitted, to the extent that such
activities do not materially interfere with the performance of his duties and
responsibilities hereunder, to manage his personal financial and legal affairs
and to serve on not more than three corporate, civic or charitable boards or
committees. Notwithstanding the foregoing, the Executive shall not serve on any
corporate board of directors or similar body if such service would be
inconsistent with his fiduciary responsibilities to any Constituent Corporation
and in no event shall Executive serve on any such board or other body unless
approved by the CEO, which approval shall not be unreasonably withheld.
Executive's current service on the board of directors of Win-Xxxx Manufacturing
Co., Inc. is hereby approved. Executive shall, within three months after the
Effective Date, relocate his principal residence to a location not more than
fifty (50) miles from the Company's executive offices in San Diego, California.
3. Base Salary. During the Employment Term, the Company shall pay to the
Executive a base salary at the annual rate of not less than Five Hundred
Thousand Dollars ($500,000). Base salary shall be payable in accordance with the
usual payroll practices of the Company. Executive's base salary shall be subject
to annual review by the CEO and may be increased, but not decreased, from time
to time at the discretion of the CEO. The base salary, as determined as
aforesaid from time to time, shall constitute "Base Salary" for purposes of this
Agreement.
4. Bonuses.
(a) Not later than 30 days after Executive's entering into this Agreement,
the Company shall pay to the Executive a signing bonus in the amount of
$100,000.
(b) Not later than 30 days after the Effective Date, Executive shall
prepare and present to the CEO written financial, operational and other
objectives (the "Performance Objectives") for the Company's fiscal year ending
February 3, 2004. If such Performance Objectives are approved and accepted by
the CEO, Executive's target bonus for such fiscal year shall be equal to 50% of
Executive's annual Base Salary for such year. For each fiscal year during the
Employment Term thereafter, Executive shall prepare and submit Performance
Objectives to the CEO during the normal course of the Company's planning cycle
and before the commencement of the new fiscal year. If such subsequent
Performance Objectives are accepted and approved by the CEO, Executive's target
bonus for such fiscal years shall be based on 50% of Executive's Base Salary in
effect as of the start of such fiscal year. In the event of any disagreement
between the CEO and Executive concerning the acceptance and approval of
Performance Objectives, the CEO and Executive shall negotiate in good faith to
attempt to resolve such differences. Annual bonuses shall be reduced pro rata
for any fiscal year that is not a full year (based on the actual number of days
of such year included in the Employment Term). Each annual bonus shall be paid
no later than 30 days after the Company's audited financial statements with
respect to the year for which the annual bonus is awarded are available. If the
Performance Objectives accepted by the CEO are exceeded in any year, the annual
bonus shall be increased by 1% of Base Salary for each 1% of excess, up to a
maximum bonus of 100% of Base Salary for the achievement of 150% of the
Performance Objectives. If the Performance Objectives accepted by the CEO are
not met, the Executive shall not be entitled to any bonus.
(c) To the extent that the Executive's bonus and base salary in any fiscal
year is in excess of $1 million, payment of an amount equal to such excess shall
be automatically deferred. Amounts deferred under this Paragraph 4(c) shall be
credited annually with interest at the Company's borrowing rate and shall be
paid to Executive (or to his estate, in the case of death) in a single lump sum
three months following his termination of employment. Amounts deferred under
this Paragraph 4(c) shall represent an unfunded, unsecured obligation of the
Company. The Company will establish a "rabbi trust" reasonably acceptable to
Executive and will fund its deferred compensation obligation to Executive by
transferring to such rabbi trust, cash or other assets sufficient to satisfy
such obligation.
5. Equity Compensation.
(a) Non-Qualified Stock Options. The Company will grant to Executive,
pursuant to the Company's Second Amended and Restated 1997 Stock Option Plan
(the "Plan"), if approved by the stockholders at the Company's next annual
meeting of stockholders or, if such approval is not obtained, by contract not
subject to the Plan, nonqualified options entitling Executive to acquire a total
of 125,000 shares of the Company's common stock at the closing market price of
such common stock on the commencement date of the Employment Term. Subject to
Executive's continued employment under this Agreement, such nonqualified stock
options will vest in increments of 7,812.5 shares (each, a "Tranche") on each
December, March, June and September 30 during the first four years of the
Employment Term. The non-qualified options in each such Tranche shall be
exercisable for a period of five years after the vesting of such Tranche. During
any period of time after one year from the date of this Agreement that shares
acquired upon exercise of such non-qualified options would not be saleable by
Executive pursuant to Rule 144 under the Act or pursuant to an effective
registration statement under the Act, the Company shall file with the Securities
and Exchange Commission and maintain the effectiveness of a registration
statement on Form S-8 (or such successor or replacement form as may be
applicable) to permit Executive to resell shares of common stock acquired upon
exercise of such non-qualified stock options. The terms of such nonqualified
stock options will be more specifically set forth in a Stock Option Agreement
substantially in the form attached as Exhibit A.
(b) Restricted Stock. The Company will grant to Executive pursuant to the
Plan, if approved by the stockholders at the Company's next annual meeting of
stockholders or, if such approval is not obtained, by contract not subject to
the Plan, one hundred twenty-five thousand (125,000) restricted shares of the
Company's common stock (the "Restricted Stock") at a cost to Executive of One
Thousand Two Hundred Fifty Dollars ($1,250).
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(c) Vesting. The Restricted Stock shall vest in installments as follows:
41,666.7 shares of Restricted Stock shall vest at such time as the closing
market price of the Company's common stock equals or exceeds $10 per share for
20 consecutive trading days in any three-month period; an additional 41,666.7
shares of restricted common stock shall vest at such time as the closing market
price of the Company's common stock equals or exceeds twenty dollars ($20) per
share for 20 consecutive trading days in any three-month period; and the final
41,666.7 shares of the Company's common stock shall vest at such time as the
closing market price of the Company's common stock equals or exceeds thirty
dollars ($30) per share for 20 consecutive trading days in any three-month
period. Executive's right to receive any shares of Restricted Stock that have
not so vested prior to January 6, 2008 shall terminate and any such Restricted
Stock shall be retained by the Company. Notwithstanding the foregoing, Executive
shall not be entitled to sell any such vested shares of Restricted Stock until
the expiration of two years from the Effective Date (the "Holding Period"). The
terms of such Restricted Stock will be more specifically set forth in a
Restricted Stock Agreement substantially in the form attached as Exhibit B.
(d) Restrictions on Restricted Stock. Until Restricted Stock has vested and
the Holding Period has expired, it may not be sold, transferred, assigned or
pledged. Shares of Restricted Stock shall be evidenced by stock certificates
bearing appropriate legends referring to the applicable terms, conditions and
restrictions. Stock certificates representing the Restricted Stock will be
registered in the name of Executive as of the date of this Agreement, but such
certificates will be held by the Company until the shares vest and the Holding
Period has expired, and Executive shall deliver to the Company a stock power,
endorsed in blank, relating to the shares of Restricted Stock. At such time as
Restricted Stock vests, and the expiration of the Holding Period with regard to
such vested shares of Restricted Stock, a certificate representing such shares
(less any shares retained by the Company to satisfy Executive's tax withholding
obligations) will be delivered to Executive as soon as practicable.
(e) Dividends and Voting. From and after the date of issuance of the
Restricted Stock, Executive will have, with respect to the Restricted Stock, all
the rights of a holder of common stock, including the right to receive any
dividends or distributions paid on the common stock and the right to vote the
shares of Restricted Stock.
(f) Income Tax. Executive shall be required to make arrangements
satisfactory to the Company to satisfy any applicable federal, state or local
tax liability arising with respect to the Restricted Stock. Such arrangements
may be satisfied by either making a cash payment to the Company of the required
amount or by having the Company retain Restricted Stock having a value equal to
the amount of Executive's federal, state and local tax obligation from the
shares of Restricted Stock otherwise deliverable to Executive upon the vesting
of such Restricted Stock and expiration of the Holding Period. If Executive
fails to satisfy the obligations in a time and manner satisfactory to the
Company, the Company may withhold all required amounts from Executive's
compensation or other amounts payable under this Agreement to satisfy such
federal, state and local tax obligations. Executive shall be solely responsible
for determining whether to make, and for making, any election under Section
83(b) of the Internal Revenue Code of 1986 (as amended) with respect to the
Restricted Stock.
(g) Effect and Other Benefits. Income recognized by Executive as the result
of the grant or vesting of Restricted Stock, the expiration of the Holding
Period or the receipt of dividends, unrestricted stock will not be included in
any formula for calculating benefits under this Agreement or any benefit plan of
the Company.
6. Employment Benefits and Vacation.
(a) During the Employment Term, Executive shall also be entitled to
participate in all pension, retirement, savings, welfare and other pension and
welfare employee benefit plans and arrangements and fringe benefits and
perquisites generally maintained by the Company from time to time for the
benefit of senior executives of the Company, in accordance with their respective
terms as in effect from time to time (other than any special arrangement entered
into by contract with an executive).
(b) During the Employment Term, Executive shall be entitled to vacation
each year in accordance with the Company's policies in effect from time to time,
but in no event less than four (4) weeks paid vacation per calendar year.
Executive shall also be entitled to such sick leave as is customarily provided
by the Company for its senior executive employees.
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7. Moving Expenses. The Company will reimburse Executive on an after-tax
basis for all reasonable expenses incurred by the Executive (i) for the
relocation of his family to San Diego for the purpose of commencing Executive's
employment pursuant to this Agreement, including one customary real estate
commission, (ii) for interim living expenses in the San Diego area reasonably
incurred to maintain Executive's normal standard of living for up to two years
and (iii) for up to two trips to the San Diego area for Executive and
Executive's spouse for the purpose of locating a residence. In the event that
Executive's employment is terminated by the Company without Cause or Executive
terminates his employment with the Company for Good Reason, in each case within
one year after the Effective Date, the Company will reimburse Executive for all
reasonable expenses incurred by Executive in the relocation of his family to
Phoenix, Arizona.
8. Business Expenses; Vehicle Allowance.
(a) Executive shall be reimbursed for the travel, entertainment and other
business expenses incurred in the performance of his duties hereunder, in
accordance with policies generally applicable to senior executives of the
Company as in effect from time to time.
(b) During the Employment Term, the Company shall provide a vehicle
allowance to Executive in the amount of $750 per month.
9. Termination.
(a) The employment of Executive under this Agreement shall terminate on the
expiration of the Employment Term and earlier upon the occurrence of any of the
following events:
(i) the death of Executive;
(ii) the termination by the Company of Executive's employment due to
Executive's Disability pursuant to Section 9(b) hereof;
(iii) the termination by Executive of Executive's employment for Good
Reason pursuant to Section 9(c) hereof;
(iv) the termination by the Company of Executive's employment without
Cause;
(v) the termination by Executive of Executive's employment without Good
Reason upon sixty (60) days prior written notice; or
(vi) the termination by the Company of Executive's employment for Cause
pursuant to Section 9(e) hereof.
(b) Disability. If, by reason of the same or related physical or mental
reasons, Executive is unable to carry out his material duties pursuant to this
Agreement for more than three (3) months in any twelve (12) consecutive month
period, the Company may terminate Executive's employment for Disability upon
thirty (30) days prior written notice.
(c) Termination for Good Reason. A Termination for Good Reason means a
termination by Executive by written notice given within ninety (90) days after
the occurrence of the Good Reason event. For purposes of this Agreement, "Good
Reason" shall mean the occurrence or failure to cause the occurrence, as the
case may be, without Executive's express written consent, of any of the
following circumstances, unless such circumstances are corrected prior to the
date of termination specified in the Notice of Termination for Good Reason (as
defined in Section 9(d) hereof): (i) the material breach by the Company of any
of its obligations to Executive under this Agreement; (ii) any material
diminution of Executive's positions, duties or responsibilities hereunder, as of
the Effective Date (except in each case in connection with the termination of
Executive's employment for Cause or Disability or as a result of Executive's
death, or temporarily as a result of Executive's illness or other absence and
provided that a reduction in the size or number of the units reporting to
Executive as a result of dispositions, shall not be a material diminution), or
the assignment to Executive of duties or responsibilities that are inconsistent
with Executive's position as the Executive Vice President-Store Operations and
Distribution of the Company; (iii) removal of, or the nonreelection of, the
Executive from his position as the Executive Vice President-Store Operations and
Distribution of the Company; (iv) a relocation of the principal executive
offices of the Company to a location more than seventy-five (75) miles from its
current location in San Diego, California, or a relocation of Executive away
from such principal executive office; (v) failure by the CEO and Executive to
agree on Performance Objectives, after good faith negotiations, within 60 days
after submission to the CEO by Executive; or (vi) any change in the Company's
Certificate of Incorporation or Bylaws not approved by Executive that materially
and adversely diminish Executive's rights to indemnification in his capacity as
an officer or director of the Company.
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(d) Notice of Termination of Good Reason. A Notice of Termination for Good
Reason shall mean a notice that shall indicate the specific termination
provision in Section 9(c) relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for Termination for Good
Reason. The Notice of Termination for Good Reason shall provide for a date of
termination not less than ten (10) nor more than sixty (60) days after the date
such Notice of Termination for Good Reason is given.
(e) Cause. Subject to the notification provisions of Section 9(f) below,
Executive's employment hereunder may be terminated by the Company for Cause. For
purposes of this Agreement, the term "Cause" shall be limited to (i) willful
misconduct by Executive with regard to the Company; (ii) the refusal of
Executive to follow the proper written direction of the Board; provided,
however, that the foregoing refusal shall not be "Cause" if Executive in good
faith believes that such direction is illegal, unethical or immoral and promptly
so notifies in writing the entity or person giving the direction; (iii)
Executive being convicted of a felony; (iv) the willful breach by Executive of
any fiduciary duty owed by Executive to any Constituent Corporation which has a
material adverse effect on the Company; or (v) Executive's material fraud with
regard to any Constituent Corporation.
(f) Notice of Termination for Cause. A Notice of Termination for Cause
shall mean a notice that shall indicate the specific termination provision in
Section 9(e) relied upon and shall set forth in reasonable detail the facts and
circumstances which provide a basis for Termination for Cause. The date of
termination for a Termination for Cause shall be the date indicated in the
Notice of Termination. Any purported Termination for Cause which is held by a
court not to have been based on the grounds set forth in this Agreement shall be
deemed a Termination without Cause.
10. Consequences of Termination of Employment.
(a) Death. If Executive's employment is terminated during the Employment
Term by reason of Executive's death, the employment period under this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement except for (i) any compensation earned but
not yet paid, including and without limitation, any declared but unpaid bonus,
any amount of Base Salary or deferred compensation accrued or earned but unpaid,
any accrued vacation pay payable pursuant to the Company's policies and any
unreimbursed business expenses payable pursuant to Section 8, which amounts
shall be promptly paid in a lump sum to Executive's estate; (ii) the product of
(x) the target annual bonus for the fiscal year of Executive's death, multiplied
by (y) a fraction, the numerator of which is the number of days of the current
fiscal year during which Executive was employed by the Company, and the
denominator of which is 365, which bonus shall be paid if and when bonuses for
such period are paid to the other executive officers of the Company; (iii)
subject to Section 11 hereof, any other amounts or benefits owing to Executive
under the then applicable employee benefit plans or policies of the Company,
which shall be paid in accordance with such plans or policies; and (iv) payment
of the spouse's and dependent's COBRA coverage premiums to the extent, and as
long as, they remain eligible for COBRA coverage, but in no event more than
three (3) years.
(b) Disability. If Executive's employment is terminated by reason of
Executive's Disability, Executive shall be entitled to receive the payments and
benefits to which his representatives would be entitled in the event of a
termination of employment by reason of his death; provided that the payment of
Base Salary shall be reduced by the projected amount he would receive under any
long-term disability policy maintained by the Company or program maintained by
the Company during the twelve (12) month period during which Base Salary is
being paid.
(c) Termination by Executive for Good Reason or for Change in Control. If
(i) Executive terminates his employment hereunder for Good Reason during the
Employment Term; or (ii) a Change in Control occurs and within 180 days
thereafter Executive terminates his employment for any reason, Executive shall
be entitled to receive the payments and benefits to which his representatives
would be entitled in the event of a termination of employment by reason of his
death plus payment on a monthly basis of twelve (12) months of Base Salary in
effect as of the start of the fiscal year in which such termination occurs, in
accordance with usual Company payroll practices. In addition, in the event
Executive terminates his employment as a result of a Change of Control,
Executive's non-qualified stock options shall immediately vest and become
exercisable and Executive's Restricted Stock shall immediately vest.
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(d) Termination With Cause or Voluntary Resignation Without Good Reason. If
Executive's employment hereunder is terminated (i) by the Company for Cause; or
(ii) by Executive without Good Reason except within 180 days following a Change
in Control, the Executive shall be entitled to receive only his Base Salary
through the date of termination, any earned but unpaid bonus for such year, any
unreimbursed business expenses payable pursuant to Section 8 and any other
benefits subject to Section 10(a)(iii) hereof to which he is entitled by law.
All other benefits (including, without limitation, rights to retain Restricted
Stock and rights to exercise options) due Executive shall terminate upon such
termination of employment.
(e) Non Renewal by the Company or Termination by the Company Without Cause.
If this Agreement is not renewed by the Company at the end of the Employment
Term or Executive's employment is terminated by the Company without cause,
Executive shall be entitled to receive the payment and benefits to which his
representatives would be entitled in the event of a termination of employment by
reason of his death plus payment on a monthly basis of twelve (12) months of
Base Salary in effect as of the start of such fiscal year, in equal shares all
in accordance with usual Company payroll practices, subject to the execution,
delivery and non-revocation by the Executive of a general release of claims in
favor of the Company and its officers, directors, shareholders and affiliates in
a form reasonably acceptable to the Company and the Executive.
(f) Parachute Payments. Notwithstanding the foregoing, the benefits
provided to the Executive under Section 10(c) on account of a Change in Control
shall be reduced if and to the extent that a nationally recognized firm of
compensation consultants or auditors designated by the Company determines that
such reduction will result in a greater net after-tax benefit to the Executive
than the Executive would obtain in the absence of such reduction, taking into
account any excise tax payable by the Executive under Internal Revenue Code
Section 4999. The allocation of the reduction required hereby among the benefits
shall be determined by the Executive.
11. No Mitigation: No Set-Off. In the event of any termination of
employment under Section 9, Executive shall be under no obligation to seek other
employment and there shall be no offset against any amounts due Executive under
this Agreement on account of any remuneration attributable to any subsequent
employment that Executive may obtain. Any amounts due under Section 10 are in
the nature of severance payments, or liquidated damages, or both, and are not in
the nature of a penalty. Such amounts are inclusive and in lieu of any amounts
payable under any other salary continuation or cash severance arrangement of the
Company or any affiliate thereof and to the extent paid or provided under any
other such arrangement shall be offset from the amount due hereunder.
12. Change in Control. Subject to the provisions of Section 12(b) hereof,
for purposes of this Agreement, the term "Change in Control" shall mean (a) any
"person" (as defined in the Act) not an affiliate of the Company on the
Effective Date becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Act), directly or indirectly, of securities of the Company representing
fifty percent (50%) or more of the combined voting power of the Company's then
outstanding securities; (b) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board, and any
new director (other than a director designated by a person who has entered into
an agreement with the Company to effect a transaction described in this
paragraph) whose election by the Board of the Company or nomination for election
by the Company's stockholders was approved by a vote of at least two-thirds of
the directors then still in office who either were directors at the beginning of
the two-year period or whose election or nomination for election was previously
so approved, cease for any reason to constitute at least a majority of the
Board; (c) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than fifty percent (50%) of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation; or (d) the stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets
other than the sale of all or substantially all of the assets of the Company to
a person or persons who beneficially own, directly or indirectly, at least fifty
percent (50%) or more of the combined voting power of the outstanding voting
securities of the Company at the time of the sale.
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13. Confidential Information, Non-Competition and Non-Solicitation of the
Company.
(a) (i) Executive acknowledges that, as a result of his employment
hereunder, Executive will obtain secret and confidential information of the
Company and the Company will suffer substantial damage, which would be difficult
to ascertain and in an amount which would be difficult to compute, if Executive
should use any of such confidential information and that because of the nature
of the information that will be known to Executive, it is necessary for the
Company to be protected by the prohibition against Competition as set forth
herein, as well as the Confidentiality restrictions set forth herein.
(ii) Executive acknowledges that the retention of non-clerical
employees of the Company, in which the Company has invested training and on
which the Company depends for the operation of its business, is important to the
businesses of the Company; Executive will obtain unique information as to
such employees as an executive of the Company and will develop a unique
relationship with such persons as a result of being an executive of the Company;
and, therefore, it is necessary for the Company to be protected from Executive's
Solicitation of such employees as set forth below.
(iii) Executive acknowledges that the provisions of this Agreement
are reasonable and necessary for the protection of the business of the Company
and that part of the compensation paid under this Agreement and the agreement to
pay severance in certain instances is in consideration for the agreements in
this Section 13.
(b) As used herein, "Competition" shall mean: participating, directly or
indirectly, as an individual proprietor, partner, stockholder, officer,
employee, director, joint venturer, investor, lender, consultant or in any
capacity whatsoever (within the United States of America, or in any other
country where any Constituent Corporation does business) in a business that owns
or operates off price apparel and housewares stores (or any other business in
which any Constituent Corporation is then engaged); provided, however, that such
participation shall not include (i) the ownership of not more than one percent
(1%) of the total outstanding stock of a publicly-held company; or (ii) any
activity engaged in with the prior written approval of the Board.
(c) As used herein, "Solicitation" shall mean recruiting, soliciting or
inducing any non-clerical employee of any Constituent Corporation to terminate
his or her employment with, or otherwise cease his or her relationship with,
such Constituent Corporation or hiring, or assisting another person or entity to
hire, any non-clerical employee of any Constituent Corporation or any person
who, within six (6) months before, had been a non-clerical employee of any
Constituent Corporation, unless the employment of such person by a Constituent
Corporation was terminated involuntarily and without cause.
(d) If any restriction set forth with regard to Competition or Solicitation
is found by any court of competent jurisdiction, or an arbitrator, to be
unenforceable because it extends for too long a period of time or over too great
a range of activities or in too broad a geographical area, it shall be
interpreted to extend over the maximum period of time, range of activities or
geographic area as to which it may be enforceable. If any provision of this
Section 13 shall be declared to be invalid or enforceable, in whole or in part,
as a result of the foregoing, as a result of public policy or for any other
reason, such invalidity shall not affect the remaining provisions of this
Section, which shall remain in full force and effect.
(e) During and after the Employment Term, Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company and its business,
including any confidential information as to suppliers (i) obtained by Executive
during his employment by the Company and (ii) not otherwise in the public
domain. Executive shall not, without prior written consent of the Company,
unless compelled pursuant to the order of a court or other government or legal
body having jurisdiction over such matter, communicate or divulge any such
information, knowledge or data to anyone other than the Company, and those
designated by it. In the event Executive is compelled by order of a court or
other governmental or legal body to communicate or divulge any such information,
knowledge or data to anyone other than the foregoing, he shall promptly notify
the Company of any such order and he shall cooperate fully with the Company in
protecting such information to the full extent, possible under applicable law.
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(f) Upon termination of his employment with the Company, or at any time the
Company may request, Executive will promptly deliver to the Company, as
requested, all documents (whether prepared by the Company, Executive or a third
party) relating to the Company or any of its business or property which he may
possess or have under his direction or control, other than his personal
employment and personnel records.
(g) During the Employment Term and for one (1) year thereafter, Executive
will not enter into Competition with the Company; provided, however, that
Executive's obligation under this sentence shall be suspended during any time
when the Company is in breach of any payment obligation under Section 10(c) or
10(e) of this Agreement. Furthermore, in the event of any termination of
Executive's employment for any reason whatsoever, whether by the Company or by
the Executive and whether or not for Cause, Good Reason or expiration of the
Employment Tem, the Executive will not engage in Solicitation for one (1) year
thereafter.
(h) Executive acknowledges that in the event of a breach of this Section
13, the Company will be caused irreparable injury and money damages may not be
an adequate remedy. Consequently, Executive agrees that the Company shall be
entitled to seek injunctive relief (in addition to its other remedies at law) to
have the provisions of this Section 13 enforced.
14. Indemnification.
(a) The Company agrees that if Executive is made a party to or threatened
to be made a party to any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "Proceeding"), by reason of the fact that he
is or was a director or officer of any Constituent Corporation or is or was
serving at the request of any Constituent Corporation as a director, officer,
member, employee, fiduciary or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including, without limitation, service
with respect to employee benefit plans, whether or not the basis of such
Proceeding is alleged action in an official capacity as a director, officer,
member, employee, fiduciary or agent while serving as a director, officer,
member, employee, fiduciary or agent, he shall be indemnified and held harmless
by the applicable company to the fullest extent authorized by applicable law
against all Expenses incurred or suffered by Executive in connection therewith,
and such indemnification shall continue as to Executive even if Executive has
ceased to be an officer, director, member, fiduciary or agent, or is no longer
employed by such company, and shall inure to the benefit of his heirs, executors
and administrators.
(b) As used in this Agreement, the term "Expenses" shall include, without
limitation, damages, losses, judgments, liabilities, fines, penalties, excise
taxes, settlements and costs, attorneys' fees, accountants' fees and
disbursements and costs of attachment or similar bonds, investigations and any
expenses of establishing a right to indemnification under this Agreement.
(c) To the extent permitted by applicable law, Expenses incurred by
Executive in connection with any Proceeding shall be paid in advance upon
request of Executive and the giving by the Executive of any undertakings
required by applicable law.
(d) Executive shall give the Company notice of any claim made against him
for which indemnity will or could be sought under this Agreement. In addition,
Executive shall give the Company such information and cooperation as it may
reasonably require and as shall be within Executive's power and at such times
and places as are reasonably convenient for Executive.
(e) With respect to any Proceeding involving Executive:
(i) The Company will be entitled to participate therein at its own
expense; and
(ii) Except as otherwise provided below, to the extent that it may
wish, the Company will be entitled to assume the defense thereof, with
counsel reasonably satisfactory to Executive, in which case Executive also
shall have the right to participate and employ his own counsel in such action,
suit or proceeding, but only at his own cost and expense, provided that the
Company shall only be permitted to assume defense of a Proceeding if (l) the
Proceeding could not result in imposition of criminal penalties against
Executive and (2) the Company acknowledges that it is liable to indemnify
Executive with respect to all Expenses with respect to such Proceedings, except
as provided earlier in this sentence with regard to Executive's own counsel.
(f) The Company shall not be liable to indemnify Executive under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent. The Company shall not settle any action or claim in
any manner which would impose any penalty on Executive (except a penalty in
respect of which Executive is fully indemnified hereunder) without Executive's
written consent. Neither the Company nor Executive will unreasonably withhold or
delay consent to any proposed settlement.
8
(g) The right to indemnification and the payment of expenses incurred in
defending a Proceeding in advance of its final disposition conferred in this
Section 14 shall not be exclusive of any other right which Executive may have or
hereafter may acquire under any statute, provision of the certificate of
incorporation or by-laws of the Company, agreements, vote of stockholders or
disinterested directors or otherwise.
(h) The Company shall obtain officer and director liability insurance
policies covering Executive in the same aggregate amount and under the same
terms as are currently maintained by the Company for senior officers and
directors and use commercially reasonable efforts to maintain such policies or
replacement policies with substantially the same limits in effect during the
term of Executive's employment by the Company.
15. Miscellaneous.
(a) Entire Arrangement/Amendments. This Agreement and the instruments
contemplated herein, contain the entire understanding of the parties with
respect to the employment of Executive by the Company. There are no
restrictions, agreements, promises, warranties, covenants or undertakings
between the parties with respect to the subject matter hereof other than those
expressly set forth herein and therein. This Agreement may not be altered,
modified or amended except by written instrument signed by the parties hereto.
(b) No Waiver. The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver of
such party's rights or deprive such party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement. Any such
waiver must be in writing and signed by Executive or an authorized officer of
the Company, as the case may be.
(c) Assignment. This Agreement shall not be assignable by Executive. This
Agreement shall be assignable by the Company, but only to another Constituent
Corporation and only if such Constituent Corporation promptly assumes all of the
obligations hereunder of the Company in a writing delivered to the Executive and
otherwise complies with the provisions hereof with regard to such assumption.
Upon such assignment and assumption, all obligations of the Company herein shall
be the obligations of the assignee entity or acquiror, as the case may be, but
the Company shall remain secondarily liable for the obligations hereunder.
(d) Successors; Binding Agreement. This Agreement shall inure to the
benefit of and be binding upon the personal or legal representatives, executors,
administrators, successor, heirs, distributees, devisees legatees and permitted
assignees of the parties hereto.
(e) Communications. For the purpose of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given (i) when faxed or delivered in person;
or (ii) two business days after mailed by United States registered or certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the signature page of this Agreement, provided that all
notices to the Company shall be directed to the CEO of the Company or to such
other address as any party may have furnished to the other in writing in
accordance herewith. Notice of change of address shall be effective only upon
receipt.
9
(f) Withholding Taxes. The Company may withhold from any and all amounts
payable under this Agreement to Executive such Federal, state and local taxes as
may be required to be withheld pursuant to any applicable law or regulation.
(g) Survival. The respective rights and obligations of the parties
hereunder shall survive any termination of Executive's employment to the extent
necessary to the agreed preservation of such rights and obligations.
(h) Counterparts. This Agreement may be signed in counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
(i) Headings. The headings of the sections contained in this Agreement are
for convenience only and shall not be deemed to control or affect the meaning or
construction of any provisions of this Agreement.
(j) Notwithstanding anything to the contrary in this Agreement, the Company
shall not be required to take any action or make any payment to the extent such
action or payment would be inconsistent with or violate the provisions of the
Xxxxxxxx-Xxxxx Act of 2002.
10
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written,
FACTORY 2-U STORES, INC.
By: /s/ Xxxxxxx X. Xxxxxx
Xxxxxxx X. Xxxxxx, Chief Executive Officer
Address: 0000 Xxxxxx Xxxx
Xxx Xxxxx, Xxxxxxxxxx 00000-0000
Telephone: (000) 000-0000
Fax: (000) 000-0000
/s/ Xxxxxx X. Xxxxxx
Xxxxxx X. Xxxxxx
Address: 0000 Xxxx Xxxxxx Xxxxx
Xxxxxxxx Xxxxxx, Xxxxxxx 00000
Home Phone: (000) 000-0000
Home Fax: (000) 000-0000
Office Phone: (000) 000-0000
Offix Fax: (000) 000-0000
11
Exhibit A
FACTORY 2 -U STORES, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
No. of Shares: 125,000 Date: January 6, 2003
This is to confirm that Factory 2-U Stores, Inc. ("Factory 2-U") has
granted Xxxxxx Xxxxxx ("you") a nonqualified stock option under Factory 2-U's
Second Amended and Restated 1997 Stock Option Plan (the "Plan") to purchase up
to 125,000 shares (the "Option Shares") of common stock, par value $0.01 per
share, of Factory 2-U, on the following principal terms:
1. When Option can be Exercised. Subject to your continued employment under
that certain Employment Agreement (the "Employment Agreement") between Factory
2-U and you of even date herewith, the Option will vest in increments with
respect to 7,812.50 shares (each, a "Tranche") on each December, March, June and
September 30 during the first four years of the Employment Term (as defined in
the Employment Agreement). The Option with respect to each such Tranche shall be
exercisable for a period of five years after the vesting of such Tranche. The
Option may also terminate as described in Paragraph 4 or as described in the
Plan. Under some circumstances described below or described in the Plan, the
Option will become exercisable in full, even before the date stated in the first
sentence to be the earliest date on which the Option may be exercised.
2. Exercise Price. The price which must be paid for Option Shares if the
Option is exercised will be $3.13 per share. However, that exercise price may be
adjusted as provided in the Plan to take account of certain types of corporate
actions, such as stock dividends, stock splits, share combinations,
recapitalizations or reorganizations. The exercise price must be paid by
certified check or by tendering shares of Factory 2-U common stock with a market
value on the day those shares are tendered (based on the last reported sale
price of Factory 2-U common stock on that day) equal to the exercise price.
3. How to Exercise the Option. To exercise the Option, you must give a
written notice of the exercise to Factory 2-U at its principal executive office,
to the attention of its Secretary, accompanied by payment of the exercise price
by certified check or by a tender of shares. A suggested form of notice of
exercise is attached to this Agreement. The Option will be deemed exercised when
Factory 2-U receives the notice of exercise accompanied by payment of the
exercise price in cash or by tender of shares. A certificate for the number of
shares as to which the Option is exercised will be sent to you as soon as
practicable after the day on which the Option is exercised. That certificate may
bear a legend stating that the shares represented by it have not been registered
under the Securities Act of 1933, as amended, and may be sold or transferred
only in a transaction which is registered under that Act or is exempt from the
registration requirements of that Act.
4. Termination under Some Circumstances. If you cease to be employed by
Factory 2-U or a subsidiary:
(a) if the reason your employment terminates is your death or total
disability, the Option will expire at the end of the 12 month period following
the day on which your employment terminates;
(b) if the reason your employment terminates is your retirement after you
reach the age of 65, your voluntary resignation with the consent of Factory 2-U
(which Factory 2-U will be under no obligation to give) or the termination of
your employment by Factory 2-U other than for Cause (as defined in the
Employment Agreement), the Option will expire at the end of the three month
period following the day on which your employment terminates; and
(c) if your employment terminates other than for a reason described in
subparagraph (a) or (b), the Option will expire on the day on which your
employment terminates.
5. Change of Control. In the event of a Change of Control, as defined in
the Employment Agreement, the Options shall immediately vest and become
exercisable.
6. Prohibition against Assignments. During your lifetime, the Option may be
exercised only by you, or by your guardian or legal representative, if you
become unable to act. After your death, the Option may be exercised by the
executor of your estate or your other personal representative, or by the persons
to whom the right to exercise the Option has passed under your will or through
the laws of descent and distribution. The Option may not be assigned, pledged or
hypothecated in any way, may not be subject to execution by a creditor or any
other person and may not be transferred other than by will or the laws of
descent and distribution. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of the Option which is not specifically
permitted by the Plan will be void.
7. Not a Stockholder. You will have no rights as a stockholder of Factory
2-U because of the Option until you exercise the Option and receive shares as a
result of the exercise.
8. No Guarantee of Employment. The fact that you have been granted an
Option will not give you any right to continue in the employ of Factory 2-U or a
subsidiary, and will not interfere with or restrict any right Factory 2-U or a
subsidiary may have to discharge you as an employee, or any right you have under
an employment contract or otherwise to continue to be employed by Factory 2-U or
a subsidiary.
9. Compliance with Securities Laws. Factory 2-U's obligation to issue
shares to you upon exercise of the Option is subject to the condition that the
issuance of the shares will be in compliance with the Securities Act of 1933, as
amended, and all other applicable laws and regulations, and that the stock you
will be purchasing by exercising the Option will be authorized for listing on
any securities exchange on which Factory 2-U's common stock may in the future be
listed.
10. Withholding of Taxes. If Factory 2-U is required to pay withholding tax
because of your exercise of the Option, you may direct Factory 2-U to (i)
withhold shares you purchase by exercising the Option or Restricted Shares
granted pursuant to your Employment Agreement that have vested as of such time,
(ii) require you to pay Factory 2-U a sum equal to the sum Factory 2-U must
withhold before Factory 2-U will issue stock to you as a result of your
exercising the Option or (iii) deduct the sum which must be withheld from one or
more installments of your compensation. If you fail to so direct Factory 2-U,
Factory 2-U may elect any such alternatives. If you make an election under
Section 83(b) of the Internal Revenue Code in connection with your exercise of
the Option, you must notify Factory 2-U of that fact.
11. Plan Controls. If there is any inconsistency between the terms of the
Plan and the terms of this Agreement, the terms of the Plan will control. The
Committee which administers the Plan will have authority to interpret the Plan
and this Agreement.
12. Stockholder Approval. Notwithstanding anything to the contrary herein,
in the event that an amendment to the Plan has not been approved by the
Company's stockholders at or before the Company's next annual meeting of
stockholders, the Option granted hereby shall for all purposes be deemed to be a
contractual nonqualified stock option with the same terms and conditions except
that it shall not be deemed granted under or subject to the Plan.
A-2
13. Amendments. The Board of Directors of Factory 2-U may at any time
modify or amend the Plan. However, no modification or amendment of the Plan will
affect your rights as the holder of this Option without your consent.
FACTORY 2-U STORES, INC.
By: /s/ Xxxxxxx X. Xxxxxx
Xxxxxxx X. Xxxxxx
Chairman & Chief Executive Officer
ACCEPTED:
/s/ Xxxxxx Xxxxxx
Xxxxxx Xxxxxx
A-3
NOTICE OF EXERCISE
Secretary
Factory 2-U Stores, Inc.
0000 Xxxxxx Xxxx
Xxx Xxxxx, XX 00000
Dear Sir or Madam:
This is to notify you that I am exercising the Option, dated January 6,
2003 granted to me under the Factory 2-U Stores, Inc. Second Amended and
Restated 1997 Stock Option with regard to __________ shares of Common Stock. The
exercise price specified in my Option Agreement is $3.13 per share.
In order to pay the exercise price, I:
enclose a certified check in the amount
enclose certificates representing shares of Factory 2-U common stock with a
fair market value on the date of this Notice (based upon the last reported sale
price of Factory 2-U common stock on the date of this Notice) equal to the
exercise price for all the shares as to which I am exercising this Option.
Dated: _______________ Very truly yours,
(Print Name)
(Signature)
(Social Security Number)
A-4
Exhibit B
FACTORY 2-U STORES, INC.
RESTRICTED STOCK AGREEMENT
January 6, 2003
Xxxxxx Xxxxxx
c/o Factory 2-U Stores, Inc.
0000 Xxxxxx Xxxx
Xxx Xxxxx, Xxxxxxxxxx 00000-0000
Dear Xxx:
This letter sets forth the terms and conditions of the shares of restricted
stock granted to you by Factory 2-U Stores, Inc. (the "Company"), in accordance
with the provisions of its Second Amended and Restated 1997 Stock Option Plan
(the "Plan"). You have been granted 125,000 restricted shares (the "Restricted
Shares") of the Company's Common Stock ("Common Stock"). Your Restricted Shares
are subject to the terms and conditions set forth in the Plan, any rules and
regulations adopted by the Compensation committee of the Board of Directors (the
"Committee") and this letter. Any terms used in this letter and not defined have
the meanings set forth in the Plan.
1. Vesting of Restricted Shares
(a) Unless they vest on an earlier date as provided in paragraphs 4 and 5
below, your Restricted Shares will vest in installments as follows, provided
that you are an employee of the Company or its subsidiaries on each such date:
41,666.7 Restricted Shares shall vest at such time as the closing market price
of the Common Stock equals or exceeds $10 per share for 20 consecutive trading
days in any three-month period; an additional 41,666.7 Restricted Shares shall
vest at such time as the closing market price of the Common Stock equals or
exceeds twenty dollars ($20) per share for 20 consecutive trading days in any
three-month period; and the final 41,666.7 Restricted Shares shall vest at such
time as the closing market price of the Common Stock equals or exceeds thirty
dollars ($30) per share for 20 consecutive trading days in any three-month
period. Your right to receive any Restricted Shares that have not so vested
prior to January 6, 2008 shall terminate and any such Restricted Shares shall be
retained by the Company. Notwithstanding the foregoing, you shall not be
entitled to sell any such vested Restricted Shares until the expiration of two
years from the date hereof (the "Holding Period").
(b) You must pay One Thousand Two Hundred Fifty Dollars ($1,250) to receive
the Restricted Shares granted to you by this letter.
2. Restrictions on the Restricted Shares
Until Restricted Shares have vested and the Holding Period has expired,
they may not be sold, transferred, assigned or pledged. Restricted Shares shall
be evidenced by stock certificates bearing appropriate legends referring to the
applicable terms, conditions and restrictions. Stock certificates representing
the Restricted Shares will be registered in your name as of the date hereof, but
such certificates will be held by the Company until the Restricted Shares vest
and the Holding Period has expired, and you shall deliver to the Company a stock
power, endorsed in blank, relating to the Restricted Shares. At such time as
Restricted Shares vest, and the expiration of the Holding Period with regard to
such vested shares, a certificate representing such shares (less any shares
retained by the Company to satisfy Executive's tax withholding obligations) will
be delivered to Executive as soon as practicable.
3. Dividends and Voting
From the date of this letter, you will receive, with respect to your
Restricted Shares, payments equal to the amount of dividends paid on Common
Stock. Such payments will be paid directly to you at the same time dividends are
paid with respect to all other shares of Common Stock. You will have the right
to vote your Restricted Shares.
4. Termination of Employment
(a) General. If your employment terminates for any reason, any of your
Restricted Shares which have not vested prior to your termination of employment
will be forfeited.
(b) Acceleration of Vesting. The Committee may, in its discretion, declare
all or any portion of your Restricted Shares immediately vested or otherwise
accelerate the vesting date of your Restricted Shares.
(c) Committee Determinations. The Committee shall have absolute discretion
to determine the date and circumstances of termination of your employment, and
its determination shall be final, conclusive and binding upon you.
5. Change of Control
Notwithstanding the provisions of paragraph 1, upon the occurrence of a
Change of Control (as defined in the Employment Agreement, dated as of January
6, 2003, between the Company and you), all of the Restricted Shares for which
the price hurdles have previously been achieved will vest immediately and any
contractual holding period shall be waived if you are an employee of the Company
or its subsidiaries at such time.
6. Income Tax Withholding
You must make arrangements satisfactory to the Company to satisfy any
applicable federal, state or local withholding tax liability arising with
respect to the Restricted Shares. You can either make a cash payment to the
Company of the required amount or, if you do not make a Section 83(b) election,
you can elect to satisfy your withholding obligation by having the Company
retain from your Restricted Shares Common Stock having a fair market value equal
to the amount of your withholding obligation. If you fail to satisfy your
withholding obligation in a time and manner satisfactory to the Company, the
Company shall have the right to withhold the required amount from your
Restricted Shares of Common Stock, salary or other amounts payable to you.
Any election to have shares withheld must be made on or before the vesting
date of your Restricted Shares. A copy of the withholding election form is
attached.
7. Adjustment in Certain Events
In the event of specified changes in the Company's capital structure, the
Committee is required to make appropriate adjustment in the number and kind of
shares authorized by the Plan, and the number and kind of shares covered by
outstanding awards. This letter will continue to apply to your awards as so
adjusted.
8. Effect on Other Benefits
Income recognized by you as a result of the grant or vesting of Restricted
Shares or the receipt of dividends on your Restricted Shares will not be
included in the formula for calculating benefits under the Company's other
benefit plans.
9. Stockholder Approval
Notwithstanding anything to the contrary herein, in the event that an
amendment to the Plan has not been approved by the Company's stockholders at or
before the Company's next annual meeting of stockholders, the Restricted Shares
granted hereby shall for all purposes be deemed to be contractually granted
Restricted Shares with the same terms and conditions except that they shall not
be deemed granted or subject to the Plan.
* * * * *
B-2
If you have any questions regarding your grant of Restricted Shares or
would like to obtain additional information about the Plan or its
administration, please contact the Company's Secretary, Factory 2-U Stores,
Inc., 0000 Xxxxxx Xxxx, Xxx Xxxxx, XX 00000-0000, (telephone (000) 000-0000).
This letter contains the formal terms and conditions of your award and
accordingly should be retained in your files for future reference.
Very truly yours,
FACTORY 2-U STORES, INC.
/s/ Xxxxxxx X. Xxxxxx
Xxxxxxx X. Xxxxxx
Chairman & Chief Executive Officer
ACCEPTED:
/s/ Xxxxxx Xxxxxx
Xxxxxx Xxxxxx
B-3
WITHHOLDING ELECTION
RESTRICTED SHARES
GRANTED ON JANUARY 6, 2003
Instructions
1. You can use this election form if you would like to have some of your
Restricted Shares retained by the Company when they vest and used to satisfy
your tax withholding obligations. If you do not file this election with the
Company's Secretary on or before the date your Restricted Shares vest, you must
pay the Company the amount of your federal, state and local tax withholding
obligation with respect to such Restricted Shares by cash or check at the time
you recognize income with respect to such shares, or you must make other
arrangements with the Company to satisfy this obligation.
2. DO NOT FILE THIS FORM IF YOU HAVE MADE AN ELECTION WITH RESPECT TO THESE
SHARES UNDER SECTION 83(b) OF THE INTERNAL REVENUE CODE.
3. If you would like to have some of your shares used to satisfy tax
withholding obligations, you should file this Withholding Election on or before
the date your Restricted Shares vest.
4. You may amend this election at any time by filing a subsequently dated
Withholding Election form with the Company's Secretary. Copies of this form may
be obtained from the Company's Secretary.
5. Please call the Company's Secretary if you have questions about this
Withholding Election form.
B-4
WITHHOLDING ELECTION
RESTRICTED SHARES GRANTED ON JANUARY 6, 2003
I hereby elect to have Factory 2-U Stores, Inc. retain a number of shares
of Common Stock from the award granted to me under the Second Amended and
Restated 1997 Stock Option Plan equal to the number of shares necessary to
satisfy the Company's federal, state and local tax withholding obligation with
respect to the vesting of such Shares.
Signature
Name (Print or Type)
Date
B-5
