Exhibit 10.5
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of May 14, 2002, between XXXXX XXXXXX, a
natural person residing at 000 Xxxx 00xx Xxxxxx, Xxx. 00X, Xxx Xxxx, Xxx Xxxx
00000 ("Executive") and PLAYBOY ENTERPRISES, INC., a Delaware corporation
("Employer" or the "Company"), with an office at 000 Xxxxx Xxxx Xxxxx Xxxxx,
Xxxxxxx, XX 00000.
RECITAL
Employer is primarily in the business of international multimedia
entertainment. Employer desires to hire Executive, and Executive desires to be
employed by Employer, on the terms and subject to the conditions set forth
below.
In consideration of the premises and the mutual covenants hereinafter set
forth, the parties hereto hereby agree as follows:
1. Employment of Executive
Employer hereby agrees to employ Executive and Executive hereby agrees to
be and remain in the employ of Employer, as the President and Chief Operating
Officer of Employer, upon the terms and conditions hereinafter set forth.
2. Employment Period
The term of Executive's employment under this Agreement (the "Employment
Period") shall commence on a date designated by Executive, to permit Executive
to satisfy obligations to his existing employer, but in no event later than July
8, 2002 (the "Commencement Date") and, subject to earlier termination as
provided in Section 5, shall continue for a period of two years (the "Initial
Period") after the Commencement Date. At the end of the Initial Period, this
Agreement shall automatically renew for successive one year periods (each a
"Renewal Period") unless within thirty days prior to the end of either the
Initial Period or any Renewal Period,
either party sends a notice of termination to the other or unless this Agreement
is earlier terminated as provided herein.
3. Duties and Responsibilities
During the Employment Period, Executive (a) shall have the title of
President and Chief Operating Officer, (b) shall devote his full business time
and attention and expend his best efforts, energies and skills on a full-time
basis to the business of the Company, and shall not engage in any other activity
that would interfere with the performance of his duties under this Agreement
(provided that Executive is permitted to serve on the board of directors of
other organizations, subject to approval of the Company's CEO, or engage in
endeavors related to the community, his faith and other charitable functions
which do not materially interfere with the performance of his duties hereunder)
and (c) shall perform such duties, and comply with all reasonable directions and
instructions of the Company's Board of Directors (the "Board"), all commensurate
with his position, as he may be assigned from time to time by the Board.
4. Compensation and Related Matters
(a) For all services rendered and required to be rendered by, covenants
of, and restrictions imposed on, Executive under this Agreement, Employer shall
pay to Executive during and with respect to the Employment Period, and Executive
agrees to accept a base salary computed at a rate of $600,000 per annum ("Base
Salary"), payable on a biweekly basis in accordance with the Employer's standard
payroll practices. In addition, commencing January 1, 2003, Executive will be
eligible to participate in an incentive compensation plan in accordance with the
Company's incentive compensation plans as in effect from time to time as
determined by the Board, with Executive being eligible to earn a maximum
potential of 100% of his Base Salary. The incentive compensation will be
conditioned upon criteria reasonably determined by the Board (in consultation
with Executive) to reflect the Company's financial performance as measured by
goals that are reasonably attainable.
(b) The Company will also pay to Executive a one-time bonus (the "Signing
Bonus") in the sum of One Hundred Fifty Thousand Dollars, payable to Executive
on the Commencement Date. In the event that Executive resigns prior to the first
anniversary of the Commencement Date, other than for Good Reason (as defined
below), then Executive shall promptly repay to the Company 1O0% of the Signing
Bonus within 30 days of such resignation. In the event that Executive resigns
after the first anniversary of the Commencement Date, but prior to the second
anniversary of the Commencement Date, other than for Good Reason, then Executive
shall promptly repay to the Company 50% of the Signing Bonus within 30 days of
such resignation. For
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purposes hereof, "Good Reason" means that (i) the Company has materially
breached this Agreement and the Company has failed to cure such breach after 30
days written notice from Executive, (ii) there has occurred any material
diminution or reduction in duties of Executive, whether in scope or nature,
(iii) Executive fails to report directly to the CEO of the Company, (iv) there
has occurred a Change in Control (as defined in Section 5.3) or (v) the Company
sells or otherwise transfers all or substantially all of its television and
entertainment assets in a single transaction or series of transactions, except
if, and only for so long as, the Company, directly or indirectly, continues to
own a controlling interest in the buyer or transferee (the "Transferee");
provided that to the extent that the Transferee reports to the Company as its
controlling owner, such report is made directly to Executive or a designee of
whom Executive approves.
(c) Executive will also be granted, pursuant to a separate agreement (in
the form attached hereto as Exhibit A, the "Option Agreement"), options to
purchase 325,000 shares (the "Options") of the Class B common stock of the
Company which are non-qualified stock options. The Option Agreement will be
subject to the Company's stock option plan (in the form attached hereto as
Exhibit B, the "Stock Option Plan") and contain the following terms:
(i) Strike price of the closing price of the Company's Class B
common stock at the close of business on the date hereof which is $14.14 per
share;
(ii) vesting to be 25% on each annual anniversary of the
Commencement Date commencing in 2003;
(iii) Upon a Change of Control, all Options will vest immediately;
(iv) (A) a ten year term;
(B) a covenant to reserve a sufficient number of shares of the
Company's Class B common stock to issue to Executive upon his exercise of any
and all Options;
(C) all shares issued in connection with the exercise of any
Options will be validly registered under an effective registration statement
under the Securities Act of 1933, as amended;
(D) representations and warranties that (1) there is a
sufficient number of shares available in the Plan to issue Executive 325,000
options and (2) the execution, delivery and performance of the Option Agreement
by the Company has been duly authorized by all necessary corporate action of the
Company and the
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Option Agreement constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms and (3)
the Option Agreement does, or prior to Executive's exercise of any Options,
will, comply with the Plan; and
(E) a guarantee to Executive that to the extent that the grant
of his Options exceed the amount permitted under the Plan, the Company will take
any and all steps and measures, of whatever nature whatsoever (including,
without limitation, amending the Plan with shareholder approval by way of
example), that is necessary in the reasonable opinion of Company's legal counsel
in consultation with Executive's legal counsel, to cause the grant of
Executive's Options to be in compliance with the Plan and be valid and
effective, as soon as is practicable but in any event no later than August 1,
2002 (unless shareholder approval is required, in which event, no later than the
next shareholders meeting of the Company), and further the Company will
indemnify and hold Executive harmless from and against any and all losses,
claims, debts, damages, obligations, costs (including, without limitation,
reasonable attorney's fees and expenses) and expenses that he may suffer or
incur in connection with (1) the breach by the Company of any covenant,
representation, warranty or other term of the Option Agreement or (2) any
invalidity or lack of enforceability of any or all of the Options or the Option
Agreement or the inability of Executive to practicably realize the benefit of
his bargain with respect to the Options due to any unenforceability of any
Options.
(v) Executive, subject to the Company's Compensation Committee's
prior approval, will be permitted to pay for the shares pursuant to his exercise
of Options by executing and delivering to the Company a promissory note with
full recourse to Executive (the "Note"), for a term of 30 days, bearing interest
at the then Applicable Federal Rate for loans of similar terms; and
(vii) to the extent that any terms or provisions hereof conflict or
are inconsistent with terms or provisions of the Company's Stock Option Plan;
the terms and provisions of the Plan will control, except with respect to the
number of Options granted to Executive, in which event, the Option Agreement
will control.
(d) Executive will also be granted, pursuant to a separate agreement (in
the form attached hereto as Exhibit C, the "Restricted Stock Agreement"), 10,000
shares of the Company's Class B common stock (the "Restricted Shares"). The
Restricted Stock Agreement will contain the following terms:
(i) the Restricted Shares will vest upon the Company achieving
certain financial goals. Upon the Company generating $15 million operating
income in any calendar year, as determined by the Company's regularly engaged
independent
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certified public accountants, 2,500 Restricted Shares will vest. Upon the
Company generating $20 million operating income in any calendar year, as
determined by the Company's regularly engaged independent certified public
accountants, 7,500 Restricted Shares will vest; and
(ii) the Restricted Shares will be validly registered under an
effective registration statement filed with the Securities and Exchange
Commission.
(e) Effective on the Commencement Date, Executive will be entitled to
participate in the Company's health benefit plans, together with the Company's
Executive vacation policy (provided that the Company agrees that Executive will
be entitled to vacation from August 19-30, 2002), matching 401-K plan, deferred
compensation plan and similar plans in effect from time to time. Executive's
participation in the foregoing plans will be on terms no less favorable than
afforded to other executives of the Company commensurate with Executive's level.
(f) The Company will reimburse Executive for his reasonable and customary
expenses of relocation, which will include specific items included in the
Company's relocation policy, up to an aggregate amount of $50,000.
5. Termination of Employment Period; Change of Control
5.1 Employer may, at any time during the Employment Period by notice to
Executive (the "Termination Notice"), terminate the Employment Period for
"Cause" effective immediately. The Termination Notice shall specify the Cause
for termination. In such an event, Executive shall not be entitled to any
compensation or other amount from the Company from the effective date of
termination. For purposes hereof, for "Cause" means:
(a) Executive is convicted of a felony involving dishonesty,
fraud or breach of trust; or
(b) Executive engaging in wrongful conduct materially
injurious to the Company; provided that such conduct was not undertaken at the
direction of, or with the approval of, the Board or Xxxxxxxx Xxxxxx; further
provided that in the event that the wrongful conduct is capable of being cured,
Executive shall have 15 days from his receipt of the Termination Notice to cease
or cure such conduct.
5.2 The Company may terminate this Agreement at any time, by delivering a
notice to Executive, without Cause, effective 30 days after Executive receives
such notice in accordance with the terms hereof. In such an event, Executive's
sole remedy
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shall be to collect a severance payment in the sum of nine months of Executive's
then Base Salary (the "Severance Payment"). The Severance Payment will be due
and payable on the effective date of the termination of this Agreement. In the
event that the Severance Payment, all Base Salary, bonuses, and all other
amounts due hereunder to Executive are not paid in full on such date, Executive
will continue to earn his Base Salary until all such amounts are paid in full.
5.3 The Company is party to a certain severance agreement with certain
executives of the Company (the "Severance Agreement"). The Company will enter
into a Severance Agreement on substantially the same terms upon the execution
hereof by Executive. For purposes hereof, the term "Change of Control" has the
meaning ascribed to such term in the Severance Agreement as modified herein in
the preceding sentence.
6. Location of Executive's Activities
Executive's principal place of business in the performance of his
duties and obligations under this Agreement shall be at Employer's principal
place of business in Chicago, Illinois. Notwithstanding the preceding sentence,
Executive will engage in such travel and spend such time in other places as may
be necessary or appropriate in furtherance of his duties hereunder at the
Employer's expense.
7. Miscellaneous
7.1 Notices. All notices, requests, demands, consents, and other
communications required or permitted to be given or made hereunder shall be in
writing and shall be deemed to have been duly given and received, (i) if
delivered by hand, the day it is so delivered, (ii) if mailed via the United
States mail, certified first class mail, postage prepaid, return receipt
requested, five business days after it is mailed, or (iii) if sent by a
nationally recognized overnight courier for next business day delivery, the
business day after it is sent, to the party to whom the same is so given or
made, at the address of such party as set forth at the head of this Agreement,
which address may be changed by notice to the other party hereto duly given as
set forth herein, with copies delivered as follows:
(a) if to Executive:
Ellenoff Xxxxxxxx Schole & Cyruli, LLP
000 Xxxxxxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
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Attn: Xxxxxx X. Xxxxxx, Esq.
(b) if to the Company:
General Counsel
Playboy Enterprises, Inc.
000 Xxxxx Xxxx Xxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
7.2 Governing Law; Jurisdiction. This Agreement shall be governed
by, and construed and enforced in accordance with, the substantive and
procedural laws of the State of Illinois. Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts located in
Xxxx County, Illinois and waives any claim based upon forum non-conveniens.
7.3 Headings. All descriptive headings in this Agreement are
inserted for convenience only and shall be disregarded in construing or applying
any provision of this Agreement.
7.4 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
7.5 Severability. If any provision of this Agreement, or part
thereof, is held to be unenforceable, the remainder of such provision and this
Agreement, as the case may be, shall nevertheless remain in full force and
effect.
7.6 Entire Agreement and Representation. This Agreement contains the
entire agreement and understanding between Employer and Executive with respect
to the subject matter hereof. This Agreement supersedes any prior agreement
between the parties relating to the subject matter hereof. Except as otherwise
provided herein, this Agreement cannot be changed or terminated except by an
instrument in writing signed by the parties hereto.
7.7 Binding Effect. This Agreement shall be binding upon, and inure
to the benefit of, each parties successors, transferees, heirs and assigns.
7.8 Confidentiality, Disclosure of Information
(a) Executive recognizes and acknowledges that he will have access to
Confidential Information (as defined below) relating to the business or
interests of
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Company or of persons with whom Company may have business relationships. Except
as permitted herein or as may be approved by Company from time to time,
Executive will not during the Employment Period or at any time thereafter, use
or disclose to any other person or entity, any Confidential Information of
Company (except as required by applicable law or in connection with the
performance of Executive's duties and responsibilities hereunder). If Executive
is requested or becomes legally compelled to disclose any of the Confidential
Information, he will give prompt notice of such request or legal compulsion to
Company. Company may waive compliance with this Paragraph 7.8(a) or will provide
Executive with legal counsel at no cost to Executive to seek an appropriate
remedy; provided however Executive may disclose any Confidential Information in
the event that notwithstanding all such efforts of the Company and such legal
counsel Executive is compelled by court order to do so. The term "Confidential
Information" means information relating to Company's business affairs,
proprietary technology, trade secrets, patented processes, research and
development data, know-how, market studies and forecasts, competitive analyses,
pricing policies, Executive lists, employment agreements (other than this
Agreement), personnel policies, the substance of agreements with customers,
suppliers and others, marketing arrangements, customer lists, commercial
arrangements, or any other information relating to Company's business which is
treated as confidential or proprietary by Company in accordance with its
policies. Notwithstanding the immediately preceding sentence, the provisions of
this Paragraph 7.8(a) shall not apply to any information that (1) is in the
public domain; (2) is or becomes available to the public other than as a result
of a disclosure by Executive in violation of this Paragraph 7.8(a); (3) was
available to Executive on a non-confidential basis prior to the date of this
Agreement; (4) was already lawfully in Executive's possession prior to the date
of this Agreement; or (5) becomes available to Executive on a non-confidential
basis from a source other than Company. This obligation shall continue until
such Confidential Information becomes publicly available, other than pursuant to
a breach of this Paragraph 7.8(a) by the Executive, regardless of whether the
Executive continues to be employed by the Company.
(b) It is further agreed and understood by and between the parties to this
Agreement that all "Company Materials," which include, but are not limited to,
computers, computer software, computer disks, tapes, printouts, source, HTML and
other codes, flowcharts, schematics, designs, graphics, drawings, photographs,
charts, graphs, notebooks, customer lists, sound recordings, other tangible or
intangible manifestation of content, and all other documents whether printed,
typewritten, handwritten, electronic, or stored on computer disks, tapes, hard
drives, or any other tangible medium, as well as samples, prototypes, models,
products and the like shall be the exclusive property of Company and, upon
termination of Executive's employment with Company, and/or upon the request of
Company, all Company Materials,
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including copies thereof, as well as all other Company property then in
Executive's possession or control, shall be returned to and left with Company.
7.9 Copyright
Executive acknowledges that all original works of authorship by Executive,
whether created alone or jointly with others, relating to the Executive's
employment with the Company, and which are protectable by copyright, are
"works made for hire" within the meaning of the United States Copyright Act, 17
U.S.C. ss. 101, as amended, and the copyright of which shall be owned solely,
completely and exclusively by Company. If any Development is considered to be a
work not included in the categories of work covered by the United States
Copyright Act, 17 U.S.C. ss. 101, as amended, such work is hereby conveyed and
transferred completely and exclusively to Company. Executive hereby irrevocably
designates counsel to Company as Executive's agent and attorney-in-fact to do
all lawful acts necessary to apply for and obtain patents and copyrights and to
enforce Company's rights under this section, provided that such counsel shall
take any such actions only after Executive has been requested to do such acts by
Company and failed to promptly do so. This Paragraph 7.9 shall survive the
termination of this Agreement. Any conveyance of copyright hereunder includes
all rights of paternity, integrity, disclosure and withdrawal and any other
rights that may be known as or referred to as "moral rights."
7.10 Non-Competition and Non-Solicitation
Executive acknowledges that Company has invested substantial time, money
and resources in the development and retention of its Confidential Information
(including trade secrets), customers, accounts and business partners, and
further acknowledges that during the course of Executive's employment with
Company, Executive has had and will have access to Company's Confidential
Information (including trade secrets), and will be introduced to existing and
prospective customers, vendors, cable operators, accounts and business partners
of Company. Executive acknowledges and agrees that any and all "goodwill"
associated with any existing or prospective customer, vendor, cable operator,
account or business partner belongs exclusively to Company, including, but not
limited to, any goodwill created as a result of direct or indirect contacts or
relationships between Executive and any existing or prospective customers,
vendors, cable operators, accounts or business partners. Additionally, the
parties acknowledge and agree that Executive possesses skills that are special,
unique or extraordinary and that the value of Company depends upon his use of
such skills on its behalf.
In recognition of this, Executive covenants and agrees that:
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(a) During Executive's employment with Company, Executive may not, without
prior written consent of Company (whether as an Executive, agent, servant,
owner, partner, consultant, independent contractor, representative, stockholder,
or in any other capacity whatsoever) perform any work directly competitive in
any way to the business of Company or a substantially planned business that
Executive is aware of during Executive's employment with Company on behalf of
any entity or person other than Company (including Executive).
(b) During Executive's employment with Company and for one year
thereafter, Executive may not notice, solicit or encourage any Company Executive
to leave the employ of the Company or any independent contractor to sever its
engagement with Company, absent prior written consent from Company.
(c) During Executive's employment with Company, Executive may not,
directly or indirectly, entice, solicit or encourage any customer or prospective
customer of Company to cease doing business with Company, reduce its
relationship with Company or refrain from establishing or expanding a
relationship with Company.
7.11 Non-Disparagement; Non-Disclosure
(a) Executive and Company hereby agree that during the Employment Period
and all times thereafter, neither Executive or Company will make any public
statement, or engage in any conduct, that is disparaging to the other party or,
in the case of Company, any of its Executives, officers, directors, or
shareholders known to Executive, including, but not limited to, any statement
that disparages the products, services, finances, financial condition,
capabilities or other aspect of the business of Company and the capabilities of
Executive. Notwithstanding any term to the contrary herein, neither Executive
nor Company shall be in breach of this Paragraph 7.11 for the making of any
truthful statements under oath.
(b) Executive will not directly or indirectly be the source of disclosing,
by publishing or by granting interviews, of any Confidential Information (which
is known to Executive to be confidential) concerning the personal, social or
business activities of Company, its affiliates or the executives and principals
and the officers, directors, agents and Executives of all the foregoing during
or at any time after the termination of Executive's employment, subject to the
exceptions specified in Section 7.8(a) (1) - (5). In addition, Executive agrees
that without Company's express written approval in each case, Executive will
not:
i. write, be the source of or contribute to any articles,
stories, books, screenplays or any other communication or
publicity of any kind
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(written or otherwise) or deliver lectures in any way
regarding or concerning the Confidential Information, or
ii. grant any interviews regarding or concerning the Confidential
Information during or at any time after the termination of his
employment.
7.12 Representations and Warranties. The execution, delivery and
performance of this Agreement by the Company has been duly authorized by all
necessary corporate action of the Company and the this Agreement constitutes the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms and (3) this Agreement (to the extent that
it pertains to Options) does, or prior to Executive's exercise of any Options,
will, comply with the Plan; and
8. Indemnification The Company hereby agrees to indemnify and hold Executive
harmless from and against all losses, claims, debts, damages, obligations, costs
(including, without limitation, reasonable attorney's fees and expenses) and
expenses suffered or incurred by the other as a result of, arising from or
related to, (a) the breach of any representations or warranty, covenant or other
term of this Agreement by the Company, (b) the inability of Executive to
practicably realize the benefit of his bargain with respect to the Options due
to any unenforceability of any Options or (c) Executive enforcing any of the
terms hereof, whether or not suit is actually brought hereon.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
Playboy Enterprises, Inc.
By: /s/ Xxxxxxxx Xxxxxx
-------------------------------------
Name:
Title:
/s/ Xxxxx Xxxxxx
----------------------------------------
Xxxxx Xxxxxx
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