Exhibit 10.5
EXECUTION
COUNTERPART
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") entered into as
of May 12, 1998, by and between ARCADE, INC. (the "Company"), a Tennessee
corporation, and XXXXX XXXXXX (the "Executive"), a residing at 000 Xxxxxxxx
Xxxxxx, Xxxxxxxxx, Xxxxxxxxx 00000;
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of, among
other things, manufacturing, marketing and distributing olfactory, cosmetics
and flavor sampling products and related items (the "Products"),
WHEREAS, the Company desires to employ the Executive, and the
Executive desires to be employed by the Company on the terms and conditions of
this Agreement, and
WHEREAS, the Executive is not a party to any other contract
or subject to the terms of any other agreement, which contract or agreement
would prohibit his from being a party to this agreement or otherwise being
employed by the Company;
NOW, THEREFORE, in consideration of the respective agreements
of the parties contained herein, it is agreed as follows:
1. Employment Term. The term of this Agreement shall commence
on May 13, 1998 (the "Effective Date") and shall expire on June 30, 2001 (the
"Initial Employment Term"); provided, however, that the Initial Employment Term
shall be automatically extended for successive additional twelve-month periods
(each an "Extended Employment Term") provided that neither party gives written
notice to the other of termination not less than ninety (90) days prior to the
end of the Initial Employment Term or any Extended Employment Term. (The
Initial Employment Term and any Extended Employment Term sometimes hereinafter
collectively called the "Employment Term").
2. Employment.
(a) Subject to the provisions of Section 7 hereof,
the Company agrees to employ the Executive during the Employment Term. During
the Employment Term, the Executive shall be employed as the Chief Operating
Officer of the Company or in such other senior executive capacity as may later
be decided by the Chief Executive Officer ("CEO"). The Executive shall perform
the duties, undertake the responsibilities and exercise the authority
customarily performed,
undertaken and exercised by persons situated in a similar executive capacity.
The Executive shall report to the CEO of the Company. The Executive's offices
shall be located in Chattanooga, Tennessee; however, the Executive shall
undertake such travel as is reasonable and customary in the execution of the
Executive's duties hereunder.
(b) During the Employment Term, excluding periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote his full time, attention, knowledge and skills, faithfully and
diligently to the best of his ability, to the business and affairs of the
Company.
3. Compensation.
(a) Base Salary. During the Employment Term, the
Company agrees to pay or cause to be paid to the Executive an annual base
salary of $220,000.00 or as may be increased from time to time in the sole
discretion of the CEO of the Company (hereinafter referred to as the "Base
Salary"). Such Base Salary shall be earned and accrued on a per day basis and
be payable in accordance with the Company's customary practices applicable to
its executives.
(b) Annual Review. Within the period from June 1
through July 31 of each year during the Employment Term, the CEO of the Company
shall conduct a review of the Executive's performance and compensation;
provided, however, that the Company shall have no obligation to increase the
Executive's compensation as a result of any such review.
(c) Annual Bonus. In addition to Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Term, an annual bonus (the "Annual Bonus") in a maximum amount not to exceed
one hundred percent (100%) of the Base Salary. The amount of the Annual Bonus
to which the Executive will be entitled will be based on whether the Company
meets certain financial performance goals which shall be determined by the
Company in its sole discretion after consultation with the Executive, all to be
as set forth in a bonus plan to be promulgated by the Company prior to the
beginning of each fiscal year of the Company. It is anticipated that during the
fiscal year of the Company ending June 30, 1999, fifty percent (50%) of the
Executive's Annual Bonus will be based on whether the Company meets certain
cost reduction goals and fifty percent (50%) will be based on whether the
Company meets certain cash flow targets. The Annual Bonus shall be payable
(sixty) 60 days after the end of the relevant fiscal year of the Company,
beginning with the fiscal year ending June 30, 1999. The Executive acknowledges
that the performance of his duties are subject to the direction of the CEO of
the Company (or other officer designated in writing by the CEO) and that his
entitlement to an Annual Bonus as set forth herein shall have no impact on the
discretion of the CEO in delegating authority and duties to the Executive; the
Executive agrees that he will not be entitled to claim that the Company failed
to permit him to maximize the amount of the Annual Bonus in the management of
the Company's business or in its delegation of authority and duties to him.
(d) 401(k) Contribution. The Company will make a
matching contribution to the Executive's account in the Company's 401(k) plan
of up to sixty-one (61%) of any contribution made by the Executive, which
percentage may be increased or decreased from time
2
to time to be consistent with any change in the Company's policy regarding
matching contributions for executives.
(e) Stock Options. The Company will grant to the
Executive options to purchase up to 25,000 shares of the one million
(1,000,000) shares of issued and outstanding common capital stock of the
Company (the "Company Stock"), pursuant to an agreement or agreements which
shall be satisfactory to the Company in its sole discretion in both form and
substance and which shall contain the following terms:
(i) options to purchase up to 12,500 shares
of the Company Stock which shall vest over a four (4) year period based solely
on the length of time that the Executive is employed by the Company;
(ii) options to purchase up to 12,500
shares of the Company Stock, which options shall be earned and, to the extent
earned, shall immediately vest over a period of four (4) full fiscal years of
the Company based on whether the Company meets certain financial performance
goals in each of those four (4) fiscal years of the Company, such goals to be
determined by the Company annually in its sole discretion; and
(iii) such other terms and conditions as
shall be satisfactory to the Company in its sole discretion.
4. Employee Benefits. During the Employment Term, the
Executive shall be entitled to participate in all employee benefit plans,
practices and programs maintained by the Company and made available to
employees generally, including, without limitation, any retirement, profit
sharing, savings, medical, hospitalization, disability, dental, life or travel
accident insurance benefit plans, but only to the extent maintained by the
Company. Unless otherwise provided herein the compensation and benefits under,
and the Executive's participation in, such plans, practices and programs shall
be on the same basis and terms as are applicable to executive employees of the
Company generally.
5. Expenses.
(a) The Executive shall be entitled to receive, in
accordance with normal Company practices, prompt reimbursement of all expenses
reasonably incurred by him in connection with the performance of his duties
hereunder or for promoting, pursuing or otherwise furthering the business or
interests of the Company.
(b) If the Executive should move his residence to
Chattanooga, Tennessee, the Company will reimburse the Executive for reasonable
moving expenses for himself and his family, real estate brokerage fees incurred
by the Executive in connection with such move and closing costs in connection
with the purchase of his residence in Chattanooga, Tennessee, such expenses,
fees and costs not to exceed $40,000.00 in the aggregate.
3
6. Vacation and Sick Leave.
(a) The Executive shall be entitled to annual
vacation in accordance with the policies periodically established for similarly
situated executives of the Company; provided, however, that in no event shall
the Executive's annual vacation entitlement be less than three (3) weeks per
year, provided that the operation of the business of the Company so permits.
(b) The Executive shall be entitled to sick leave
(without loss of pay) in accordance with the Company's policies in effect from
time to time.
7. Termination. During the Employment Term, the Executive's
employment hereunder may be terminated under the following circumstances:
(a) Cause. The Company may terminate the Executive's
employment at any time for "Cause". For purposes of this Agreement, a
termination of employment is for "Cause" if:
(i) the Executive has been convicted of a
felony crime, or
(ii) the Company makes a written finding
that the Executive intentionally engaged in conduct which is demonstrably and
materially injurious to the Company.
(b) Disability. If the Executive fails, because of
physical or mental illness or other incapacity, for a period of ninety (90)
days in the aggregate during any twelve month period to substantially perform
his duties under this Agreement ("Disability"), the Company may terminate the
Executive's employment.
(c) Death. The Executive's employment shall
terminate immediately upon the death of the Executive.
(d) Upon Notice by Company. The Company may
terminate the Executive's employment at any time without Cause by giving a
Notice of Termination.
(e) Upon Notice by Executive. The Executive may
terminate his employment at any time by giving a Notice of Termination not less
than sixty (60) days prior to the Termination Date.
8. Compensation Upon Termination. Upon termination of the
Executive's employment during the Employment Term, the Executive shall be
entitled to the following benefits:
(a) If the Executive's employment with the Company
shall be terminated (1) by the Company for Disability, or (2) by reason of the
Executive's death, the Company shall pay the Executive (i) his Base Salary
which has been earned and is accrued but unpaid through the Termination Date,
(ii) his Annual Bonus prorated for the number of weeks in such fiscal year
during
4
which the Executive has been employed by the Company under this Agreement,
(iii) reimbursement for reasonable and necessary expenses incurred by the
Executive on behalf of the Company during the period ending on the Termination
Date; and (iv) accrued vacation pay. The prorated Annual Bonus shall be payable
not later than ninety (90) days following the end of the Company's fiscal year.
(b) If the Executive's employment with the Company
shall be terminated (1) by the Company for Cause, or (2) by the Executive, the
Company shall pay the Executive (i) his Base Salary which has been earned and
is accrued but unpaid through the Termination Date, and (ii) reimbursement for
reasonable and necessary expenses incurred by the Executive on behalf of the
Company during the period ending on the Termination Date.
(c) If the Executive's employment with the Company
shall be terminated by the Company other than by reason of death, Cause or
Disability or other than pursuant to Section 1, the Executive shall be entitled
to the following:
(i) the Company shall pay the Executive (i)
his Base Salary which has been earned but is accrued and unpaid through the
Termination Date, (ii) if such termination occurs less than sixty (60) days
prior to the end of the Company's fiscal year, his Annual Bonus prorated for
the number of weeks in such fiscal year during which the Executive has been
employed by the Company under this Agreement, (iii) reimbursement for
reasonable and necessary expenses incurred by the Executive on behalf of the
Company during the period ending on the Termination Date, and (iv) accrued
vacation pay and sick leave; and
(ii) the Company shall pay the Executive as
severance pay and in lieu of any further compensation for periods subsequent to
the Termination Date, six months of his Base Salary, payable in accordance with
the Company's normal payroll practices or, if the Executive so chooses, the
Company will pay the Executive a lump sum payment equivalent to six months of
his Base Salary within thirty (30) days of the Termination Date.
(d) The severance pay provided for in Section
8(c)(ii) shall be in lieu of any other severance pay to which the Executive may
be entitled under any Company severance plan, program or arrangement.
(e) The severance pay provided for in Section
8(c)(ii) and all other compensation paid under this Agreement shall be subject
to withholding taxes and other employment taxes as required by law with respect
to compensation paid by an employer to an employee.
9. Definitions.
(a) Notice of Termination. For purposes of the
Agreement, a "Notice of Termination" shall mean a written notice of termination
of the Executive's employment, signed by the CEO of the Company if from the
Company and by the Executive if from the Executive, which indicates the
specific termination provision in this Agreement, if any, relied upon.
5
(b) Termination Date., Etc. For purposes of this
Agreement, "Termination Date" shall mean (a) in the case of the Executive's
death, his date of death, (b) if the Executive's employment is terminated for
any other reason, the date specified in the Notice of Termination (which, in
the case of a termination for Cause under Section 7(a)(ii) shall not be less
than seven (7) days from the date such Notice of Termination is given and in
the case of a termination by the Executive under Section 7(e) shall not be less
than sixty (60) days from the date such Notice of Termination is given).
10. Restrictive Covenants.
(a) Covenants Against Competition. The Executive
acknowledges that (i) the Company is currently engaged in the business of
manufacturing, marketing and distributing, directly and through licensees
(collectively, the "Activities"), olfactory, cosmetic/skincare (including but
not limited to treatment, makeup, and lipstick) and flavor sampling products
and encapsulated ingredients and printed materials as they relate to sampling,
and is in the process of developing single dosage products and engaging in the
Activities with respect to nail and hair care sampling products (collectively,
the "Company Business"); (ii) the Company Business is conducted throughout
North America, Europe (including the United Kingdom), South America, Asia and
Australia; (iii) the Executive's work for the Company will give the Executive
access to trade secrets of, and confidential information concerning the
Company; (iv) the agreements and covenants contained in this Agreement are
essential to protect the business and good will of the Company; and (v) the
Executive has means to support the Executive and the Executive's dependents
other than by engaging in the Company Business and the provisions of this
Agreement will not impair such ability. Accordingly, the Executive covenants
and agrees as follows:
(i) Non-Compete. During the period of the
Executive's employment hereunder and for a period of two years thereafter (the
"Restricted Period"), the Executive shall not (except by reason of and in the
Executive's capacity as an employee of the Company), and shall not permit any
of his affiliates to, directly or indirectly, either themselves, or as a
stockholder, partner, associate, employee, director, officer, advisor,
consultant, owner, agent, creditor, coventurer or any person, or otherwise,
directly or indirectly to establish, engage in, become employed by or
associated with, any business, trade or occupation which is competitive with
the Company Business or which involves the development, design, licensing,
sale, distribution or manufacture of any products or services which are
competitive with the Company Business.
(ii) Referral of Contacts and
Opportunities. During the Restricted Period, the Executive shall refer any
contacts he obtains with respect to the Company Business and any opportunities
relating to the Company Business only to the Company.
(iii) Interference with Employment
Relationships. The Executive shall not, directly or indirectly, and will not
permit his affiliates to, during the Restricted Period, hire, solicit or cause
others to hire or solicit, or take any action which is calculated to persuade,
or have the effect of persuading, any employees, representatives or agents of
the Company or its affiliates
6
(i) who are engaged in the Company Business, or (ii) whom the Executive has
become aware of, or has come in contact with, including during the course of
the negotiation of this Agreement and the consummation of the transactions
contemplated hereby, to terminate their employment or other relationship with
the Company or its affiliates.
(iv) Interference with Business
Relationships. The Executive shall not, directly or indirectly, and will not
permit any of his affiliates to, during the Restrictive Period, interfere in
any way with the relationship or prospective relationship between the Company
or its affiliates and any customer, supplier, licensee or prospect of the
Company or its affiliates. Without limiting the foregoing, the Executive shall
not request, encourage, advise or attempt to persuade in any manner (including
by making unfavorable or negative comments with respect to the Company, or its
affiliates, products or conduct of business) any customers or suppliers of the
Company or its affiliates to curtail or cancel such customer's or supplier's
business relationship with the Company or its affiliates.
(v) Confidential Information. The Executive
acknowledges that the Company has a legitimate and continuing proprietary
interest in the protection of its confidential information and that it has
invested substantial sums and will continue to invest substantial sums to
develop, maintain and protect confidential information. The Executive agrees
that, during and after the Restricted Period, the Executive shall, and shall
cause his affiliates to, keep secret and retain in strictest confidence, and
shall not use or disclose to any person whatsoever for their benefit or the
benefit of others any proprietary, confidential or secret matters used in,
associated with or related to the Company or the Company Business
("Confidential Information") including know-how, technology, financial
information, trade secrets, customer lists, names or identities, details or
client or consultant contracts, pricing policies, operational methods,
marketing plans or strategies, product development techniques or plan, business
acquisition plans, new personnel acquisition plans, methods of manufacture,
processes, formulas, designs and design projects, computer programs, inventions
and research projects of the Company, its affiliates, or any other entity which
may hereafter become an affiliate thereof, learned, acquired or developed by
the Executive while employed by the Company. Notwithstanding the foregoing,
Confidential Information shall not include information which (i) is already in
the public domain through no breach of the Executive or his affiliates of this
Agreement or any other agreement with the Company, (ii) the Executive can
provide evidence that such information was legally in his possession without
restriction prior to the Effective Date, or (iii) is disclosed in any printed
patent or other publications without breach of any duty of confidentiality.
(vi) Property of the Company. All
memoranda, notes, lists, records, engineering drawings, technical
specifications and related documents and other documents or papers (and all
copies thereof) relating to the Company or the Company Business, including such
items stored in computer memories, microfiche or by any other means, made or
compiled by or on behalf of the Executive during the course of the Executive's
employment by the Company, or made available to the Executive during the course
of the Executive's employment by the Company relating to the Company, its
affiliates or any entity which may hereafter become an affiliate thereof
(collectively, "Company Property"), shall be the property of the Company. The
Executive shall
7
promptly deliver to the Company all Company Property upon the termination of
the Executive's employment with the Company, or at any other time upon request,
and shall not retain any Company Property in any form whatsoever, except that
the Executive may, at the sole discretion and with the written consent of the
CEO of the Company, retain samples of his work at the Company that do not
contain any Confidential Information.
(vii) Original Material. The Executive
acknowledges that the compensation paid to the Executive by the company during
the Executive's employment by the company is intended to and does compensate
the Executive for the Executive's originality, innovativeness and inventiveness
as it relates to the Company Business. The Executive agrees that any
inventions, discoveries, improvements, ideas, concepts or original works of
authorship relating to the Company Business, including computer apparatus,
programs and manufacturing techniques, whether or not protectable by patent or
copyright, that have been originated, developed, make conceived, authored or
reduced to practice by the Executive alone or jointly with others during the
Executive's employment with the Company shall be the property of and belong
exclusively to the Company. The Executive shall promptly and fully disclose to
the Company the origination or development by the Executive of any such
material and shall provide the Company with any information that it may
reasonably request about such material.
(viii) Post-Employment Property. The
Executive agrees that any and all intellectual property which the Executive
invents, discovers, originates, makes, conceives, creates or authorize either
solely or jointly with others and which is the result of or is substantially
derived from Confidential Information and is reduced to writing, drawings or
practice after the termination of the Executive's employment by the Company for
any reason, with or without cause, shall be the sole and exclusive property of
the Company. The Executive shall promptly and fully disclose all such property
to the Company.
(b) Rights and Remedies Upon Breach. If the
Executive breaches, or threatens to commit a breach of, any of the provisions
contained in Section 10 of this Agreement (the "Restrictive Covenants"), the
Company shall have the following rights and remedies, each of which rights and
remedies shall be independent of the others and severally enforceable, and each
of which is in addition to, and not in lieu of, any other rights and remedies
available to the Company under law or in equity:
(i) Specific Performance. Recognizing that
the remedy at law for any breach or threatened breach of the covenants
contained in this Section 10 may be inadequate, in the event of any breach or
threatened breach of such covenants by the Executive, in addition to any and
all other legal and equitable remedies which may be available, the Company, or
its successors or assigns, may obtain temporary and permanent injunctive relief
without the necessity of proving actual damage by reason thereof, and, to the
extent permissible under the applicable statutes and rules of procedure, a
temporary injunction may be granted immediately upon the commencement of any
such breach and, to the extent permitted by applicable law, without notice.
8
(ii) Accounting. The Company shall have the
right and remedy to require the Executive to account for and pay over to the
Company all compensation, profits, moneys, accruals, increments or other
benefits derived or received by the Executive as the result of any action
constituting a breach of the Restrictive Covenants.
(iii) Tolling. If the Executive engages in
any business in violation of the covenants set forth in this Agreement, the
running of the periods of limitation referred to in this Section 10 shall be
tolled until such violation shall cease and shall begin to run again only when
the Executive shall be in compliance with the provisions of such covenants,
whether voluntarily or pursuant to an order of a court.
(c) Independence of Covenants. The covenants
contained in this Section 10 shall be construed as independent of any other
provisions of this Agreement, and the existence of any other claim or cause of
action by the Executive against the Company shall not constitute a defense to
the enforcement of the covenants contained in this Section 10.
(d) Severability of Covenants. The Executive
acknowledges and agrees that the Restrictive Covenants are reasonable and valid
in duration and geographical scope and in all other respects. If any court
determines that any of the Restrictive Covenants, or any part thereof, is
invalid or unenforceable, (i) the remainder of the Restrictive Covenants shall
not thereby be affected and shall be given full effect without regard to the
invalid portions, or (ii) such Restrictive Covenants may be reduced or limited
by such court so as to make such Restrictive Covenants valid and the remainder
of the Restrictive Covenants shall not thereby be affected.
9
11. Successors and Assigns.
(a) This Agreement shall be binding upon and shall
inure to the benefit of the Company, its Successors and Assigns. The term
"Company" as used herein shall include such Successors and Assigns. The term
"Successors and Assigns" as used herein shall mean a corporation or other
entity acquiring all or substantially all the assets and business of the
Company, as the case may be (including this Agreement), whether by operation of
law or otherwise.
(b) Neither this Agreement nor any right or interest
hereunder shall be assignable or transferable by the Executive, his
beneficiaries or legal representative, except by will or by the laws of descent
and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal personal representative.
12. Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be sent by
nationally-recognized overnight delivery service or certified, registered or
express mail, postage prepaid, return receipt requested, addressed as set forth
below; receipt shall be deemed to occur on the earlier of the date of actual
receipt or receipt by the sender of confirmation that the delivery or
transmission was completed or that the addressee has refused to accept such
delivery or has changed its address without giving notice of such change as set
forth herein.
(a) if to the Company, to:
Arcade, Inc.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: CEO
and, to:
Arcade, Inc.
0000 Xxxx Xxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: CFO
with a copy to counsel for the Company:
Baker, Donelson, Bearman & Xxxxxxxx
1800 Republic Centre
000 Xxxxxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx, Esquire
(b) if to the Executive, to:
10
Mr. Xxxxx Xxxxxx
000 Xxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxx 00000
with a copy to counsel for the Executive:
Xx. Xxxxxxx Xxxxx
Xxx Xxxxx XxXxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Either party may change its address for notice hereunder by notice to
the other party hereto in accordance with the terms of this Section.
13. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and the company. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a wavier or similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreement or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement.
14. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the state of Tennessee
without giving effect to the conflict of law principles thereof. Executive
hereby submits himself to jurisdiction in the State of Tennessee for any action
or cause of action arising out of or in connection with this Agreement, agrees
that venue for any such action shall be Xxxxxxxx County, Tennessee, and waives
any and all rights under the laws of any state to object to jurisdiction or
venue within Xxxxxxxx County, Tennessee.
15. Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
16. Entire Agreement. This Agreement constitute the entire
agreement between the parties hereto and supersedes all prior agreements, if
any, understandings and arrangements, oral or written, between the parties
hereto with respect to the subject matter hereof.
17. References. If the Company is contacted subsequent to the
termination of the Executive, then the Company, consistent with Company policy,
will only confirm that the Executive was employed with the Company for the
dates of such employment as it existed.
11
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its duly authorized officer and the Executive has executed this
Agreement as of the day and year first above written.
ARCADE, INC.
By
-----------------------------------
Title:
-----------------------------------
Xxxxx Xxxxxx
