EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of May 5, 2004
between Xxxxx X. Xxxxxx ("Executive") and Hanover Direct, Inc., a Delaware
corporation (the "Company").
1. Provision of Services. Executive shall serve as the Company's
President and Chief Executive Officer (the "President/CEO") and as a
member of the Company's Board of Directors (the "Board of Directors").
2. Responsibilities. Executive shall act and serve during the term
of this Agreement as the President and Chief Executive Officer of the
Company and shall report to the Board of Directors. Executive's employment
responsibilities will include those normally held by the president and
chief executive officer of a corporation of a similar size and nature to
the Company. Executive shall devote his full-time efforts in connection
with his role as President and Chief Executive Officer and member of the
Board of Directors.
3. Term. Subject to Section 6 of this Agreement, the term of this
Agreement (the "Agreement Term") and the term for the services of
Executive hereunder shall commence as of May 5, 2004 and shall terminate
on May 5, 2006.
4. Compensation. As consideration for Executive's performance of
services hereunder as the President/CEO, the following compensation shall
be payable pursuant to this Agreement:
(a) Executive shall receive base compensation at the rate of
$600,000 per annum (the "Base Compensation"), payable in
accordance with the Company's normal payroll policies.
(b) The Company shall provide Executive with the employee benefits
it provides to its other senior executives, including but not
limited to 4 weeks of paid vacation per year, and Executive
shall also be entitled to participate in such bonus plans with
such targets as the Compensation Committee of the Board of
Directors may approve in its sole discretion determined in a
manner consistent with bonus opportunities afforded to other
senior executives under such plans.
(c) The Company shall reimburse Executive for his reasonable
out-of-pocket expenses in performing services for the Company
as President/CEO (such as travel, meals, communications and
lodging) which are incurred during the Agreement Term on
Company business. Executive shall submit invoices and
documentation for such reimbursable expenses on a monthly
basis, and the Company shall process payment of the same
promptly and in accordance with its customary procedures. In
addition, the Company shall reimburse Executive for up to
$12,500 of attorneys' fees incurred by
him in connection with legal advice relating to, and the
negotiation of, this Agreement.
5. Stock Options. Subject to shareholder approval of a one for ten
reverse stock split of the Company's Common Stock, the Company shall grant
Executive 2 stock options (the "Executive Options") to purchase an
aggregate of 2,000,000 prereverse split shares of the Company's Common
Stock ("Shares"), each with an exercise price of $0.195 per Share. The
Executive Options shall be comprised of 2 stock options - (i) an option
for 1,000,000 Shares under the Company's 2000 Management Stock Option
Plan, and (ii) an additional option for an additional 1,000,000 Shares,
which option shall not be granted under a Company plan. The Executive
Options shall be exercisable for 10 years and shall be subject to the
terms and conditions set forth in the respective Stock Option Agreements
annexed hereto.
The Executive Options shall vest over a 2-year period. Upon the
execution of this Agreement, the Executive Options shall be one-third
vested. Thereafter, the remaining unvested portion of the Executive
Options shall vest at the rate of 50% per year; provided that the
Executive Options shall vest in their entirety and become fully
exercisable upon the earliest to occur of: (i) Executive's resignation
"For Good Reason" (as defined below), (ii) the Company's termination of
Executive's services hereunder, other than "For Cause" (as defined below),
or (iii) a "Change of Control" (as defined below) of the Company. To the
extent the Executive Options vest and become exercisable pursuant to this
Section 5, they shall remain exercisable (x) for the Executive Option
granted under the Company's 2000 Management Stock Option Plan, for the 90
day period immediately following the date of the applicable resignation,
termination or Change of Control, and (y) for the Executive Option not
granted under a Company plan, for the 180 day period immediately following
the date of the applicable resignation, termination or Change of Control.
Any unvested portion of the Executive Options on the date of Executive's
resignation or termination, as applicable, shall be forfeited. In the
event of vesting of the Executive Options on account of a Change of
Control, the Company shall use its reasonable best efforts to ensure that
such vesting shall take place sufficiently in advance of the Change of
Control (but subject to its occurrence) to permit Executive to take all
steps reasonably necessary to exercise the Executive Options and to take
such action with respect to the Shares purchased under the Executive
Options so that those Shares may be treated in the same manner in
connection with the Change of Control transaction as the Shares of other
Company shareholders.
To the extent not already covered by a registration statement on
Form S-8 relating to the Company's 2000 Management Stock Option Plan, all
Shares underlying the Executive Options shall be registered by the Company
utilizing a Registration Statement on Form S-8 (or other similar form)
prior to December 31, 2004.
5A. Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:
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(a) "For Good Reason" shall mean the voluntary resignation by
Executive of his employment with the Company on account of any
of the following actions: (i) a substantial and material
diminution of Executive's duties or responsibilities for the
Company; provided, that if, following a Change in Control (as
defined below) Executive is appointed to a position as
President, Chief Executive Officer or Chief Operating Officer
of the Company or its successor, or a subsidiary or affiliate
of the Company or its successor, in each case reporting to the
Chief Executive Officer of the Company or its successor, such
appointment shall not be deemed a substantial and material
diminution of his duties or responsibilities, (ii) any
reduction of Executive's base salary (as in effect as of the
first day of the Agreement Term), or (iii) the Company's (or a
successor to the Company pursuant to a Change of Control)
requiring Executive to regularly report to work at a facility
that is more than 30 miles from Edgewater, New Jersey;
provided, however, that in all cases, in order to terminate
his employment with the Company For Good Reason, Executive
must notify the Company in writing that Good Reason exists
within 30 business days ("Business Days") of his knowledge of
the event or events constituting Good Reason. The Company
shall thereafter have 15 Business Days within which to cure
Executive's otherwise Good Reason (the "Good Reason Cure
Period"). Unless Executive's Good Reason is cured during the
Good Reason Cure Period, his resignation For Good Reason shall
become effective on the first Business Day following the
conclusion of the Good Reason Cure Period.
(b) "For Cause" shall mean the involuntary termination by the
Company of Executive's employment with the Company on account
of his (i) material breach of any of the material terms of the
Agreement, (ii) willful and continued failure to perform his
regular duties for the Company, (iii) commission of an act of
fraud relating to and adversely affecting the Company, (iv)
conviction of, or a plea of guilty or nolo contendere to, a
felony, or (v) gross negligence in the performance of his
duties which adversely affects the Company. Notwithstanding
the foregoing, Executive shall not be terminated For Cause
without (A) delivery of a written notice to Executive setting
forth the reasons for the Company's intention to terminate
Executive's employment hereunder For Cause; (B) the failure of
Executive to cure the nonperformance, violation or misconduct
described in the notice referred to in clause (A) of this
paragraph, if cure thereof is possible, to the reasonable
satisfaction of the Board of Directors, within 15 Business
Days of Executive's receipt of such notice (the "For Cause
Cure Period"); and (C) an opportunity for Executive, together
with Executive's counsel, to be heard before the Board of
Directors.
(c) "Change of Control" shall mean the first to occur of any of
the events described in clauses (i) through (iii) below,
following the first day of the Agreement Term:
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(i) When any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended) (a "Person")
becomes, through an acquisition, the beneficial owner of shares of the
Company having more than 50% of the total number of votes that may be cast
for the election of directors of the Company (the "Voting Shares");
provided, however, that the following acquisitions shall not constitute a
Change of Control:
(A) if a Person owns less than 50% of the voting power of the
Company and that Person's ownership increases above 50% solely by
virtue of an acquisition of stock by the Company, then no Change of
Control shall have occurred, unless and until that Person
subsequently acquires one or more additional shares representing
voting power of the Company; or
(B) any acquisition by a Person who as of the first day of the
Agreement Term owned at least 33% of the Voting Shares.
(ii) (A) Notwithstanding the foregoing, a Change of Control will be
deemed to occur upon the closing of any of the following (each, a
"Transaction"):
(I) any reorganization, merger, consolidation or other
business combination of the Company;
(II) any sale or any series of sales occurring on or
after the date of this Agreement, involving all or
substantially all of the Company's assets; or
(III) a complete liquidation or dissolution of the
Company.
(B) Notwithstanding clause (ii)(A) above, neither of the
following types of Transactions will be deemed to give rise to a
Change of Control:
(I) a Transaction involving only the Company and one or
more of its subsidiaries; or
(II) a Transaction (other than as described in clause
(ii)(A)(II) of this definition) immediately following which
the shareholders of the Company immediately prior to the
Transaction continue to have a majority of the voting power in
the resulting entity.
(iii) When, within any 24 month period commencing on or after the
first day of the Agreement Term, persons who were directors of the Company
(each, a "Director") immediately before the beginning of such period (the
"Incumbent Directors") shall cease (for any reason other than death or
disability) to constitute at least a majority of the Board of Directors or
the board of directors of any successor to the Company. For purposes of
this clause (iii), any Director who was not a Director as of the first day
of the Agreement Term shall be deemed to be an Incumbent Director if such
Director was elected to the Board of Directors by, or on the
recommendation of, or with the approval of, at least a majority of the
members of the Board of Directors or its Nominating Committee who, at
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the time of the vote, qualified as Incumbent Directors either actually or
by prior operation of this clause (iii), and any persons (and their
successors from time to time) who are designated by a holder which, as of
the first day of the Agreement Term, held 33% or more of the Voting
Shares, to stand for election and serve as Directors in lieu of other such
designees serving as Directors on the first day of the Agreement Term
shall be considered Incumbent Directors. Notwithstanding the foregoing,
for purposes of this clause (iii), any director elected to the Board of
Directors to avoid or settle a threatened or actual proxy contest shall
not, under any circumstances, be deemed to be an Incumbent Director.
(d) "Disability" shall mean the inability of Executive to perform
his duties under this Agreement for 3 consecutive months or an
aggregate of 180 days within a 2-year period.
6. Termination and Severance. The following provisions shall govern
the termination of Executive's employment under this Agreement:
(a) The Agreement, the Agreement Term, the term for services of
Executive and the employment of Executive hereunder will
terminate upon the first to occur of the following:
(i) the third day after written notice by the Company to
Executive that Executive's employment under this
Agreement has been terminated For Cause following the
end of the For Cause Cure Period;
(ii) the tenth day after written notice by Executive to the
Company that Executive's employment under this Agreement
has been terminated pursuant to his resignation For Good
Reason following the end of the Good Reason Cure Period;
(iii) the expiration of the Agreement Term;
(iv) the death or Disability of Executive;
(v) the day the Company terminates Executive's employment
under this Agreement other than For Cause; or
(vi) the thirtieth day after written notice by Executive to
the Company that the Executive's employment under this
Agreement has been terminated pursuant to his
resignation other than For Good Reason.
(b) In the event of the termination of Executive's employment
under this Agreement for any of the reasons provided in
Section 6(a), Executive shall receive hereunder the Base
Compensation through the end of the month in which the date of
termination has occurred, plus a termination payment as
follows:
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(i) If the termination or resignation is pursuant to Section
6(a)(i), 6(a)(iv) or 6(a)(vi) above, no additional
amount shall be due and owing to Executive;
(ii) If the termination or resignation is pursuant to Section
6(a)(ii) or 6(a)(v) and the Executive has not received
or become entitled to receive a Change of Control
payment under Section 6(b)(iii), Executive shall be
entitled to receive, subject to his continued compliance
with the requirements of Sections 9 and 10 of this
Agreement, the following severance payments (A)
continued payments of his monthly Base Compensation for
a period equal to 18 months payable in accordance with
the Company's normal payroll practices and policies; and
(B) the pro rated portion (based upon the number of days
in the fiscal year prior to the effective date of
termination) of bonuses earned for the fiscal year in
which the effective date of termination occurs pursuant
to the Company's bonus plans, as applicable (based upon
the terms and conditions of the applicable bonus plan),
as described in Section 4(b), accrued vacation and
continued coverage under the Company's health, life
insurance and long-term disability benefit plans for the
18-month period immediately following Executive's
termination or resignation, as applicable. Any such
bonus shall be paid to Executive, subject to his
continued compliance with the requirements of Sections 9
and 10 of this Agreement, at such time as is consistent
with the Company's customary practice.
(iii) If a Change of Control occurs within the Agreement Term,
then, subject to Section 6(b)(iv), Executive shall be
entitled to receive a lump sum payment equal to 200% of
his Base Compensation, such payment to be made within
thirty days of the closing of the transaction resulting
in the Change of Control.
(iv) If a Change of Control occurs within the Agreement Term,
then, if the Company so requests, as a condition to his
entitlement to the payment under Section 6(b)(iii),
Executive shall continue his employment hereunder until
the end of the Agreement Term, provided that: (i)
Executive continues as President, Chief Executive
Officer or Chief Operating Officer of the Company or its
successor or the Company's or its successor's subsidiary
or affiliate; and (ii) he reports to the Chief Executive
Officer of the Company or its successor.
(v) If the termination is pursuant to Section 6(a)(iii) and
the Executive has not received or become entitled to
receive a payment under Section 6(b)(iii), then, at the
end of the Agreement Term, he shall be entitled to
receive, subject to Executive's continued compliance
with the requirements of Sections 9 and 10 of this
Agreement,
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monthly severance payments at the rate of Executive's
Base Compensation for a period of 18 months, payable in
accordance with the Company's normal payroll practices
and policies and continued coverage under the Company's
health, life insurance and long-term disability benefit
plans for the 18-month period immediately following the
end of the Agreement Term.
7. Arbitration. Any dispute or other controversy arising under or in
connection with this Agreement (except that the Company may, at its
election, seek to enforce Executive's obligations under Section 9 and/or
10 of this Agreement in a court of competent jurisdiction) shall be
settled exclusively by binding arbitration in New York, New York, in
accordance with the Employment Dispute Resolution Rules then in effect
with the American Arbitration Association. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. The Company shall pay
all of Executive's attorneys' fees in connection with any arbitration
brought by either of the parties hereto pursuant to this Section 7 in
which Executive prevails.
8. Indemnity. If Executive is threatened with or made a party to, or
called as a witness or deposed or subpoenaed in, any action, suit or other
legal, administrative or governmental proceeding or other legal process by
reason that Executive is or was deemed a consultant, officer, employee or
other agent of the Company or any of its affiliates, the Company shall
defend, indemnify and hold Executive harmless to the maximum extent
allowed by applicable law and the Company's Certificate of Incorporation
and By-Laws against all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, disbursements and expenses,
including counsel fees reasonably incurred by Executive in connection
therewith, to the extent the same are not paid under the Company's D&O
insurance policies ("Indemnified Liability" or "Indemnified Liabilities");
provided however, that Executive shall not be entitled to indemnification
hereunder to the extent any such liability, obligation, loss, damage,
penalty, action, judgment, suit, claim, disbursement or expense results
from the gross negligence, willful misconduct or criminal conviction or
other conduct which bars indemnification under applicable law
("Misconduct") of Executive as determined by a court of competent
jurisdiction. Payments under this indemnity in respect of indemnified
settlements or judgments shall be paid at the time of final settlement or
final judgment (from which no appeal may be taken), or, in respect of
counsel fees or costs of defense, which shall be limited to one counsel,
shall be paid at the time such fees or costs are incurred.
The Company may require the Executive to deliver a written
undertaking to return any amount advanced to him for indemnification
hereunder if it shall thereafter be determined that indemnification is not
available to Executive due to his Misconduct.
This Section 8 shall survive the termination of this Agreement.
9. Confidentiality. Executive shall at all times both during his
employment hereunder and after termination thereof regard and preserve as
confidential all trade secrets and other confidential information
pertaining to the business of the Company that
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have been or may be obtained by Executive by reason of the performance of
the terms of this Agreement. Executive agrees that all documents, reports,
manuals, drawings, designs, tools, equipment, plans, proposals, marketing
and sales plans, customer lists, or materials made by the Company or
coming into Executive's possession by reason of his performance under this
Agreement, are the property of the Company and shall not be used by
Executive in any way prohibited by this Agreement. Except as expressly
provided herein, during the Agreement Term and after termination thereof,
Executive shall not deliver, reproduce, publish or in any way allow, after
due care, information describing any trade secrets or other confidential
documents or things to be delivered or used by any third party without
specific direction or written consent of the Company or in response to
lawful process. Immediately upon termination of this Agreement, Executive
shall promptly deliver to the Company all documents, tools, equipment,
drawings, blueprints, manuals, material and significant or confidential
letters and notes, reports, price lists, customer lists and copies
thereof, and all other materials relating to the Company's business and
which are in the possession of or under the control of Executive.
Confidential information as defined above shall exclude information or
materials that become generally available to the public other than through
disclosure by Executive in violation of this Agreement.
This Section 9 shall survive the termination of the Agreement.
10. Nonsolicitation. During the Agreement Term and for a period
ending on the later of (i) the period during which the Executive receives
severance payments as provided herein, or (ii) one (1) year after the
termination of Executive's employment with the Company, Executive and/or
any person, firm, corporation or other entity which is controlled by
Executive, shall not, without the prior written consent of the Company,
personally or as an employee, owner, consultant, manager, associate,
partner, agent or otherwise, or by means of any corporate or other entity
solicit for employment or hire any employee of the Company or any of its
subsidiaries. Executive acknowledges that the restrictions contained in
this Section 10 are reasonable and necessary to protect the legitimate
interests of the Company, do not cause the Executive or his affiliates
undue hardship, and that any violation of any provision of this Section 10
will result in irreparable injury to the Company and that, therefore, the
Company shall be entitled to preliminary and permanent injunctive relief
in any court of competent jurisdiction and to an equitable accounting of
all earnings, profits and other benefits arising from such violation,
which right shall be cumulative and in addition to any other rights or
remedies to which the Company may be entitled.
This Section 10 shall survive the termination of the Agreement.
11. Miscellaneous. This Agreement shall be governed by and construed
in accordance with the internal laws of the state of New York.
12. Modification. This Agreement may only be modified by mutual
agreement.
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13. Assignment. This Agreement is a personal service contract and
may not be assigned by either party, except that the Company may assign
this Agreement to its successor in interest in connection with a sale of
assets, merger or similar transaction, or any Change of Control
transaction, so long as the successor assumes the Company's obligations
hereunder.
14. Notices. All notices required or permitted by this Agreement
shall be in writing and shall be deemed received when personally
delivered, or the next business day after deposit in overnight mail or
five days after mailing by registered mail. Notices shall be sent to the
parties at their addresses set forth below or to such different addresses
as such parties shall direct by notice sent in accordance with this
paragraph.
If to Executive:
Xxxxx X. Xxxxxx
President and Chief Executive Officer
Hanover Direct, Inc.
000 Xxxxx Xxxx, Xxxxxxxx 00
Xxxxxxxxx, Xxx Xxxxxx 00000
Email: xxxxxxx@xxxxxxxxxxxxx.xxx
with copies to:
Xxxxxx Xxxxxxx, Esq.
Xxxxxxx & Xxxxxxxx
000 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax.: 000-000-0000
Email: xxxxxxxxx@xxxxxxxxxxxxxx.xxx
If to the Company:
Corporate Counsel
Hanover Direct, Inc.
0000 Xxxxxx Xxxxxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Fax: 000-000-0000
and
Chief Operating Officer
Hanover Direct, Inc.
000 Xxxxx Xxxx, Xxxxxxxx 00
Xxxxxxxxx, Xxx Xxxxxx 00000
Fax: 000-000-0000
with copies to:
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Xxxxx Xxxxxx, Esq.
Xxxxx Raysman Xxxxxxxxx Xxxxxx & Xxxxxxx LLP
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: 000-000-0000
Email: Xxxxxxx@Xxxxxxxxxxxx.xxx
15. Counterparts; Telecopy. This Agreement may be signed in two or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. This
Agreement may be executed by telecopy signature which shall be deemed an
original.
16. Successors and/or Assigns. Whenever in this Agreement either of
the parties hereto is referred to, such reference shall be deemed to
include the successors and/or permitted assigns and/or personal
representatives of such party, and this Agreement shall inure to the
benefit of and shall be binding on the parties hereto and the successors
and/or permitted assigns and/or personal representatives of each such
party.
17. Entire Agreement. This Agreement (together with the Stock Option
Agreements annexed hereto) sets forth the entire agreement of the parties
hereto in respect of the subject matter contained herein and supersedes
all prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer,
employee or representative of any party hereto.
18. No Conflict. Executive represents and warrants to the Company
that neither the execution of this Agreement nor the performance of his
obligations hereunder violate any agreement to which he is a party or by
which he is otherwise bound.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
HANOVER DIRECT, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
---------------------------------
Name: Xxxxxxx X. Xxxxxxx
Title: Executive Vice President
/s/ Xxxxx X. Xxxxxx
---------------------------------------
Xxxxx X. Xxxxxx
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