CONFIDENTIAL
MANAGEMENT SUCCESSION AND SEPARATION AGREEMENT
This Management Succession and Separation Agreement ("Agreement") is made
as of February 26, 1998, by and between Xxxxxxxx X. Xxxx (the "Executive")
and Xxxxx'x Fashions Corporation (the "Company").
WHEREAS, the Executive is currently Chief Executive Officer, Chairman of
the Board and a director of the Company, and
WHEREAS, the Executive and the Company, through its wholly owned
subsidiary, Xxxxxx Fashions, Inc., are parties to an Executive Employment
Agreement dated as of December 19, 1991 ("Employment Agreement"), and
WHEREAS, the Company, with the cooperation of the Executive, is preparing
for an orderly management succession plan, and
WHEREAS, in furtherance of the succession plan, the Company has agreed,
among other things, to pay the Executive for his services during a transitional
period to assist in the succession strategy and for the full and complete
satisfaction of all of the Company's obligations under the Employment
Agreement.
NOW THEREFORE, the parties hereto agree and promise as follows:
1. The Executive shall serve as the Company's Chairman for an eighteen
month (18) month period (the "Initial Period") commencing on the date of this
Agreement and ending on August 31, 1999. During the Initial Period, the
Executive shall continue to serve as the Company's Chairman for one (1) month at
his current salary and for seventeen (17) months at an annual salary of
$175,000, payable at those intervals that the Executive is currently paid and
continue to report to the Board of Directors. The Executive is expected to
devote his services on a full time basis for the initial six (6) months of the
Interim Period except for customary vacation as currently provided to the
Executive. During the balance of the Initial Period, the Executive shall devote
such time to the Company's business and affairs as may be required by the Board
of Directors; provided, however, the parties acknowledge that the Executive will
spend less time and effort on the daily management of the business and affairs
of the Company and more on assisting the Board of Directors with strategic
planning. Accordingly, it is understood that during the last twelve (12) months
of the Initial Period, the Executive will be entitled to increased vacation time
to be mutually agreed by the parties.
2. After the Initial Period, the Executive shall serve, on a part-time
basis, as an employee of the Company for an additional twenty-four (24) month
period (the "Second Period," and together
with the Initial Period, the "Interim Period") ending on August 31, 2001 (the
"Separation Date"). During the Second Period, the Executive shall receive an
annual salary of $100,000, payable at those intervals that the Executive is
currently paid and continue to report to the Board of Directors. The
Executive shall devote such time to the Company's business and affairs during
the Second Period as may be requested from time to time by the Board of
Directors. The Executive may perform the foregoing services during the Second
Period at locations other than the Company's headquarters and as may be
determined by the Executive provided that the Executive inform the Board of
Directors in advance of such location(s).
3. During the Initial Period, the Executive shall be considered an
employee and shall be eligible for such fringe benefits as the Executive
currently receives, including but not limited to, a car allowance of $1000 per
month, life insurance and medical and disability benefits. During the Second
Period, the Executive shall be eligible for a continuation of life insurance and
medical and disability benefits but shall not receive a car allowance. The
Executive shall be eligible to receive a bonus in accordance with the Company's
fiscal 1998 Bonus Plan but it is the intention of the Board of Directors that
the Executive shall thereafter not be eligible for any bonuses under the
Company's bonus or incentive plans, now existing or hereafter established, nor
be eligible for any stock option grants under the Company's 1997 Stock Option
Plan. Any accounting costs which the Company may incur as a result of any
management succession or separation agreements for the fiscal year ending
February 28, 1998 shall be considered extraordinary nonrecurring costs and
excluded from the calculation required for computing bonuses to the Executive
under the fiscal 1998 Bonus Plan.
4. In further consideration for the full and complete discharge of all of
the Company's obligations to the Executive under the Employment Agreement, the
Company agrees to the following:
(a) All of the Executive's unvested stock options to acquire common
stock of the Company granted to the Executive on June 24, 1996 under the
Company's 1987 Stock Option Plan (73,000 options in the aggregate) as well
as his unvested stock option to acquire 10,000 shares of common stock
granted to Executive on July 17, 1997 at an exercise price of $8.75 per
share shall vest on the date of this Agreement and the Executive shall have
three (3) months from the end of the Initial Period such date in which to
exercise such stock options; after which time such stock options, together
with the option to acquire 14,600 shares which have previously vested (the
97,600 collective options are hereafter referred to as the "Shares"), shall
terminate.
(b) At such time as the Executive exercises the options in paragraph
4(a), the Company shall provide the Executive with a loan in the principal
amount of up to $200,000 (the "Note"), the proceeds of which are to be used
to assist the Executive in paying the exercise price for the Shares under
paragraph 4(a). Providing the Executive with the Note is subject to, and
contingent upon, approval from the Company's lender. The Note shall have a
term of three years and bear interest at a rate of 7% per annum, payable
semiannually in arrears. The Note shall contain a mandatory prepayment
provision which provides that if the Executive sells any of the Shares
during the term of the Note, thirty-five percent (35%) of the
2
gross proceeds from such sale, net of commissions, shall be applied to the
then outstanding obligations under the Note.
(c) The Executive shall receive the fringe benefits described in
paragraph 3 above.
(d) After the Separation Date, the Executive and Executive's spouse
shall be entitled to continue to be covered by the Company's group health
insurance coverage subject to the terms of such policy as presently
maintained, or as maintained in the future, as a member of the group, the
cost of which shall be paid by the Executive or the Executive's spouse,
which coverage shall be continued until eligibility for Medicare exists for
the Executive and the Executive's spouse.
(e) At the end of twelve months from the Separation Date, the Company
shall assign the Executive's $500,000 life insurance policy at no cost to
the Executive. Any cash surrender value which accrues under such policy
shall be for the benefit of the Executive.
5. In consideration for the payments and benefits provided to the
Executive in paragraphs 1 through 4 above, the Executive acknowledges that the
Company has fulfilled its obligations in full under the Employment Agreement.
The Executive further agrees to formally resign and relinquish his
position as Chief Executive Officer of the Company and Xxxxx'x Fashions, Inc. as
of the date of this Agreement and as Chairman of the Company as of the end of
the Initial Period. The parties shall mutually prepare and approve the press
releases announcing the foregoing resignations.
6. The Executive shall not disclose the terms of this Agreement to anyone
other than his immediate family and any accounting and legal advisors solely for
the purposes of obtaining advice about the agreements with the Company
hereunder.
7. Upon execution of this Agreement by both parties, the Executive and
his successors and assigns and the Company and its directors, officers,
employees, agents and insurers and their respective successors and assigns,
covenant not to xxx each other and release and forever discharge each other from
any and all causes of action, claims, suits and demands, whether known or
unknown, for or by reason of any transaction, cause, matter or thing whatsoever
up to the date hereof, including but not limited to, all claims of breach of
contract, wrongful discharge and promissory estoppel, all claims for payment of
deferred compensation, and all claims of discrimination based on religion,
national origin, age (including the Age Discrimination in Employment Act of
1976, 29 U.S.C. Section 621), disability, sexual preference, marital status and
retaliation and all claims based upon any federal, state or municipal statute or
ordinance relating to discrimination in employment. The foregoing release and
covenant not to xxx is not intended to release either party from its obligations
under this Agreement and either party may have a cause of action against the
other for any breach of this Agreement.
3
8. The Executive shall have fifteen (15) calendar days from the date of
this Agreement to rescind this Agreement in its entirety. If the Executive
wishes to rescind this Agreement, he must do so in writing and must deliver a
Notice of Rescission, if by hand, within fifteen (15) calendar days after the
Agreement is executed or, if mailed, by having the Notice of Rescission
postmarked within fifteen (15) calendar days after the Agreement is executed and
sent by certified mail, return receipt requested. Notice of Rescission must be
sent to Xxxxx'x Fashions Corporation, 0000 Xxxxxx Xxxx Xxxxx, Xxxxxxxx,
Xxxxxxxxx 00000, attention: Xxxxxxx Xxxxxx.
9. The Executive also acknowledges that he has at least twenty-one (21)
days in which to consider whether to enter into this Agreement, although he is
free to execute this Agreement at any time before the twenty-one (21) day period
has expired.
10. Both parties have read the terms and provisions of this Agreement and
understand them.
11. This Agreement shall inure to the benefit of the Executive, his heirs,
administrators, representatives, executors, successors and assigns.
12. This Agreement supersedes and replaces the Employment Agreement which
hereafter has no further force or effect; provided, however, the Executive and
the Company acknowledge and agree that paragraphs 21 and 22 of the Employment
Agreement with respect to noncompetition and confidentiality, respectively,
shall survive and are hereby incorporated in their entirety into this Agreement.
13. This Agreement constitutes the entire agreement between the parties
regarding the subject matter hereof and 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;
No provision of this Agreement may be modified, waived or discharged unless such
waiver, modification or discharge is agreed to in writing and signed by the
parties. Failure by either party to enforce any provision of this Agreement
shall not constitute a waiver of such party's rights to subsequently enforce
such provision or any other provision of this Agreement, unless such rights are
waived in writing. No waiver by either party hereto at any time of any breach
by the other party to this Agreement or of any condition or provision of this
Agreement, shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or similar time. In the event of any
conflict between this Agreement and any other agreement entered into by and
between the Company and the Executive, this Agreement shall control. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Minnesota.
4
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
in duplicate originals as of the date first stated above.
/s/ Xxxxxxxx X. Xxxx
-----------------------------------
Xxxxxxxx X. Xxxx
XXXXX'X FASHIONS CORPORATION
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------------
Its: President and CEO
-------------------------
5
