EMPLOYMENT AGREEMENT
EXHIBIT
10.1
THIS
EMPLOYMENT AGREEMENT (“Agreement”) is made and entered into as of the 12th day
of December, 2006, by and between U.S. Dry Cleaning Corporation, a Delaware
Corporation (“the Company”), and Xxxxxx X. Xxx (“Employee”).
RECITALS
WHEREAS,
the Company intends to embark upon a series of acquisitions in the highly
fragmented dry cleaning industry which will require significant additional
financing for the Company; and
WHEREAS,
the Board of Directors of the Company has determined that it is crucial to
the
success of such endeavor that the Company engage the services of a new chief
executive officer who has been successful in both areas; and
WHEREAS,
Employee has successfully consolidated highly fragmented, small store retail
operations in the past; and
WHEREAS,
Employee has extensive experience structuring the acquisition of such retail
operations; and
WHEREAS,
Employee is well-know and respected in the investment banking community and
has
been successful in securing financing for other companies in the same stage
of
development as the Company; and
WHEREAS,
Employee is experienced in managing the operations of consolidated small retail
stores; and
WHEREAS,
Employee has extensive knowledge of the dry cleaning industry and has developed
a pipeline of prospective acquisition candidates for the Company;
and
WHEREAS,
Employee has intimate knowledge of the Company and its operations;
and
WHEREAS,
Employee has comprehensive experience in growing and managing retail operations
from start up to in excess of $100,000,000 in annual revenues as a public
company chief executive officer; and
WHEREAS,
for all of the reasons set forth above, the Board of Directors of the Company
wishes to employ Employee as the Company’s chief executive officer;
and
WHEREAS,
Employee is willing to be so employed under the terms set forth in this
Agreement;
Page
1
AGREEMENT
NOW,
THEREFORE, in consideration of the foregoing, and of the mutual covenants and
conditions set forth herein, the parties hereto agree as follows:
| 1. |
Term
of Employment.
The Company hereby employs Employee, and Employee hereby agrees
to serve
the Company, under and subject to all of the terms, conditions
and
provisions of this Agreement for a period of three (3) years
from the date
hereof, in the capacity of Chief Executive Officer of the Company,
or to
serve in such other executive capacity with the Company as the
Company’s
board of directors (the “Board”) may from time to time designate, provided
such assignment is consistent with Employee’s level of experience and
expertise. This Agreement may be extended for up to three additional
years
upon mutual written agreement of the Company and the Employee.
Company
shall give Employee six months advance notice of its intentions
regarding
such extension.
In
the performance of his duties and the exercise of his discretion,
Employee
shall report only to the Board of Directors. Employee’s duties shall be
designated by the Board and shall be subject to such policies
and
directions as may be established or given by the Board from time
to
time.
|
| 2. |
Devotion
of Time to Company Business.
Employee shall devote substantially all of his productive time,
ability
and attention to the business of the Company during the term
of this
Agreement. Employee shall not, without the prior written consent
of the
Board, directly or indirectly render any services of a business,
commercial or professional nature to any other person or organization,
whether for compensation or otherwise, which may compete or conflict
with
the Company’s business or with Employee’s duties to the
Company.
|
|
3.
|
Compensation.
|
|
3.1
|
Base
Salary.
For all services rendered by Employee under this Agreement, the Company
shall pay Employee a base salary (“Base Salary”) payable semi-monthly, at
the rate of $20,000.00 per month until the Company achieves monthly
revenues from normal operations in excess of $4,166,667 and positive
four-wall income for all stores considered in the aggregate for any
30 day
period, and $25,000.00 per month
thereafter.
|
|
3.2
|
Bonuses.
In addition to the amount specified in Section 3.1, the Company shall
pay
or deliver Employee the following bonuses at the times indicated
below:
|
|
(a)
|
Promptly
after the
execution of this Agreement a promissory note in the amount of Two
Hundred
Thousand Dollars ($200,000.00) bearing interest at the rate of eight
percent (8%) per annum payable interest only on monthly basis, with:
(i)
$50,000 of the principal balance of such note payable at the earlier
of
the
|
Page
2
expiration
of three years from the date of this Agreement and the closing
subsequent to the date of this Agreement of a debt or equity financing for
the
Company of at least $1,500,000 and (ii) the balance of such note payable upon
the earlier of the expiration of three years from the date of this Agreement
and
initial sale of the Company’s stock following the date of this Agreement with
proceeds of at least $3,000,000; and
|
(b)
|
If,
upon the Company achieving monthly revenues in excess of $4,166,667
and
positive “Four-Wall Income” for all stores considered in the aggregate for
any 30 day period on or before December 31, 2007, the market price
of the
Company’s common stock (appropriately adjusted to reflect stock splits,
combinations and dividends, recapitalizations, and reclassifications
after
the date of this Agreement) equals or exceeds $5.00 per share, a
bonus of
$350,000, or if the market price of the Company’s common stock is less
than $5.00 per share, a bonus of $250,000; and
|
|
(c)
|
If,
upon the Company achieving monthly revenues in excess of $8,333,333
and
positive Four-Wall Income for all stores considered in the aggregate
for
any 30 day period on or before December 31, 2008, the market price
of the
Company’s common stock (appropriately adjusted to reflect stock splits,
combinations and dividends, recapitalizations, and reclassifications
after
the date of this Agreement) equals or exceeds $5.00 per share, a
bonus of
$500,000, or if the market price of the Company’s common stock is less
than $5.00 per share, a bonus of
$350,000.
|
For
purposes of this Agreement, the term “Four-Wall Income” shall mean Operating
Income computed in accordance with generally accepted accounting principals
plus
Administrative Expenses and Professional Fees. In the sole discretion of the
Board of Directors (with Employee not voting and not present during the
deliberations of the Board of Directors), the Company may award discretionary
additional cash bonuses to Employee for significant accomplishments that produce
material benefits for the Company. In considering whether to award any such
discretionary bonus, the Board shall take into account the size such
discretionary bonus, the size and nature of the matter, the extra efforts of
Employee, the difficulty of attaining the result that he has attained, the
time
required to accomplish the result, the merits and benefits to the Company,
the
effect on the market price of the Company’s stock, and such other factors as the
Board may deem appropriate. The Board shall not be required to award any such
additional bonus, and neither the Company nor the directors shall have any
liability to Employee for any action or non-action with respect to any such
discretionary additional bonus under this Section 3.2.
| 3.3 |
In
addition to his Base Salary and cash bonuses, if any, the Employee
shall
receive the following fully vested options under the Company’s stock
option plan:
|
Page
3
| (a) |
Incentive
stock options to purchase 200,000 shares of the Company’s common stock at
$3.50 per share;
|
|
(b)
|
Incentive
stock options to purchase an additional 200,000 shares of the Company’s
common stock at $5.00 per share;
|
|
(c)
|
Incentive
stock options to purchase an additional 200,000 shares of the Company’s
common stock at $7.50 per share;
|
|
(d)
|
Incentive
stock options to purchase an additional 200,000 shares of the Company’s
common stock at $10.00 per share.
|
Such
options shall be granted under the Company’s stock option plan and shall be
evidenced by a stock option agreement containing terms and conditions
satisfactory to the Board of Directors (with Employee not voting and not present
during the deliberations of the Board of Directors).
|
4.
|
Benefits.
|
|
4.1
|
In
addition to the compensation set forth in Section 3, Employee will
be
entitled to participate in all benefits of employment available to
other
members of the Company’s management, on a commensurate basis as they may
be offered from time to time by the Board of Directors to the Company’s
other management employees. Such benefits include, but are not limited
to,
full medical (including vision), dental and long term disability
insurance
for Employee and his family, participation in group life insurance
and
retirement plans. The Company shall also maintain Employee’s existing
$1,000,000 whole life insurance policy, payable to Employee’s designees,
and the Employee’s existing $500,000 whole life and $2,500,000 term life
insurance policies payable to the Company, both of which will be
transferred to the Employee upon his termination other than upon
his
death. The policies payable to the Company may be converted to universal
life policies at the option of Employee, provided the premiums for
all
such policies shall not in the aggregate exceed $50,000
annually.
|
|
4.2
|
It
is anticipated that Employee will spend considerable amount of time
traveling on behalf of the Company in the discharge of his duties.
During
the period of his employment hereunder, a company credit card will
be
available for reasonable business, travel and entertainment expenses
incurred in accordance with Company policy on behalf of the Company
in
connection with his employment. Additional out of pocket expenses
will be
reimbursed when necessary. Employee will be required to submit appropriate
expense reports for approval by signature of the Chief Financial
Officer
as a condition of reimbursement of such expenses. Frequent traveler
bonus
points thus earned will accrue to the personal account of Employee
as
additional compensation.
|
Page
4
|
4.3
|
In
lieu of a company provided automobile, the Company will pay an expense
allowance for an automobile owned by Employee, in an amount of $2,000
per
month.
|
|
4.4
|
Employee
shall be entitled to one (1) week vacation upon completion of every
three
(3) full months of employment under this Agreement. To the extent
that
Employee does not take vacation, Employee may accumulate such vacation
time throughout the term of this Agreement up to a maximum of six
(6)
weeks. Upon the termination of this Agreement, with or without cause,
and
to the extent that Employee has accumulated vacation time up to the
maximum allowed, the Company shall pay to Employee, in addition to
all
other consideration due Employee in the event of termination herein,
the
full value of such accumulated vacation time commensurate with the
Base
Salary provided above.
|
|
4.5
|
The
Company acknowledges that Employee maintain his principal residence
in
Rancho Mirage, California. Employee shall not be required to move
his
principle residence. The Company will provide Employee with reimbursement
for housing in Orange County, California at such times as Employees
determines necessary or appropriate of up to $3,000.00 per month.
If
Employee agrees to change his permanent residence at the request
of the
Company, the Company shall pay reasonable relocation costs, including
but
not limited to moving expenses.
|
| 5. |
Authority.
So long as Employee serves as Chief Executive Officer of the
Company under
this Agreement he shall have the authority specified in the By-Laws
of the
Company, except that he shall not proceed with any matters, or
permit the
Company to take any actions, which are prohibited by, or are
in conflict
with, resolutions or guidelines adopted by the Board of Directors;
and
under no circumstances shall Employee, without express prior
authorization
by the Board of Directors, make any change in capital structure
or issue
any stock of the Company, incur additional debt, change the Company’s
lines of business, or make any other material changes to the
corporate
structure and provided further that any payments or checks in
excess of
$75,000.00 shall require the signature of two persons designated
by
resolution of the Board of
Directors.
|
| 6. |
Termination.
This Agreement shall terminate in advance of the time specified
in Section
1 above (and except as provided herein, Employee shall have no
right to
receive any compensation due and payable to him or his estate
at the time
of such termination) under any of the following
circumstances:
|
|
6.1
|
Upon
the death of Employee during the term of this Agreement, the Company
shall
pay to the estate of Employee Base Salary, bonuses, and any other
compensation accrued or earned by Employee as of the date of death,
plus
an amount equal to the lesser of (a) six (6) months of Base Salary
or (b)
the Base Salary that Employee would have received up to the expiration
of
the Agreement.
|
Page
5
|
6.2
|
In
the event that Employee shall become either physically or mentally
incapacitated so as to not be capable of performing his duties as
required
hereunder, and if such incapacity shall continue for a period of
three
months consecutively, the Company may, at its option, terminate this
Agreement by written notice to Employee at that time or at any time
thereafter while such incapacity continues. In case of termination
under
this Section, Employee or his estate shall be entitled to receive
Base
Salary, bonuses and any other compensation accrued or earned as of
the
date of termination, and for six months following such termination
or
until the expiration of the term of this Agreement, whichever is
earlier.
In addition, the Company shall permit Employee to participate in
Company’s
medical, dental, and long term disability and long term care insurance
plans, if any, at Employee’s cost, for a period of one (1) year following
termination herein and to the extent permitted by
law.
|
|
6.3
|
By
Employee, if the Company shall have materially breached any of the
provisions of this Agreement and failed to cure such breach within
15
calendar days after the Board of Directors of the Company receives
written
notice of such breach from Employee, or by the Company without Cause;
provided,
that the Company shall pay Employee his Base Salary through the remaining
term of this Agreement.
|
|
6.4
|
By
the Company for Cause. The term “Cause” used in this Section 6.5 means
that Employee., (i) after repeated written notices and warnings and a
reasonable opportunity for cure, fails to perform his reasonably
assigned
duties as reasonably determined by the Board of Directors, (ii) is
convicted of any felony involving moral turpitude, or (iii) commits
any intentionally dishonest or fraudulent act which materially damages
or
may damage the Company’s business or reputation. If the Company terminates
Employee for Cause, no payments or benefits under this Agreement
shall
become payable after the date of Employee’s
termination.
|
|
6.5
|
Notwithstanding
anything in this Agreement to the
contrary:
|
|
(a)
|
If
payment or provision of any amount or other benefit to Employee that
is
"deferred compensation" subject to Section 409A of the Internal Revenue
Code ("Code") at the time otherwise specified in this Agreement would
subject such amount or benefit to additional tax pursuant to Section
409A(a)(1)(B) of the Code, and if payment or provision thereof at
a later
date would avoid any such additional tax, then the payment or provision
thereof shall be postponed to the earliest date on which such amount
or
benefit can be paid or provided without incurring such additional
tax.
|
|
(b)
|
If
any payment or benefit permitted or required under this Agreement
is
reasonably determined by either party to be subject for any reason
to a
material risk of additional tax pursuant
to
|
Page
6
Section
409A(a)(1)(B) of the Code, then the parties shall promptly agree in good faith
on appropriate provisions to avoid such risk without materially changing the
economic value of this Agreement to either party.
|
7.
|
Loyalty,
Non-Competition and
Confidentiality.
|
|
7.1
|
Non-Competition.
Employee agrees and covenants that, except for the benefit of the
Company
(and/or successor, parent or subsidiary) during the Non-Competition
Period
(as defined in Section 7(b)) he will not engage, directly or indirectly
(whether as an officer, director, consultant, employee, representative,
agent, partner, owner, stockholder, or otherwise) in any business
engaged
in by the Company in the Non-Competition Area (as defined in Section
7.3
nor will Employee compete against the Company for any transaction
or
corporate opportunity which the Company has or may have an interest
in
pursuing. It is the parties’ express intention that if a court of
competent jurisdiction finds or holds the provisions of this Section
7 to
be excessively broad as to time, duration, geographical scope, activity
or
subject, this Section 7 shall then be construed by limiting or reducing
it
so as to comport with then applicable
law.
|
|
7.2
|
Non-Competition
Period.
As used herein, the “Non-Competition Period” means the period beginning on
the date hereof and ending on a date which is three years from the
date of
this Agreement; provided
however,
that if Employee’s employment is terminated by the Company without Cause,
the Non-competition Period shall end on the date of such
termination.
|
|
7.3
|
Non-Competition
Area.
As used herein, the term “Non-Competition Area” means any county within
the United States in which any store is operated by the Company during the
term of this Agreement.
|
|
7.4
|
Other
Employees.
Employee agrees that during the Non-Competition Period he shall not,
directly or indirectly, for his own account or as agent, servant
or
employee of any business entity, engage, hire or offer to hire or
entice
away or in any other manner persuade any officer, employee or agent
of the
Company or any subsidiary to discontinue his relationship with the
Company
or any subsidiary of the Company.
|
|
7.5
|
Confidentiality.
Employee acknowledges that he has learned and will learn Confidential
Information, as defined in Section 7.6, relating to the business
of the
Company. Employee agrees that he will not, except in the normal and
proper
course of his duties, disclose or use, either during the Non-Competition
Period or subsequently thereto, any such Confidential Information
without
prior written approval of the Board of Directors of the
Company.
|
Page
7
|
7.6
|
Confidential
Information.
“Confidential Information” shall mean contractual arrangements, plans,
locations, strategies, tactics, potential acquisitions or business
combinations or joint venture possibilities, policies and negotiations;
marketing information, including sales, purchasing and inventory
plans,
strategies, tactics, methods, customers, advertising, promotion or
market
research data; financial information, including operating results
and
statistics, costs and performance data, projections, forecasts, investors,
and holdings; and operational information, including trade secrets,
secret
formulae, control and inspection practices, accounting systems and
controls, computer programs and data, personnel lists, resumes, personal
data, organizational structure and performance evaluations and other
information of the company which derives economic value from not
being
generally known to the public or the company’s competitors. Confidential
Information does not include skills, knowledge and experience acquired
by
Employee during his employment with any prior
employer.
|
|
7.7
|
Corporate
Documents.
Employee agrees that all documents of any nature pertaining to activities
of the Company or to any of the Company’s Confidential Information in his
possession now or at any time during the Non-Competition Period,
including, without limitation, memoranda, notebooks, notes, computer
records, disks, electronic information data sheets, records and
blueprints, are and shall be the property of the Company and that
they and
all copies of them shall be surrendered to the Company whenever requested
by the Board of Directors from time to time during the Non-Competition
Period and thereafter and with or without request upon termination
of
Employee’s employment with the
Company.
|
| 8. |
Equitable
Remedies.
In the event of a breach by Employee of any of the provisions
of the
Section 7, the Company, in addition to any other remedies it
may have,
shall be entitled to an injunction restraining Employee from
doing or
continuing to do any such act in violation of the Section
7.
|
| 9. |
Attorney
Fees.
The successful party in any litigation relating to matters covered
by this
Agreement shall be entitled to an award of reasonable attorneys’ fees in
such action.
|
| 10. |
Assignment.
Neither this Agreement nor any of the rights or obligations of
either
party hereunder shall be assignable by either Employee or the
Company,
except that this Agreement shall be assignable by the Company
to and shall
inure to the benefit of and be binding upon (i) any successor
of the
Company by way of merger, consolidation or transfer of all or
substantially all of the assets of the Company to an entity other
than any
parent, subsidiary or affiliate of the Company and (ii) any parent,
subsidiary or affiliate of the Company to which the Company may
transfer
its rights hereunder.
|
Page
8
| 11. |
Binding
Effect.
The terms, conditions, covenants and agreements set forth herein
shall
inure to the benefit of, and be binding upon, the heirs, administrators,
successors and assigns of each of the panics hereto, and upon any
corporation, entity or person with which the Company may become merged,
consolidated, combined or otherwise
affiliated.
|
| 12. |
Amendment.
This Agreement may not be altered or modified except by further
written
agreement by the
parties.
|
|
13.
|
Prior
Agreements. This Agreement supersedes and replaces all prior
agreements between the parties
hereto.
|
| 14. |
Notices.
Any notice required or permitted to be given under this Agreement
by one
party to the other shall be sufficient if given or confirmed
in writing
and delivered personally or mailed by first class mail, registered
or
certified, return receipt requested (if mailed from the Untied
States),
postage prepaid, or sent by facsimile transmission, addressed
to such
party as respectively indicated below or as otherwise designated
by such
party in writing.
|
If
to the
Company, to:
U.S.
Dry
Cleaning Corporation
000
X.
Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxx
Xxxxxxx, XX 00000
Attn:
Chairman of the Board
Fax:
(000)000-0000
If
to
Employee, to:
Xxxxxx
X.
Xxx
00
Xxxxxxxxx Xxxxx
Xxxxxx
Xxxxxx, XX 00000
| 15. |
California
Law.
This Agreement is being executed and delivered and is intended
to be
performed and shall be governed by and construed in accordance
with the
laws of the State of
California.
|
| 16. |
Indemnification.
The Company has entered or shall enter into an Indemnification
Agreement
with Employee indemnifying him against personal liability to
the fullest
extent permissible under applicable corporate law and shall,
to the extent
it is reasonably economical to do so, maintain Side A and Side
B Directors
and Officers liability insurance for obligations of
indemnification.
|
Page
9
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date
and year first above written.
|
U.S.
DRY CLEANING CORPORATION
By:
/s/
XXXXXXX X. X. XXXXX
Name:
Xxxxxxx X. X. Xxxxx
Title:
Chairman of the Board
|
|
|
XXXXXX
X. XXX
/s/
XXXXXX X. XXX
|
Page
10
