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EXHIBIT 10.40
SEVERANCE, CONSULTING AND NONCOMPETE AGREEMENT
THIS SEVERANCE, CONSULTING AND NONCOMPETE AGREEMENT (the "Agreement")
is entered into as of July 12, 1999 among Claremont Restaurant Group, LLC, a
North Carolina limited liability company ("Claremont"), Fresh Foods, Inc., a
North Carolina corporation and the sole member and manager of Claremont ("Fresh
Foods"), HERTH Management, Inc., a North Carolina corporation ("HERTH"), and
Xxxxxxx X. Xxxxxx (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive is a director and an executive employee of Fresh
Foods, having provided management services to Fresh Foods and Claremont through
HERTH, thereby acquiring an intimate knowledge of the business and affairs of
Fresh Foods and Claremont; and
WHEREAS, the Executive and Fresh Foods entered into a certain
Non-Competition and Confidentiality Agreement dated July 19, 1997 (the
"Non-Competition and Confidentiality Agreement"); and
WHEREAS, the Executive and Fresh Foods entered into a certain Change in
Control Agreement dated as of August 29, 1997 (the "Change in Control
Agreement"); and
WHEREAS, the Executive and Fresh Foods desire to terminate the
Non-Competition and Confidentiality Agreement and to set forth their agreement
with respect to such termination; and
WHEREAS, the Executive and Fresh Foods desire to terminate the Change
in Control Agreement and to set forth their agreement with respect to such
termination; and
WHEREAS, Claremont desires to engage the services of the Executive,
through HERTH, as a consultant in the event of a sale or other disposition of
Claremont by Fresh Foods and the Executive desires to be so engaged upon the
terms and conditions provided herein; and
WHEREAS, the Executive, HERTH and Claremont desire to set forth their
agreement with respect to certain noncompete obligations of the Executive; and
WHEREAS, Fresh Foods desires to provide incentives for the Executive to
remain with HERTH (to provide management services to Claremont) in the event of
a sale or other disposition of Claremont by Fresh Foods and to assist in the
planning and execution of such sale or other disposition;
NOW, THEREFORE, in consideration of the covenants contained herein,
together with other valuable consideration, the receipt and legal sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
1. CHANGE IN CONTROL AGREEMENT TERMINATED. The parties agree that the
Change in Control Agreement shall terminate in its entirety, immediately prior
to the Effective Date (as
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defined in Section 3), without liability on the part of any party as a
consequence thereof. Without limiting the generality of the following, neither
Fresh Foods nor Claremont shall have any liability to the Executive, upon the
sale of Claremont or Fresh Foods (or otherwise), pursuant to the Change in
Control Agreement.
2. NON-COMPETITION AND CONFIDENTIALITY AGREEMENT TERMINATED. The
parties agree that the Non-Competition and Confidentiality Agreement shall
terminate in its entirety, immediately prior to the Effective Date, without
liability on the part of any party as a consequence thereof.
3. CONSULTING SERVICES. Claremont agrees to engage the Executive,
through HERTH, as a consultant as of the Effective Date, and the Executive
hereby accepts such engagement, in each case upon the terms and conditions set
forth in this Agreement. Throughout the term of this Agreement, the Executive
shall report to the President of Claremont (or, if none exists, then the
Manager(s) of Claremont) and shall perform such Consulting Services (as defined
in Section 4) as the President or such Manager(s), as the case may be (the
"Superior Officer"), may reasonably request. As used in this Agreement, the term
"Effective Date" shall mean the date of consummation of the sale or other
disposition by Fresh Foods of all of the issued and outstanding membership
interests in Claremont.
4. DUTIES. The Executive shall, to the extent reasonably requested by
the Superior Officer, at reasonable times and places (a) consult with and advise
Claremont on the management of Claremont's restaurant operation and franchising
business and (b) market and promote Claremont's restaurant operation and
franchising business in the southeastern United States (collectively,
"Consulting Services"). The Executive need not devote more than twenty hours per
calendar week or 500 hours per calendar year to Consulting Services. Except as
otherwise provided in this Agreement, the Executive is not entitled to payment
of any fee or other compensation for his Consulting Services, but Claremont
shall reimburse him for the reasonable out-of-pocket expenses that he incurs
while performing Consulting Services upon presentation of receipts or other
documentation in reasonable detail.
5. INDEPENDENT CONTRACTOR. Claremont, HERTH and the Executive hereby
agree that the Executive is an independent contractor, solely responsible for
the manner and form in which he performs Consulting Services. Nothing contained
herein shall be construed as creating an employer/employee, master/servant,
principal/agent, partnership, joint venture or other similar kind of
relationship. The Executive agrees that he will not take any action on behalf of
Claremont without specific instructions from, and the prior approval of, the
Superior Officer and that he does not have any right or power in any manner to
bind or commit Claremont to any contract or other obligation with any individual
or entity except upon the specific prior written approval of the Superior
Officer.
6. TERM. This Agreement shall terminate five years from the Effective
Date, unless it is terminated earlier as provided elsewhere in this Section.
Claremont may, by written notice to each of the Executive and HERTH, terminate
this Agreement at any earlier date, it being understood that no termination of
this Agreement shall affect (1) the Executive's obligations under Sections 8 and
9 of this Agreement, which shall remain in full force and effect, or (2)
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Fresh Foods' obligations under Section 7. This Agreement shall in any event
terminate upon the death of the Executive.
7. COMPENSATION. Fresh Foods shall pay to HERTH, for the benefit of the
Executive, as a lump sum payment, an amount equal to the sum of
(a) $750,000 plus
(b) an amount equal to the aggregate of any and all federal,
state and local income tax and excise tax liabilities of the Executive
resulting from the payments due pursuant to clauses (a) and (b) hereof;
provided, however, that, if Fresh Foods determines that the total of
all payments to HERTH for the benefit of the Executive under this
Agreement after reduction for any and all federal, state and local
income tax and excise tax liabilities of the Executive resulting
therefrom (the "After-Tax Payments") would be increased by the
limitation or elimination of any payment under this Section 7, then
amounts payable under this Section 7 shall be reduced to the extent,
and only to the extent, determined necessary by Fresh Foods to maximize
the After-Tax Payments; and provided further that Fresh Foods shall
withhold from all payments to be made to HERTH for the benefit of the
Executive pursuant to this Agreement all taxes that, by applicable
federal, state or local law, Fresh Foods determines that it is required
to withhold.
Each payment required to be made to HERTH for the benefit of the Executive
pursuant to the foregoing provisions of this Section 7 shall be made by bank
check or other good funds on the Effective Date. The compensation payable
pursuant to this Section 7 is allocated as set forth on EXHIBIT A hereto among:
(i) consideration for the Executive's consulting obligations, (ii) consideration
for the Executive's noncompete obligations, (iii) a transaction success bonus
and (iv) severance.
8. COVENANT NOT TO DISCLOSE CONFIDENTIAL INFORMATION. During the
Executive's prior positions with Claremont and Fresh Foods and during the term
of this Agreement, the Executive has and will become acquainted with
confidential information of Claremont, Fresh Foods and their affiliates,
including, but not limited to, customer files, customer lists, special customer
matters, sales methods and techniques, merchandising concepts and plans,
business plans, sources of supply and vendors, special business relationships
with vendors, agents and brokers, promotional materials and information,
financial matters, mergers, acquisitions, personnel matters and confidential
processes, designs, formulas, ideas, plans, devices and materials and other
similar matters that are kept confidential (any and all such information being
referred to herein as "Confidential Information"). The use of Confidential
Information against Claremont or Fresh Foods would seriously damage its
business. Accordingly, the Executive agrees that:
(a) He shall not, directly or indirectly, use, divulge,
publish or otherwise reveal or allow to be revealed any Confidential
Information to any individual or entity except with the prior, express
and written consent of either Claremont or Fresh Foods, as applicable,
or as required by law;
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(b) He shall refrain from any action or conduct that might
reasonably or foreseeably be expected to compromise the confidentiality
or proprietary nature of any Confidential Information; and
(c) He shall have no right to apply for, or to obtain any
patent, copyright or other form of intellectual property protection
regarding, any Confidential Information.
9. COVENANT NOT TO COMPETE.
(a) COVENANT. The Executive hereby stipulates, covenants and
agrees that, during the Restrictive Period (as defined below), he shall
not, directly or indirectly, other than on behalf of Claremont, without
Claremont's prior, express and written consent:
(i) Engage in Competition (as defined below) with
Claremont or any of its successors or assigns; or
(ii) Employ or solicit the employment of any
individual who is, or has been, at any time during the
Restrictive Period or during the twelve complete calendar
months immediately preceding the Effective Date, an employee
of Claremont.
(b) DEFINITIONS. As used in this Section, the following terms
shall have the following meanings:
(i) "Business" shall mean the business conducted by
Claremont at the Effective Date, including the business of
restaurant operation and restaurant franchising, but excluding
the business conducted or proposed to be conducted by
Fairgrove Restaurants, LLC or any other entity in which the
Executive has an equity interest at the Effective Date.
(ii) "Competition" shall mean:
(1) Engaging in the Business within the
Territory;
(2) Assisting any individual or entity,
whether in a financial, managerial, employment,
advisory or other material capacity, to engage in the
Business within the Territory; provided, however,
that nothing herein shall preclude the Executive,
directly or indirectly, from leasing restaurant
property to a tenant as a bona fide lessor; or
(3) Owning any interest in, or organizing an
entity that engages in, the Business within the
Territory; provided, however, that nothing herein
shall preclude the Executive, directly or indirectly,
from holding not more than one percent of the
outstanding shares of common stock of any company
whose shares of common stock are listed on a national
securities exchange or authorized for quotation by
NASDAQ.
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(iii) "Restrictive Period" shall mean the five-year
period beginning on the Effective Date.
(iv) "Territory" shall mean the 25-mile radius from
(A) any restaurant owned or franchised directly or indirectly
by Claremont or (B) any other site used directly or indirectly
by Claremont, to the extent that the business of the
restaurant or site was assisted by the Executive during the
term of his service to Fresh Foods or Claremont.
10. COVENANT TO USE BEST EFFORTS TO CONSUMMATE TRANSACTION. The
Executive hereby covenants and agrees that he will not resign his position with
HERTH without the consent of Fresh Foods until the consummation of a sale or
other disposition of Claremont by Fresh Foods. The Executive further covenants
and agrees to use his best efforts to consummate any such sale or disposition
recommended or approved by Fresh Foods.
11. ENFORCEMENT. In the event of any breach of this Agreement,
Claremont, Fresh Foods and their successors and assigns shall be entitled to any
and all of the following remedies in addition to such other remedies as they may
have in equity or at law,:
(a) In that a breach or anticipatory breach by the Executive
of Section 8 or 9 of this Agreement will cause irreparable damage to
Claremont or Fresh Foods, Claremont or Fresh Foods, as applicable,
shall be entitled to an injunction restraining the Executive from
attempting to violate, violating or continuing a violation of Section 8
or 9 of this Agreement. The existence of any claim or cause of action
on the part of the Executive against Claremont, Fresh Foods or their
successors or assigns, whether arising from this Agreement or
otherwise, shall in no way constitute a defense to the enforcement of
Sections 8 and 9.
(b) The Restrictive Period shall be extended by any time
period during which the Executive is in violation of this Agreement.
12. ACKNOWLEDGEMENT OF ADEQUATE CONSIDERATION. The parties stipulate
and agree that the payments and other benefits owed to HERTH for the benefit of
the Executive by Fresh Foods under this Agreement and the performance of Fresh
Foods' obligations hereunder constitute sufficient consideration to support
enforcement of the covenants of this Agreement.
13. ACKNOWLEDGEMENT OF REASONABLENESS. The Executive has carefully read
and considered the provisions of this Agreement in consultation with attorneys
of his choice and agrees that the restrictions set forth herein are fair and
reasonably required for Claremont's protection. In the event that any provision
relating to the Restrictive Period or the Territory (or both) shall be declared
by a court of competent jurisdiction to exceed the maximum time period or
geographical area such court deems reasonable and enforceable under applicable
law, the time period or area of restriction considered reasonable and
enforceable by the court shall thereafter be the applicable Restrictive Period
or Territory under this Agreement.
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14. ATTORNEYS' FEES. Should it become necessary for Claremont or Fresh
Foods to institute legal proceedings as a result of a breach of any terms or
covenants contained in this Agreement, Claremont or Fresh Foods, as applicable,
shall, if it is the prevailing party in such litigation, be entitled to have and
recover from the non-prevailing party reasonable attorneys' fees plus court
costs in addition to any and all relief otherwise available to it, either at law
or in equity. Should it become necessary for the Executive or HERTH to institute
legal proceedings as a result of a breach of any terms or covenants contained in
this Agreement, the Executive or HERTH, as applicable, shall, if he or it is the
prevailing party in such litigation, be entitled to have and recover from the
non-prevailing party reasonable attorneys' fees plus court costs in addition to
any and all relief otherwise available to him, either at law or in equity.
15. SEVERABILITY. The illegality, unenforceability or invalidity of any
one or more covenants, phrases, clauses, sentences or paragraphs of this
Agreement, as determined by a court of competent jurisdiction, shall not affect
the remaining portions of this Agreement, or any part thereof; and, in case of
any such illegality, unenforceability or invalidity, this Agreement shall be
construed as if such covenants, phrases, clauses, sentences or paragraphs, to
the extent and only to the extent determined to be illegal, unenforceable or
invalid, had not been inserted.
16. WAIVER OF BREACH. The waiver by either party of any breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach of any provision of this Agreement.
17. ENTIRE AGREEMENT; NO EFFECT ON OPTIONS. This Agreement sets forth
the entire understanding between the parties relating to the subject matter
hereof and supersedes all previous and contemporaneous understandings or
agreements, written and oral. This Agreement may be modified only by an
agreement in writing, signed by all parties, purporting to modify it. This
Agreement shall not be construed as having any effect on the rights of the
Executive under the stock option agreements and related stock option plans that
govern stock options that have been granted by Fresh Foods to the Executive and
may be held by the Executive at the Effective Date.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina without regard to the
principles of conflict of laws thereof.
19. NOTICES. Any notice that may be given hereunder shall be in writing
and shall be deemed to have been given on the earlier to occur of (a) actual
receipt or (b) the second business day after the same shall have been mailed by
certified mail, postage prepaid, return receipt requested, to the parties at the
addresses listed below:
If to Claremont: Claremont Restaurant Group, LLC
X.X. Xxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxx
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If to Fresh Foods: Fresh Foods, Inc.
X.X. Xxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxx
If to HERTH: HERTH Management, Inc.
X.X. Xxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxxxxx, Xx.
If to the Executive: Xxxxxxx X. Xxxxxx
0000 Xxxxxxx 000 Xxxx
Xxxxxx, XX 00000
or, in any case, to such other address as the party to whom or to which such
notice is to be given shall have specified by notice given to the other parties.
20. SUCCESSORS, HEIRS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, their successors, heirs and
assigns.
21. DIRECTOR. Nothing in this Agreement shall affect the Executive's
position as Chairman of the Board of Directors of Fresh Foods.
22. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall constitute an original and all of which, taken together, shall
constitute one and the same Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CLAREMONT RESTAURANT GROUP, LLC
By: FRESH FOODS, INC.,
Its Sole Member and Manager
By: /s/ Xxxxx X. Xxxxx
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Xxxxx X. Xxxxx
President
FRESH FOODS, INC.
By: /s/ Xxxxx X. Xxxxx
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Xxxxx X. Xxxxx
President
HERTH MANAGEMENT, INC.
By: /s/ Xxxxx X. Xxxxxxxxxx, Xx.
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Xxxxx X. Xxxxxxxxxx, Xx.
President
THE EXECUTIVE:
/s/ Xxxxxxx X. Xxxxxx (SEAL)
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Xxxxxxx X. Xxxxxx
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EXHIBIT A
Percentage of Total Payments
Pursuant to Sections
Allocation Category Dollar Amount 7(a) and 7(b) of this Agreement
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Consulting $ 94,615 13%
Noncompete 567,690 76%
Transaction Success Bonus 66,351 9%
Severance 21,343 3%
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TOTAL $ 750,000 100%
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