EMPLOYMENT AGREEMENT
ARTICLE 1
GENERAL PROVISIONS
Section 1.01 EMPLOYMENT AGREEMENT. This Employment Agreement
("Agreement") is entered into as of the first day of October, 1996 by and
between Xxxxxxxx Merchandising Corporation dba Xxxxxxxxx Xxxxx, a California
Corporation ("Company"), and Xx. Xxxxxxx Xxxxxxxx ("Xx. Xxxxxxxx").
ARTICLE 2
POSITION AND DUTIES
Section 2.01 POSITION. Company shall employ Xx. Xxxxxxxx as its
President and Chief Executive Officer. During the term of his employment by
the Company, Xx. Xxxxxxxx shall also serve as a member of the Company's Board
of Directors (the "Board") and as a member of the Board of Directors (the
"Parent Board") of Xxxxxxxxx Xxxxx Holding, Inc. ("Parent").
Section 2.02 DUTIES. Xx. Xxxxxxxx shall have such authority and duties
which are customary for the position of a President and Chief Executive
Officer and shall perform such executive-level duties as may be assigned to
him by Company or its Board of Directors which reasonably serve the purpose
of this Agreement and/or meet the needs of Company and its affiliates. Xx.
Xxxxxxxx shall be based in San Diego at Company's headquarters and shall
report only to the Board and Directors of the Company. All other officers
and employees of the Company shall report directly or indirectly to Xx.
Xxxxxxxx.
Section 2.03 FULL ATTENTION TO BUSINESS. During said employment,
except for sick leave, reasonable vacations and excused leaves of absence,
Xx. Xxxxxxxx shall devote his full business time energies, interest,
abilities and productive efforts to the business of the Company and its
affiliates and shall not, without the Company's written consent, render any
kind of services to others for compensation and, in addition, shall not
engage in any activity which conflicts or interferes with the performance of
Xx. Xxxxxxxx'x duties hereunder.
Section 2.04 COVENANTS NOT TO COMPETE DURING TERM. During the term of
this Agreement, Xx. Xxxxxxxx shall not participate in any capacity in any
business competing with the Company or any of its affiliates.
ARTICLE 3
TERM OF EMPLOYMENT
Section 3.01 TERM. Subject to earlier termination as provided in this
Agreement, Xx. Xxxxxxxx shall be employed commencing on the date first
mentioned above and ending on the third anniversary of such date (the
"Term"). Neither party is under any obligation to renew or
extend this Agreement. Any new employment agreement shall only be effective
after having been reduced to writing and executed by both parties hereto. In
the absence of earlier termination as provided herein, this Agreement shall
terminate atomically on the third anniversary of such date. In the event Xx.
Xxxxxxxx continues to perform services after this Agreement has terminated,
and pending execution of a new employment agreement, if any, such services
shall constitute employment for an unspecified term, terminable at will, with
or without cause or reason, with or without advance notice, and with or
without pay in lieu of advance notice.
ARTICLE 4
COMPENSATION
Section 4.01 SALARY. Company shall pay Xx. Xxxxxxxx an annualized base
salary of $275,000, to be paid in accordance with Company's pay policy.
Section 4.02 STOCK OPTIONS. Xx. Xxxxxxxx shall be granted options under
the Xxxxxxxxx Xxxxx Holding, Inc. 1996 Long-Term Incentive Plan(the "Parent
Plan"), to purchase 3.5% of the Company's common stock, on a primary basis, at
an exercise price of $100 per share. Xx. Xxxxxxxx shall also be granted
additional options under the Parent Plan to purchase 1.5% of the Company's
common stock, on a primary basis, at an exercise price of $200 per share. Such
options shall have a term of 10 years. Such options shall vest in five equal
annual installments commencing on the first anniversary on the date hereof,
provided, however that 75% of any invested options shall become vested if at the
time of a registered underwritten initial public offering of the Parent's common
stock or for any 25 consecutive trading day period thereafter the fair market
value of the Parent's common stock held by the Parent's controlling shareholder
exceeds $250 per shares, as adjusted to take into account any event referred to
in Section4(b) of the Parent Plan. For purposes of this Section 4.02, the fair
market value of a share of the Parent's common stock shall be: (i) the closing
price of a share of the Parent's common stock on the principal exchange on which
shares of the Parent's common stock are then trading, if any, or (ii) if such
common stock is not traded on an exchange but is quoted on NASDAQ or a successor
quotation system, (1) the sales price (if the Parent's common stock is then
listed as a National Market Issue under the NASD National Market System) or(2)
the mean between the closing representative bid and asked prices (in all other
cases) for the Parent's common stock as reported by NASDAQ or such successor
quotation system.
Section 4.03 PERFORMANCE BONUS. For work performed during each of fiscal
year 1997, 1998 and 1999 (ending September 30, 1997, 1998 and 1999,
respectively), Xx. Xxxxxxxx shall be eligible for a bonus based upon achievement
of budgeted annual performance goals established by the Board, in which
deliberations Xx. Xxxxxxxx shall be entitled to participate as a member thereof.
Xx. Xxxxxxxx'x bonus opportunity shall range from 0% to 100% of his base salary,
with 35% of base salary payable upon attainment of 100% of the budgeted
performance goals.
Section 4.04 PERFORMANCE BONUS CONDITIONS. The Performance Bonus shall be
paid by check no later than 75 days following fiscal year end. Xx. Xxxxxxxx
must be actively employed
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as of fiscal year end to be eligible for this bonus. If Xx. Xxxxxxxx quits or
is fired "for cause" as herein defined in Section 6.04, there shall be no
bonus to Xx. Xxxxxxxx in respect of the year of such termination. If Xx.
Xxxxxxxx is terminated prior to fiscal year end without cause or by reason of
Xx. Xxxxxxxx'x disability or death or if Xx. Xxxxxxxx terminates his
employment for "good reason", Xx. Xxxxxxxx shall receive a pro-rata bonus
based on actual performance, to be figured by pro-rating any bonus that would
have been paid for the full fiscal year on a daily basis, to the date of
termination.
Section 4.05 HEALTH INSURANCE. Xx. Xxxxxxxx and his family shall be
entitled to participate in any Company-provided group medical, vision or
dental insurance plans. Company shall pay the entire cost of premiums for
the group medical insurance. Xx. Xxxxxxxx may elect to purchase coverage for
himself and his family for vision care and dental insurance.
Section 4.06 AUTO PRIVILEGES. Xx. Xxxxxxxx shall be entitled to the
use of an automobile leased by the Company.
Section 4.07 VACATION. Xx. Xxxxxxxx shall be entitled to the use of an
automobile leased by the Company.
Section 4.08 VACATION. Xx. Xxxxxxxx shall be entitled to two weeks of
paid vacation per year.
Section 4.09 REIMBURSEMENT OF LEGAL FEES. Xx. Xxxxxxxx shall receive
reimbursement for reasonable attorney fees incurred in connection with this
employment agreement and the Securityholders Rights Agreement. Xx. Xxxxxxxx
shall submit to Company the legal bills for reimbursement.
Section 4.10 BUSINESS EXPENSE REIMBURSEMENT. The Company shall reimburse
Xx. Xxxxxxxx for all reasonable business expenses incurred and documented
pursuant to the Company's expense reimbursement policies and practices.
Section 4.11 LIABILITY INSURANCE AND INDEMNIFICATION. Xx. Xxxxxxxx
shall be added as an additional named insured under all liability insurance
policies now in force or hereafter obtained covering any officer or director
of the Company or Parent in his or her capacity as an officer or director.
The Company and Parent shall also indemnify Xx. Xxxxxxxx in his capacity as
an officer or director and hold him harmless from any cost, expense or
liability arising out of or relating to any act or decisions made by him on
behalf of or in the course of performing services for the Company and Parent
to the fullest extent permitted by California law to the same extent as
provided to other officers or directors of the Company and Parent.
ARTICLE 5
UNFAIR COMPETITION
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Section 5.01 CONFLICT OF INTEREST. The Company relies on the integrity
and good judgment of all employees to observe ethical, professional and legal
standards, and good business practices, in the conduct of the Company's
business. In keeping with ethical business practice, it is critical that Xx.
Xxxxxxxx refrain from activities which conflict with the best interest of the
Company.
Section 5.02 COVENANT NOT TO MISUSE INFORMATION. Xx. Xxxxxxxx agrees to
execute and abide by the Trade Secret and Confidentiality Agreement set forth in
Exhibit "A", which is incorporated herein by reference and made a part hereof.
Xx. Xxxxxxxx'x compliance with the terms of Exhibit "A" is a material
requirement of this Agreement.
ARTICLE 6
TERMINATION OR RESIGNATION
Section 6.01 TERMINATION WITHOUT CAUSE. The Company may terminate this
Agreement at any time, without notice, without cause. In such an event, Company
shall comply with the severance compensation provisions set forth in Sections
6.02 and 6.03.
Section 6.02 TERMINATION WITHOUT CAUSE SEVERANCE COMPENSATION. In the
event Xx. Xxxxxxxx'x employment is terminated by the Company without cause, he
shall be entitled to severance equal to 100% of his annual base salary payable
as set forth in Section 6.03. If Xx. Xxxxxxxx breaches any of his obligations
hereunder including, without limitation, Exhibit A hereto, the company shall be
relieved of any obligation hereunder to make severance payments to Xx. Xxxxxxxx.
No Severance shall be payable hereunder in the event Xx. Xxxxxxxx
resigns his employment other than for "good reason" as provided in Section 6.08
or is terminated for "cause", as herein defined under Section 6.04.
From date of notification by the Company that it has elected to
terminate his employment, Xx. Xxxxxxxx will be free to discuss a position
with other prospective employers. Xx. Xxxxxxxx may continue with current
title and responsibilities after the termination notice date, upon mutual
consent of Company and Xx. Xxxxxxxx. During the period after notification,
but prior to leaving Company, Xx. Xxxxxxxx will be entitled to all
compensation and employee benefits under Section 4 of this Agreement until
the actual termination. Xx. Xxxxxxxx'x severance benefits hereunder shall
not be offset by any income or earnings from any other employment he may
obtain and Xx. Xxxxxxxx shall be under no duty to mitigate the Company's
damages under this Agreement by obtaining or attempting to obtain successor
employment
Section 6.03 SEVERANCE DISTRIBUTION. The severance compensation
payable to Xx. Xxxxxxxx under Section 6.02 of this Agreement will be paid to
Xx. Xxxxxxxx on a monthly basis, less required payroll taxes. Company shall
be entitled to cease making any severance
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compensation payments required under this Agreement in the event Xx. Xxxxxxxx
breaches any provision of this Agreement or Exhibit "A".
Section 6.04 TERMINATION FOR CAUSE. The Company may terminate this
Agreement at any time, without notice, for cause. In such an event, no
severance compensation whatsoever shall be paid to Xx. Xxxxxxxx. For the
purposes of this Agreement, termination for cause shall mean that Xx. Xxxxxxxx
was terminated because of: (i) Xx. Xxxxxxxx'x wilful breach of duty, gross
neglect of duty, gross carelessness or gross misconduct in the performance of
Xx. Xxxxxxxx'x duties; (ii) Xx. Xxxxxxxx'x conviction of a crime involving moral
turpitude; (iii) Xx. Xxxxxxxx'x commission of any act of dishonesty involving
the Company; (iv) Xx. Xxxxxxxx'x unauthorized disclosure of material privileged
or confidential information related to the Company or its employees except as
may be compelled by legal process or court order or the violation of any
provision of Exhibit "A"; (v) Xx. Xxxxxxxx'x commission of some wilful act or
omission which violates material Company policy, procedures, or otherwise
constitutes unethical or detrimental business conduct; or (vi) any other willful
act or omission by Xx. Xxxxxxxx which, in the reasonable good faith opinion of
the Company has, or is reasonably likely to have, a material adverse impact upon
the Company or its reputation, PROVIDED, HOWEVER, that with regard to clauses
(i), (v) and (vi) above, Xx. Xxxxxxxx'x employment may not be terminated for
cause unless and until the Board has given him reasonable written notice of its
intended actions and specifically describing the alleged events, activities or
omissions giving rise thereto and with respect to those events, activities or
omissions for which a cure is possible, a reasonable opportunity to cure such
breach. In the event that this Agreement is terminated for cause pursuant to
this Section, neither the Company nor Xx. Xxxxxxxx shall have any remaining
duties or obligations hereunder except as set forth in Section 6.07 or Exhibit A
hereto, and the Company shall pay to Xx. Xxxxxxxx, or his estate, Xx. Xxxxxxxx'x
base salary pursuant to Section 4.01, prorated through the date of termination
of this Agreement, and any performance bonus earned for prior pursuant to
Section 4.03 and unpaid as of the date of such termination.
Section 6.05 AUTOMATIC TERMINATION. (a) This Agreement shall
automatically terminate on the expiration of the Term of the Agreement,
unless the parties expressly agree in writing to renew the Agreement as set
forth in Section 3.01. No severance compensation whatsoever shall be paid to
Xx. Xxxxxxxx under Section 6.02 in the event of a termination pursuant to
this Section 6.05(a).
(b) In the event that Xx. Xxxxxxxx'x employment with the Company is
terminated by reason of his death or disability, the Company shall continue to
pay his base salary to him (or to his beneficiary, in the event of his death)
for 12 months.
Section 6.06 RESIGNATION. Xx. Xxxxxxxx may terminate this Agreement by
giving the Company written notice of resignation thirty (30) days in advance of
the date of resignation, Company may, at its sole discretion, upon receiving
such notice of resignation, waive any or all of Xx. Xxxxxxxx'x 30 days' notice
period. No severance compensation whatsoever shall be paid to
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Xx. Xxxxxxxx under Section 6.02 or otherwise in the event of a termination
pursuant to this Section.
Section 6.07 TERMINATION FOR GOOD REASON. Xx. Xxxxxxxx may, at any time,
terminate his employment with the Company for "good reason" (as defined below).
In such event the Company shall pay Xx. Xxxxxxxx xxxxxxxxx compensation as if
the Company had terminated Xx. Xxxxxxxx'x employment without "cause" under
Section 6.02. For purposes of this Agreement, "good reason" shall mean, without
the express written consent of Xx. Xxxxxxxx, the occurrence of any of the
following events unless such events are fully corrected within 30 days following
notification by Xx. Xxxxxxxx to the Company that he intends to terminate his
employment hereunder: (i) a material alteration, reduction or diminution in the
duties, responsibilities and status of Xx. Xxxxxxxx'x position as described in
Article 2 of this Agreement, (ii) the Company's requiring Xx. Xxxxxxxx to be
based anywhere other than at the Company's headquarters, or anywhere outside of
the San Diego metropolitan area, or (iii) a material breach by the Company of
Article 4 of this Agreement or of any material provision of the Shareholders
Agreement (as defined in the Parent Plan).
Section 6.08 TERMINATION OBLIGATIONS: RETURN OF COMPANY PROPERTY. Xx.
Xxxxxxxx hereby acknowledges and agrees that all property of the Company or any
affiliate thereof in possession of Xx. Xxxxxxxx, including without limitation,
all books, manuals, files, financial statements, computer disks, contracts,
lists (including without limitation, customer lists, price lists and/or pricing
schedules, lists or summaries of the Company's or any affiliate's costs, lists
of Company's or any affiliate's vendors or suppliers), and other documents of
any kind, proprietary information, and equipment furnished to or prepared by Xx.
Xxxxxxxx in the course of, or incident to, his employment belong exclusively to
the Company or its affiliates, as the case may be, and shall be promptly
returned to the Company or its affiliates, as the case may be, upon termination
of Xx. Xxxxxxxx'x employment for any reason. The obligations contained in this
paragraph shall survive the termination of Xx. Xxxxxxxx'x employment for any
reason whatsoever.
ARTICLE 7
MISCELLANEOUS PROVISIONS
Section 7.01 ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties and supersedes all prior oral and written
Agreements, understandings, commitments, and practices between the parties.
Other than as expressly set forth herein, Xx. Xxxxxxxx and Company acknowledge
and represent that there are no other promises, terms, conditions or
representations (verbal or written) regarding any matter relevant hereto. No
supplement, modification, or amendment of any term, provision or condition of
this Agreement shall be binding or enforceable unless evidenced in writing and
executed by the parties hereto.
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Section 7.02 CALIFORNIA LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, and the venue
of any litigation commenced hereunder shall be San Diego, California.
Section 7.03 PARTIAL INVALIDITY. If the application of any provision of
this Agreement and Exhibit A hereto, or any section, subsection, subdivision,
sentence, clause, phrase, word or portion of this Agreement and Exhibit A hereto
should be held invalid or unenforceable, the remaining provisions thereof shall
not be affected thereby, but shall continue to be given full force and effect as
if the part so held invalid or unenforceable had not been included herein.
Section 7.04 NOTICES. Notices given under this Agreement may be given by
registered or certified mail, return receipt requested, or by personal delivery.
A mailed notice shall be deemed given two (2) business days after mailing.
Section 7.05 XX. XXXXXXXX ACKNOWLEDGMENT. Xx. Xxxxxxxx acknowledges that
he has read and understands this Agreement, is fully aware of its legal effect,
has not acted in reliance upon any representations or promised made by Company
other than those contained in writing herein, and has entered into an Agreement
freely based on his own judgment.
Section 7.06 OTHER REMEDIES. Nothing in this Agreement shall limit any
remedy of Company under the California Uniform Trade Secrets Act (California
Civil Code Section 3426 et seq.) or otherwise available under law.
Section 7.07 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
Section 7.08 NO ASSIGNMENT. This Assignment may not be assigned or
encumbered in any way by Xx. Xxxxxxxx. The Company may assign this Agreement to
any successor (whether by merger, consolidation, or purchase of the Company's
stock) to all or a controlling interest in the Company's business, in which case
this Agreement shall be binding upon and inure to the benefit of such successors
and assigns.
Section 7.09 NO SOLICITATION OF EMPLOYEES. Xx. Xxxxxxxx specifically
agrees that during the term of this Agreement and for a period of two 92) years
thereafter, Xx. Xxxxxxxx shall not, directly or indirectly, either for himself
or for any other person, firm, corporation or legal entity, solicit any then
employee of Company or any affiliate thereof to leave the employment of Company
or any such affiliate.
Section 7.10 LIMITATION ON WAIVER. A waiver of any term, provision or
condition of this Agreement shall not be deemed to be, or constitute a waiver of
any other term, provision or condition herein, whether or not similar. No
waiver shall be binding unless in writing and signed by the waiving party.
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Section 7.11 ATTORNEYS' FEES. In the event that any proceeding is
commenced involving the interpretation or enforcement of the provisions of this
Agreement, the Party prevailing in such proceeding shall be entitled to recover
its costs and reasonable attorneys' fees from the non-prevailing party.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement on the dates set forth below:
Xxxxxxx Xxxxxxxx XXXXXXXX MERCHANDISING
CORPORATION dba
XXXXXXXXX XXXXX
By: /s/ XXXXXXX XXXXXXXX /s/ XXXX XXXX
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Its Authorized Agent
Dated: October 7, 1996 Dated: October 7, 1996
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