EXHIBIT 10.78
Dear Xxx:
Xxxxxxxx-Sonoma, Inc. ("Xxxxxxxx-Sonoma") wishes to confirm its Agreement
with you as of May 8, 2001 (the "Agreement Date") with regard to certain aspects
of your employment by it as Chief Operating Officer of Xxxxxxxx-Sonoma.
1. Employment. Xxxxxxxx-Sonoma has recently promoted you to the position
of Chief Operating Officer. The purpose of this Agreement is to document
certain specific terms and conditions of your employment in that
capacity. In addition, you will continue to be employed pursuant to all
other terms and conditions as have previously been agreed to between you
and Xxxxxxxx-Sonoma.
2. Areas of Responsibility. Your areas of responsibility will include
store operations for all concepts, together with overall responsibility
for the Xxxxxxxx-Sonoma, Hold Everything and Elm Street brands.
3. Guaranteed Spread on Stock Options. As of the Agreement Date, you held
certain unvested options to purchase shares of Xxxxxxxx-Sonoma stock
which will vest on or before May 8, 2002 (the "First Unvested Options")
and certain additional unvested options which will vest between May 9,
2002 and May 8, 2003 (the "Second Unvested Options" and collectively "The
Unvested Options"). In consideration of your agreement to continue to be
employed by Xxxxxxxx-Sonoma for a period of from one to two years from
the Agreement Date, Xxxxxxxx-Sonoma has agreed to pay you the relevant
"Guaranteed Spread" under the conditions set forth in this section 3.
(a) As used throughout this Agreement, the "Spread" as of any
relevant date shall be the difference, if any, between: (i) the closing
price of the Xxxxxxxx-Sonoma stock on the New York Stock Exchange on the
date of exercise (the "Closing Price"), multiplied by the total number of
shares covered by the Unexercised Options then exercisable ("Covered
Shares"), minus (ii) the sum of the exercise prices of each Unexercised
Option then exercisable ("Exercise Prices") multiplied by the Covered
Shares. Stated algebraically:
Spread = (Closing Price x Covered Shares) - (Exercise Prices x Covered
Shares)
(b) From the first anniversary of the Agreement Date (the "First
Anniversary Date") until the second anniversary of the Agreement Date
(the "Second Anniversary Date"), the Guaranteed Spread shall be an amount
equal to the difference, if any, between: (i) $39.09, multiplied by the
total number of shares covered by the First Unvested Options ("First
Covered Shares) and (ii) the Spread (the "First Guaranteed Spread").
Stated algebraically:
First Guaranteed Spread = (39.09 x First Covered Shares) - Spread
(c) From and after the second anniversary of the Agreement ( the
"Second Anniversary Date", the Guaranteed Spread shall be an amount equal
to the difference, if any, between: (i) $39.81 multiplied by the total
number of shares covered by the Unvested Options ("Total Covered Shares")
and (ii) the Spread (the "Second Guaranteed Spread") Stated
algebraically:
Second Guaranteed Spread = (39.81 x Total Covered Shares) - Spread
(d) At any time from the Agreement Date to the Second Anniversary
Date, if (i) another person, firm or entity acquires substantially all of
the assets of Xxxxxxxx-Sonoma or acquires more than 50% of its stock, or
Xxxxxxxx-Sonoma merges with or into, or is otherwise acquired by, another
person, firm or entity, or (ii) Xxxxxx Xxxxxx ceases to be a member of
Xxxxxxxx-Sonoma's board of directors by reason of death, disability or a
disagreement between him and Xxxxxxxx-Sonoma's board of directors or
chief executive officer (any of which events is hereinafter referred to
as a "Special Circumstance"), the Guaranteed Spread shall be determined
pursuant to subparagraph (c) above and shall be deemed to be the Second
Guaranteed Spread, and thereupon the unvested portion of all of the
Unvested Options shall immediately vest in full.
(e) If, at any time between the First Anniversary Date and the
Second Anniversary Date, you voluntarily terminate your employment with
Xxxxxxxx-Sonoma for any reason other than a Special Circumstance, you
agree that, within ninety days of such termination, you will exercise in
full all of the First Unvested Options. Upon such
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exercise, Xxxxxxxx-Sonoma shall be obligated to pay you the difference,
if any, between the First Guaranteed Spread and the Spread on the date of
exercise. If you voluntarily terminate your employment with
Xxxxxxxx-Sonoma based upon the occurrence of a Special Circumstance such
termination shall be covered by subparagraph (f) below.
(f) If, at any time after the Second Anniversary Date, you
voluntarily terminate your employment with Xxxxxxxx-Sonoma for any
reason, you agree that, within ninety days of such termination, you will
exercise in full all of the Unvested Options. Upon such exercise,
Xxxxxxxx-Sonoma shall be obligated to pay you the difference, if any,
between the Second Guaranteed Spread and the Spread on the date of
exercise.
(g) If, at any time while this Agreement shall be in effect, your
employment as Chief Operating Officer shall be terminated without Cause,
(as defined below) or your duties shall be materially changed from those
presently being performed by you or a Special Circumstance shall have
occurred, and as a result of any of the foregoing, you terminate your
employment, thereupon the unvested portion of all of the Unvested Options
shall immediately vest in full. You agree that, within ninety days of
such termination, you will exercise in full all of the Unvested Options.
Upon such exercise, Xxxxxxxx-Sonoma shall be obligated to pay you the
difference, if any, between the Second Guaranteed Spread and the Spread
on the date of exercise. For purposes of this provision Cause shall mean:
(i) your conviction (or plea of guilty or nolo contendere)
of any felony, or of any crime involving fraud, dishonesty or
misappropriation, or moral turpitude;
(ii) your continued willful neglect of your duties and
responsibilities as Chief Operating Officer or gross negligence in
connection with such duties and responsibilities or the assets of
Xxxxxxxx-Sonoma or any of its subsidiaries or affiliated
companies;
(iii) your willful misconduct with regard to
Xxxxxxxx-Sonoma or any of its subsidiaries or affiliated
companies;
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(iv) your refusal to follow the written direction of the
Chairman with regard to your duties and responsibilities.
(h) If, at any time while this Agreement shall be in effect, your
employment by Xxxxxxxx-Sonoma is terminated for Cause, then this
Agreement shall become null and void and of no further force or effect,
provided, however, that Xxxxxxxx-Sonoma shall have given you full notice
and explanation of the reasons for such termination and a minimum of
thirty days to cure the reasons causing such termination.
(i) If, at any time prior to the First Anniversary Date, you
employment shall be terminated by reason of your death or disability (as
defined by Xxxxxxxx-Sonoma's policies with regard to disability), your
estate or you, as the case may be shall be entitled to the First
Guaranteed Spread as determined pursuant to subparagaph (b) above with
respect to the First Unvested Options, and thereupon the unvested portion
of the First Unvested Options shall vest in full.
(j) You agree that, prior to the date of the termination of your
employment with Xxxxxxxx-Sonoma, without the written consent of Xxxxxxxx-Sonoma,
you will not exercise any of the Unvested Options.
4. Arbitration. Any claim or controversy between the parties which the
parties are unable to resolve themselves, including any claim arising out of
your employment or the termination of that employment, and including any claim
arising out of, connected with, or related to the formation, interpretation,
performance or breach of this Agreement, and any claim or dispute as to whether
a claim is subject to arbitration, shall be submitted to and resolved
exclusively by expedited arbitration by a single arbitrator in accordance with
the employment rules and procedures of the American Arbitration Association then
in effect.
5. Applicable Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of California applicable to
contracts to be performed therein.
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Sincerely,
Xxxxxxxx-Sonoma, Inc.
By: /s/ XXXX X. XXXXXXX
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Accepted and Agreed to:
/s/ XXXXX XXXXX
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Xxxxx Xxxxx
