INCENTIVE COMPENSATION AGREEMENT
THIS INCENTIVE COMPENSATION AGREEMENT ("Agreement") is made and entered
into this 1st day of July 1993 by and between XXXXX COMPANY, a California
corporation which has its principal executive offices located in Los Angeles
California ("Company"), and XXXX X. XXXXXXX, an individual ("Employee").
RECITALS
A. The Company and the Employee are parties to an Employment Agreement (as
hereinafter defined) pursuant to which the Company has hired the Employee to act
as President of the Division (as hereinafter defined).
B. The Company and the Employee desire to enter into this Agreement for the
purpose of providing a substantial incentive for the Employee to exert high
levels of performance and/or unusual efforts to increase the earnings of the
Division and to contribute to the long-terms success of the Division.
TERMS AND CONDITIONS
NOW THEREFORE, in consideration of the foregoing recitals and the
covenants, agreements representations and warranties set forth herein, the
parties hereto agree as follows:
1. DEFINITIONS. In addition to the terms defined elsewhere herein,
the following terms shall have the following meanings when used in this
Agreement, unless the context clearly requires otherwise:
1.1 BENEFICIARY. The term "Beneficiary" shall mean the person or
persons designated by the Employee in a writing delivered to the Company to
receive any payments otherwise due the Employee under this Agreement in the
event of the Employee's death while employed by the Company or in the event
of the Employee's death after the Employee's Termination Date but before all
payments otherwise due the Employee under this Agreement shall have been
paid. The Employee shall be entitled to change his Beneficiary from time to
time; provided, however, that any such change shall not become effective
until actually received by the Company in writing from the Employee.
1.2 DIVISION. The term "Division" shall mean the X.X. Xxxxxx
Company, a division of the Company.
1.3 EMPLOYMENT AGREEMENT. The term "Employment Agreement" shall
mean that certain Employment Agreement of even date herewith, between the
Company and the Employee.
1.4 NET BOOK VALUE. The term "Net Book Value" shall mean the
Division's shareholder's equity as of any date in question as reflected on
the Division's internally-prepared financial statements prepared in
accordance with generally accepted accounting principles consistently applied
and under the assumptions that: (i) all net working capital or other
advances by the Company to the Division are accounted for as loans by the
Company to the Division bearing interest on unpaid principal at the same
fluctuating rate as the Company pays from time to time to its institutional
lender for its borrowings; (ii) all net advances by the Division to the
Company are accounted for as interest-free loans by the Division to the
Company; and (iii) all of the Division's pre-tax income during any fiscal
period in question is subject to federal, state and local income taxation at
the then applicable rates for corporations which have not elected "S
Corporation" status under the Internal Revenue Code of 1986, as amended, and
any similar state or local income tax laws. In the absence of manifest error
or the Company's lack of good faith in preparing the Division's financial
statements, the Division's Net Book Value as of any date in question as
reflected on the Division's internally-prepared financial statements as of
such date shall be binding upon both the Company and the Employee.
1.5 STARTING DATE VALUE. The term "Starting Date Value" shall
mean the Division's Net Book Value as of July 1, 1993.
1.6 TERMINATION DATE. The term "Termination Date" shall mean the
date that the Employee's employment with the Division is terminated by reason
of: (i) the Employee's death, total disability, retirement, voluntary
termination, involuntary termination or any other reason; or (ii) the
Division's liquidation or other cessation of business operations.
1.7 TERMINATION DATE VALUE. The term "Termination Date Value"
shall mean the Division's Net Book Value as of the end of the month
immediately preceding the Employee's Termination Date.
2. EMPLOYEE'S ENTITLEMENT TO DEFERRED COMPENSATION BENEFITS. In
further consideration of the Employee's execution and delivery of the
Employment Agreement, the Company hereby agrees that the Employee shall be
entitled to receive, as additional consideration for his managerial efforts
to be exerted on behalf of the Division, an amount equal to five percent (5%)
of the amount, if any, by which the Termination Date Value of the Division
exceeds the Starting Date Value of the Division (THE "DEFERRED BENEFIT
AMOUNT"), subject to the provisions of Section 3 hereof.
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3. PAYMENT OF DEFERRED COMPENSATION BENEFITS.
3.1 PAYMENT TERMS.
(a) If the Deferred Benefit Amount due the Employee is equal
to or less than $50,000, the Company shall pay the Employee or his
Beneficiary, as the case may be, the entire amount due in cash within no more
than 90 days following the Employee's Termination Date.
(b) If such amount exceeds $50,000, the Company shall pay the
Employee or his Beneficiary, as the case may be, the sum of $50,000 within no
more than 90 days following the Employee's Termination Date, and shall pay
the excess of such aggregate amount over $50,000, without interest, to the
Employee or his Beneficiary, as the case may be, in three substantially equal
annual installments commencing on the date which is one year and three months
after the Employee's Termination Date and continuing on the same day of each
year thereafter for the next two years or until the excess of such aggregate
amount over $50,000 shall have been paid in full; provided, however, that the
minimum payment in any year shall be $50,000 or the balance owing, whichever
is less.
3.2 RIGHT TO ACCELERATE. Notwithstanding the foregoing
provisions, the Company may, in its sole and absolute discretion, accelerate
the payment of the Deferred Benefit Amount under this Agreement to the
Employee or his Beneficiary, as the case may be, in the event of the
Employee's death or total disability.
3.3 WITHHOLDING. Under all circumstances, the Company shall be
entitled to deduct all federal, state and local taxes required to be withheld
by it under applicable law from any benefits otherwise payable hereunder to
the Employee or his Beneficiary, as the case may be.
3.4 VESTING. Anything to the contrary herein notwithstanding,
Employee's entitlement to the Deferred Benefit Amount payable hereunder shall
vest at the rate of twenty-five (25%) per year for each year of Employee's
employment by the Division, and shall be fully vested following the end of
the fourth year of such employment. By way of example of the forgoing, in
the event that Employee ceases to be an employee of the Company after three
years, Employee shall be entitled to receive seventy-five percent (75%) of
the total Deferred Benefit Amount provided for herein. There is no partial
vesting for any period of employment less than a full year.
3.5 PAYMENT OF PORTIONS OF DEFERRED BENEFIT AMOUNT. Commencing
one month after the Company's first fiscal year ending after July 1, 1997
(assuming Employee is employed by the Division at that time), the Company
shall pay Employee twenty-five percent (25%) of the Deferred Benefit Amount
the Employee would have
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received had the Termination Date occurred as of the end of such immediately
preceding fiscal year.
Within one month of the end of each of the Company's succeeding
fiscal years, the Company shall notify Employee of the Deferred Benefit
Amount the Employee would have received had the Termination Date occurred as
of the end of such fiscal year. If the Employee, as of such date, had been
paid an amount equal to less than 25% of such Deferred Benefit Amount, the
Company shall pay Employee an amount equal to the difference between such
Deferred Benefit Amount and the aggregate amount previously paid.
To the extent Employee is paid a portion of the Deferred Benefit
Amount pursuant to this Section 3.5, such amounts shall be offset against the
Deferred Benefit Amount otherwise payable pursuant to Sections 2 and 3 hereof.
4. SALE OF DIVISION. In the event the Company sells all or
substantially all of the assets of the Division (a "Sale"), while the
Employee is employed by the Division, the Company shall terminate this
Agreement, and the Employee's interest hereunder, in which event the Employee
will be entitled to receive, in cash, the amount equal to the greater of (i)
the Deferred Benefit Amount as of the end of the month preceding the Sale or
(ii) an amount equal to five percent (5%) of the amount, if any, by which the
"Sale Value" of the Division exceeds the Starting Date Value of the Division
irrespective of any vesting requirements. For purposes of this paragraph 4,
"Sale Value" shall mean the amount of the cash and non-cash proceeds received
upon the sale of the Division. In computing Sale Value, proceeds shall be
reduced by all expenses incurred in effecting such Sale, including but not
limited to the fees and expenses incurred in employing brokers, investment
bankers, appraisers, attorneys and accountants and if sales proceeds consist
of non-cash consideration (for example, notes or stock), the value of such
non-cash consideration shall be agreed to by the Company and the Employee; if
the Company and the Employee do not agree as to such value, the value of the
non-cash consideration shall be determined by a third party arbitrator
acceptable to both the Company and the Employee. (Regardless of the value of
such non-cash consideration, the Company may elect to pay the Employee the
cash equivalent of such non-cash consideration or pay to the Employee, in
kind, the non-cash consideration, when, as and if paid to the Company.) The
Sale of the Division does not constitute a liquidation or cessation of the
Division's business pursuant to Section 1.6 hereof.
5. RIGHT OF COMPANY TO TERMINATE EMPLOYMENT.
(a) Nothing contained in this Agreement shall confer upon the
Employee any right to be continued in the employ of the Company or shall
interfere in any way with the right of the Company to terminate the
employment of the Employee pursuant to the applicable provisions of the
Employment Agreement.
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(b) Notwithstanding anything to the contrary contained herein, no
Deferred Benefit Amount nor Sale Value shall be paid if the Employee is
terminated by the Company for "Cause" within the meaning of Employee's
Employment Agreement.
6. NONALIENATION OF BENEFITS. No right or benefit under this
Agreement shall be subject to anticipation, alienation, sale, assignment,
pledge, encumbrance or charge by the Employee, and any attempt to anticipate
alienate, sell, assign, pledge, encumber or charge the same shall be null and
void. No right or benefit under this Agreement shall in any manner be liable
for or subject to the debts contracts, liabilities or torts of the Employee
or his Beneficiary, as the case may be. If the Employee or any Beneficiary
hereunder shall become bankrupt or attempt to anticipate, alienate, sell,
assign, pledge, encumber or charge any right or benefit hereunder, then such
right or benefit shall, in the sole and absolute discretion of the Company,
cease and terminate and, in such event, the Company may hold or apply the
same or any part thereof to the benefit of such Employee or Beneficiary in
such manner and in such proportion as the Company may deem proper in its sole
and absolute discretion.
7. GENERAL PROVISIONS.
7.1 NOTICES. All notices or other written communication required
or permitted to be given by this Agreement shall be deemed given if
personally delivered or two days after it has been sent (the date of posting
shall be considered as the first day and there shall be excluded any Sundays,
legal holidays or other days upon which the United States mail generally is
not delivered) by United States registered or certified mail, postage
prepaid, properly addressed to the party to receive the notice at the
following address or at any other address given to the other party in the
manner provided by this Section 7.1:
If to the Company: Xxxxx Company
0000 Xxxxxxx Xxxxxx
Xxxxxxxxxx Xxxx, XX 00000
Attn: Xxxxxxx X. Xxxxx,
Chief Financial Officer
If to the Employee: Xxxx X. Xxxxxxx
___________________________
___________________________
___________________________
7.2 SEVERABILITY. If any provision or part of any provision of
this Agreement is determined to be invalid or unenforceable, the provision or
part thereof shall be deemed to be severable from the remainder of this
Agreement and shall not cause the invalidity or unenforceability of the
remainder of hits Agreement and the remainder of this Agreement shall be
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interpreted as if such provision or part thereof were so excluded and shall
be enforceable in accordance with its terms.
7.3 ASSIGNMENT. The parties acknowledge that this Agreement
constitutes a personal contract with the Employee. The Employee may not
transfer, assign or delegate any of his rights, duties or obligations
hereunder without the prior written consent of the Company. Subject to the
foregoing, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their heirs, personal representatives,
successors and assigns.
7.4 NO IMPLIED WAIVERS. The failure of either party at any time
to require performance by the other party of any provision hereof shall not
affect in any way the right to require such performance at any later time nor
shall the waiver by either party of a breach of any provision hereof be taken
or held to be a waiver
7.5 GOVERNING LAW. This Agreement has been entered into in the
State of Texas and all questions with respect to the construction of this
Agreement and the rights and liabilities of the parties shall be governed by
and construed and interpreted in the State of Texas.
7.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.7 CAPTIONS. The captions of the sections and subsections of
this Agreement are included for reference purposes only and are not intended
to be a part of the Agreement or in any way to define, limit or describe the
scope or intent of the particular provision to which they refer.
7.8 ENTIRE AGREEMENT; AMENDMENT.
This Agreement and the Employment Agreement contain the entire
understanding between the parties hereto with respect to the subject matter
hereof and supersede any and all prior and contemporaneous written or oral
negotiations and agreements between them regarding the subject matter hereof.
This Agreement may be amended only in a writing signed by both of the parties.
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8. UNSECURED OBLIGATION. The Employee will not, by virtue of this
Agreement, have any interest in any fund or specific assets of the Company.
No trust fund will be created in connection with this Agreement and there
shall be no required funding of amounts which may become payable to Employee
hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above mentioned.
"Company"
XXXXX COMPANY
/s/ Xxxxxxx X. Xxxxxxxxx
-----------------------------
By: Xxxxxxx X. Xxxxxxxxx
-----------------------------
Its: President
-----------------------------
"Employee"
/s/ Xxxx X. Xxxxxxx
--------------------------------
XXXX X. XXXXXXX
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