Exhibit 10.1
EMPLOYMENT AGREEMENT
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THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into by and
between HEALTH AND NUTRITION SYSTEMS INTERNATIONAL, INC. ("HNS", "Company" or
the "Employer"), a Florida corporation, and XXXXX XXXX, an individual (the
"Employee").
PREAMBLE
WHEREAS, the Employer desires to retain the Employee; and
WHEREAS, the Employee is willing to enter into the employ of the
Employer, subject to the following terms and conditions;
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements hereby exchanged, as well as of the sum of Ten and No/100 ($10.00)
Dollars and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the Employer and the Employee (collectively
hereinafter referred to as the "Parties"), intending to be legally bound, hereby
agree as follows:
WITNESSETH:
ARTICLE ONE
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TERM, RENEWALS, EARLIER TERMINATION
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1.1 Term and Renewal.
This Agreement shall be for an initial term of two (2) years,
commencing on January 1, 2002, subject to earlier termination as herein
provided, and subject to renewal upon mutual consent.
ARTICLE TWO
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SCOPE OF EMPLOYMENT
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2.1 Retention.
The Employer hereby hires the Employee and the Employee hereby accepts
such employment, in accordance with the terms, provisions, and conditions of
this Agreement.
2.2 General Description of Duties and Employers Responsibilities.
Employee agrees to devote his time and energies to performance of his
duties on behalf of Employer, which duties are the general and customary duties
generally associated with the position of Chief Executive Officer (CEO) and
President. Employer agrees that it shall take no action that would materially
restrict or interfere with the ability of Employee to perform his obligations
under this Agreement. This shall not restrict Employee from charitable, civic
and other endeavors unrelated to the Company's business. The Employer will not
hire any other person to perform any of the functions generally associated with
the positions of CEO and President, without the Employee's consent. Any such
hiring of additional personnel shall not change the terms of this Agreement,
including its compensation provisions.
2.3 Earlier Termination.
Employment of Employee may be terminated as follows:
(1) Mutual written agreement entered into by and between Employer and
Employee or;
(2) In the event that, during the term of this Agreement or any renewal
or extension thereof, Employee shall become "permanently disabled", as defined
below. This option shall be exercised by Employer's notice to Employee no less
than sixty (60) days prior to the effective termination date. Permanently
Disabled shall mean that during any twelve (12) month period during this
Agreement because of ill health, physical or mental disability, or other causes
beyond the control of Employee, Employee shall have been continuously unable of
performing his duties or responsibilities of this Agreement for a period of one
hundred twenty (120) consecutive days or if, during any year Employee has been
unable to perform his duties for a total period of one-hundred eighty (180)
days, whether consecutive or not; provided that any definition of such term
contained in the Employer's long term disability policy, as in effect at the
time, shall control.
(3) In the event of the death of the Employee during the Term or
Renewal Term of the Agreement, the Term shall end, the Employee (or his estate)
shall receive all compensation accrued to the date of death, and the Company
shall maintain term life insurance with a policy limit of $500,000 for the
Employee's benefit, provided that the Employee qualifies therefor.
(4) For "Cause" as referred herein. In the event of termination for
"Cause," the Employee shall only be entitled to receive (i) base salary up to
the date of termination and (ii) any bonus determined and payable as of the
termination date.
(a) "Cause shall mean (i) committing an act of fraud, or
embezzlement against the Company; or conviction of a felony, (ii) committing in
any other injurious act or omission wantonly, willfully, recklessly or in a
manner which was grossly negligent against the Company, in any such event which
is intended to have, and which actually has, a material adverse effect on the
Company.
(b) Notwithstanding anything else contained in this Agreement,
this Agreement will not be deemed to have been terminated for Cause unless and
until the Company's Board of Directors shall resolve that Cause exists, and
provided that the Employee shall receive prior notice of such meeting, and an
opportunity to be heard by the Board on the issues.
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2.4 Termination Other than Cause:
(a) The foregoing notwithstanding, the Company may terminate
the Employee's employment for whatever reason it deems appropriate, upon at
least 60 days' prior notice to Executive; provided, however, that in such event
or if Employee's employment is terminated under Section 2.5 hereof, (i) the
Company shall pay a severance to Employee of 1 years' salary and bonus, payable
(free and clear of defenses, offsets and counterclaims) at the times and amounts
as salary and bonus paid during the term of this Agreement, and (ii) all stock
options and similar rights granted to Employee shall immediately vest and become
exercisable.
2.5 Constructive Termination of Employment:
(a) a termination by the Company without Cause under Section
2.4 shall be deemed to have occurred, effective upon notice from the Employee to
the Company, upon the occurrence of one or more of the following events;
(i) a material breach of the Agreement by the Company, that
the Company fails to cure within 30 days after written notice from the Employee;
or
(ii) the Company having materially changed the scope and type
of duties the Employee is to perform, or assigning the Employee to work outside
the Southeast Florida region, in each case unless the Employee specifically
consents thereto.
2.6 Termination Following a Change of Control. In the event that the
Employer has a Change in Control during the Term, then (a) all of the Employee's
stock options shall immediately vest and become exercisable, and (b) in the
event that, within 180 days after the Change in Control, the Employer (or its
successor) has not reached an agreement regarding the Employee's continuing
employment and the Employee's employment terminates for any reason other than
"Cause", then the Employee shall be entitled to receive, upon such termination
of employment, the LESSER of (i) $275,000, or (ii) the maximum "golden
parachute" payment for which the Employer may receive a deduction (and with
respect to which Employee shall not be subject to any excise tax) under Section
280G of the Internal Revenue Code, less $1. For purposes of this provision,
Change in Control means the sale or transfer of 33% or more of the Company's
voting stock of any class, or any sale of substantially all of the assets,
merger or other corporation reorganization affecting the Company. In the event
that the required payment is made to Employee pursuant to this Section 2.6, no
payment shall be made to Employee under Section 2.4 hereof.
2.7 Disputes. In the event of a dispute regarding any termination under
this paragraph 2, said termination shall not be effective until determined by
arbitration as provided below. Both Employer and Employee agree to cooperate
with each other and the arbitrators to expedite the determination of this issue.
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ARTICLE THREE
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COMPENSATION
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3.1 Salary. During the term of employment Employee shall receive a base
salary of One Hundred Forty Thousand and No/100 ($140,000.00) Dollars per year
paid in Twenty-six (26) equal payments of Five Thousand Three Hundred Eighty
Four and 62/100 Dollars paid every two (2) weeks. The parties acknowledge that
this Base Salary is subject to reduction, and will be reduced by an amount equal
to $18,750 (in twelve (12) equal monthly installments of $1,562.50) pursuant to
a settlement agreement with, inter alia, Xxxxxx Xxxxxxxxx, and that the base
salary shall increase when the period of this reduction has expired. In the
event that any compensation owed to Employee (whether base salary or bonus, or
otherwise) is not paid when due, then the amount so due and unpaid shall be a
debt obligation of the Employer to the Employee, due on demand (or upon any
termination of employment) and bearing interest at 8% per annum. The Employee is
owed back salary and bonus aggregating to $32,578, and in respect thereof (a)
the Employee shall receive $22,578 in restricted (Rule 144) common stock of the
Company which shall be issued using a price determined by the average of the
closing bid and asked prices over the 20 trading days preceding the issuance of
such stock, and execute an appropriate investment letter with respect thereto,
and (b) the Company will pay the $10,000 balance owing in cash in six monthly
installments. The Employer's Compensation or Stock Option Committee may, from
time to time, offer to pay accrued compensation (and interest) in restricted
stock of the Company (eligible for resale under Rule 144 of the SEC) in lieu of
cash, and the Employee may request such Committee to consider such a proposal.
The Committee shall respond to such a request within 20 days after the Employee
communicates it to the Committee. Any such arrangement shall be concluded on
terms (including a stock price that reflects the restricted nature of the
Company's securities to be issued) that are acceptable to both sides at the
time. On each annual anniversary date of the commencement of this Agreement,
Employee's base annual salary shall be increased at least 5% (if the Company has
not achieved positive Net Income (as defined below) in the immediately preceding
fiscal year, or at least 10% if the Company has so achieved positive Net Income
(provided that the Board, in its discretion, can grant a higher salary increase
in any event) and payments to Employee shall continue in 26 equal payments as
set forth herein except said payments shall be increased to reflect the increase
in compensation to Employee. As used in this Agreement, Net Income for any
fiscal period shall mean the Company's pre-tax net income, as reported in its
SEC filings for such fiscal period.
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3.2 Expenses and Bonus.
a) Employee shall be entitled to receive payment and/or
reimbursement for expenses incurred that are of a business nature or that
relates to a business nature. The Company shall pay the Employee a $500 month
expense allowance toward his auto expense, which the parties agree is
exclusively a payment in respect of the business use of such automobile.
b) Employee shall be provided with Company credit cards for
business travel and entertainment.
c) Employee shall in addition to salary and expenses be
entitled to pay- ment of bonus compensation as provided herein. The bonus shall
be determined by calculating the sum of (i) 5% of the increase, if any, in (A)
for the first fiscal quarter of a calendar year, the Employer's "Revenues"
reported in the Employer's SEC filing for such first fiscal quarter over the
Employer's Revenues reported in its SEC filings for the first quarter of the
prior fiscal year; or (B) for any quarter other than the first fiscal quarter,
the Employer's year-to-date "Revenues" reported in the Employer's SEC filings
for each of the second, third and fourth fiscal quarters over the Employer's
Revenues reported in its SEC filings for the corresponding year-to-date period
of the prior fiscal year, plus (ii) 10% of the Employer's first quarter, or for
quarters ended after the first quarter of a fiscal year, year-to-date, Net
Income (as defined above) based on the financial information reported in the
Employer's SEC filings; provided, however, (i) one-third of any bonus calculated
for a period shall be paid when the Company files its 10-Q (or 10-QSB) report
for such period; and (ii) the remaining two-thirds of any bonus shall be accrued
until the completion of the next fiscal quarter (and the filing of the
corresponding 10-Q (or 10-QSB) report, at which time, the bonus shall be
recalculated based upon the cumulative results of such fiscal quarters taken
together when compared to the cumulative results of the same fiscal quarters
taken together from the preceding fiscal year. Upon completion of such
cumulative calculation, one-third of the amount so determined shall be paid to
Employee. After the filing of the 10-K (or 10-KSB) report, Employer shall pay
the full bonus for the final yearly period as calculated above minus bonus
amounts previously paid to Employee for prior periods. The examples set forth in
Schedule A hereto illustrate the foregoing bonus calculation.
Bonus compensation that is not paid when due shall become interest
bearing debt, and may be exchanged for restricted stock by agreement of the
Employee and the Stock Option or Compensation Committee, all as provided for
base annual salary, above.
3.3 Employee shall be entitled to all benefits available to members of
management, including, but not limited to health insurance, for Employee and
Employee's family, life and/or disability insurance, sick pay, vacation pay,
etc. Employee shall be entitled to a paid vacation of 3 weeks during the first
year of this contract and four weeks thereafter. Employee has the option of not
taking a vacation, however, Employee shall, in said event, be entitled to
vacation pay for said period in addition to other compensation paid to Employee
under this Agreement.
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3.4 Stock Options Employee shall be entitled to an annual award of stock
options under the Company's 1998 Stock Option Plan, and all successor or
replacement stock plans of the Company. These options shall be granted and vest
at the rate of 50,000 options per year. The options shall have a four year term
from the date the stock option agreement is delivered to the Employee. The first
50,000 stock options shall be granted upon execution of this Agreement, and a
like amount on each anniversary of the date hereof. All options shall be fully
vested upon grant, and exercisable to purchase Common Stock at the fair market
value thereof on the date of grant.
ARTICLE FOUR
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INDEMNIFICATION
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4.1 Indemnification.
Employer shall indemnify Employee against liabilities and expenses, to
the full extent allowed by law, and insure such liability with directors and
officers insurance, as provided in a separate agreement.
ARTICLE FIVE
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CONFIDENTIALITY AND NON COMPETITION
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5.1 Confidentiality The Employee acknowledges that, in and as a result of
his employment hereunder, he will be developing for the Employer, making use of,
acquiring and/or adding to, confidential information of special and unique
nature and value relating to such matters as the Employer's trade secrets,
systems, procedures, manuals, and confidential reports consequently, as material
inducement to the entry into this Agreement by the Employer, the Employee hereby
covenants and agrees that he shall not, at anytime during or following the terms
of his employment hereunder, directly or indirectly, personally use, divulge or
disclose, for any purpose whatsoever, any of such confidential information which
has been obtained by or disclosed to him as a result of his employment by the
Employer, or the Employer's affiliates. In the event of a breach or threatened
breach by the Employee of any of the provisions of this Section, the Employer,
in addition to and not in limitation of any other rights, remedies or damages
available to the Employer, whether at law or in equity, shall be entitled to a
permanent injunction in order to prevent or to restrain any such breach by the
Employee, or by the Employee's partners, agents, representatives, servants,
employers, employees, affiliates and/or any and all persons directly or
indirectly acting for or with him.
5.2 Non-Compete In consideration of the Employer's covenants and
performance hereunder, the Employee agrees, during the term of this Agreement
and for one (1) year after any termination of this Agreement, not to compete
against the Employer's Business ("Business" shall mean the wholesale
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distribution of dietary supplements and vitamins), by participating as an
officer, director, employee or otherwise in the Business operating within Dade,
Broward and Palm Beach Counties, Florida (the "Area"). This covenant shall
terminate and cease to apply if the Employer fails to pay any compensation or
other amounts due to the Employee (including but not limited to any compensation
due after a termination of this Agreement), and fails to cure the same within 20
days after the Employee's demand.
ARTICLE SIX
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MISCELLANEOUS
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6.1 Notices.
All notices, demands or other communications hereunder shall be in
writing, and unless otherwise provided, shall be deemed to have been duly given
on the first business day after mailing by United States registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
TO EMPLOYER: HEALTH AND NUTRITION SYSTEMS INTERNATIONAL, INC.
0000 Xxxxxxxxxx Xxxx, Xxxx. 0
Xxxx Xxxx Xxxxx, XX 00000
TO EMPLOYEE: XXXXX XXXX
0000 Xxxxxxxxxx Xxxx, Xxxx. 0
Xxxx Xxxx Xxxxx, XX 00000
in each case, with a copy to Xxxxxx Xxxxxxx, Esq. Xxxxxx Xxxxxxxxx, 000 X
Xxxxxxxx Xxxx, Xxxxx 0000, Xxxxx, XX 00000, the Employee's legal counsel; or to
such other person as either Party shall designate to the other for such purposes
in the manner hereinabove set forth.
6.2 Amendment.
No modification, waiver, amendment, discharge or change of this
Agreement shall be valid unless the same is in writing and signed by the Party
against which the enforcement of said modification, waiver, amendment, discharge
or change is sought.
6.3 Merger.
This instrument contains all of the understandings and agreements of
the Parties with respect to the subject matter discussed herein. All prior
agreements whether written or oral are merged herein and shall be of no force or
effect.
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6.4 Survival.
The several representations, warranties, and covenants of the Parties
contained herein shall survive the execution hereof and shall be effective
regardless of any investigation that may have been made or may be made by or on
behalf of any Party.
6.5 Severability.
If any portion of any provision of this Agreement, or the application
of such provision or any portion thereof to any person or circumstance shall be
held invalid or unenforceable, the remaining portions of such provision or
portion of such provisions of this Agreement or the application of such
provision or portion of such provision as is held invalid or unenforceable to
persons or circumstances other than those to which it is held invalid or
unenforceable, shall not be effected thereby.
6.6 Governing Law and Venue.
This Agreement shall be construed in accordance with the laws of the
State of Florida. Any dispute arising out of or in connection with this
Agreement shall be resolved by binding arbitration in in Palm Beach County,
Florida, in accordance with the rules of the American Arbitration Association
then in effect. At least one of the arbitrators must have had experience serving
as the CEO of a publicly traded company. The costs of the arbitration, and the
attorneys' fees and other professional fees and costs of the prevailing party,
shall be borne by the party that does not prevail in the arbitration.
6.7 Benefit of Agreement.
Only the Employer may assign this Agreement, the Employee's duties
being of a personal nature. Subject to the restrictions on transferability and
assignment contained herein, the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of the Parties, their successors, assigns,
personal representative, estate, heirs and legatees.
6.8 Captions.
The captions in this Agreement are for convenience and reference only
and in no way define, describe, extend or limit the scope of this Agreement or
the intent of any provisions hereof.
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6.9 Number and Gender.
All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, neuter, singular or plural, as the identity of the Party or
Parties, or their personal representatives, successors and assigns may require.
6.10 Further Assurances.
The parties hereby agree to do, execute, acknowledge and deliver or
cause to be done, executed or acknowledged or delivered and to perform all such
acts and deliver all such deeds, assignments, transfers, conveyances, powers of
attorney, assurances, stock certificates and other documents, as may, from time
to time, be required herein to effect the intent and purposes of this Agreement.
6.11 Status.
Nothing in this Agreement shall constitute a partnership, joint
venture, agency, or lessor-lessee relationship; but, rather, the relationship
established hereby is that of employer-employee.
6.12 Counterparts.
This Agreement may be executed in any number of counterparts. All
executed counterparts shall constitute one Agreement notwithstanding that all
signatories are not signatories to the original or the same counterpart. A
facsimile execution shall be sufficient and effective as an original.
IN WITNESS THEREOF, the Parties have executed and delivered this
Agreement, effective as of the 1st day of January 2002.
Signed, Sealed & Delivered EMPLOYER:
In Our Presence HEALTH AND NUTRITION SYSTEMS INTERNATIONAL, INC.
/s/ Xxxxxx Xxxxxxxx By: /s/ Xxxxxx Xxxxxxxxx
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Attest: /s/ Xxxx Xxxxx
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(CORPORATE SEAL)
EMPLOYEE:
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----------------------- By: /s/ Xxxxx Xxxx
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XXXXX XXXX
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SCHEDULE A
Example 1:
Revenues (hypothetical):
Q1 2001 $1.5 million Q1 2002 $2.0 million
Q2 2001 $1.5 million Q2 2002 $2.0 million
Q3 2001 $2.0 million Q3 2002 $1.5 million
Q4 2001 $2.0 million Q4 2002 $1.0 million
Q1 2002 Bonus Calculation:
Increase in revenue for Q1 2002 from Q1 2001: $2.0 million - $1.5 million =
$500,000 $500,000 times 5% = $25,000 Bonus Payment for Q1 paid on 5/15/02 (10-Q
filing date) = $25,000 times 1/3 = $8,250
Q2 2002 Bonus Calculation for six month period ended June 30:
Increase in revenue for period in 2002 over same period in 2001: $4.0 million -
$3.0 million = $1,000,000 $1,000,000 times 5% = $50,000 Bonus Payment for six
months ended paid on 8/15/02 (10-Q filing date) = $50,000 times 1/3 = $16,500
Q2 2002 Bonus Calculation for nine month period ended September 30:
Increase in revenue for period in 2002 over same period in 2001: $5.5 million -
$5.0 million = $500,000 $500,000 times 5% = $25,000 Bonus Payment for nine
months ended paid on 11/15/02 (10-Q filing date) = $25,000 times 1/3 = $8,250
Q2 2002 Bonus Calculation for year ended December 31: Increase in revenue for
period in 2002 over same period in 2001: $6.5 million - $7.0 million = no
increased (decrease of $500,000). Therefore, year-end bonus equals $0
NET INCOME:
Q1 Net Income: $250,000 - bonus calculation is $25,000 times 1/3 equals bonus
payment of $8,250
Six Months Ended 6/30 Net Income: $500,000 - bonus calculation
is $50,000 times 1/3 equals bonus payment of $16,500.
Nine Months Ended 9/30 Net Income: $750,000 - bonus calculation is $75,000 times
1/3 equals bonus payment of $25,000
Year End Net Income: $800,000 - bonus calculation is $80,000 minus $49,750
already paid = $30,250.
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Example 2:
Revenues (hypothetical):
Q1 2001 $1.5 million Q1 2002 $2.0 million
Q2 2001 $1.5 million Q2 2002 $2.0 million
Q3 2001 $2.0 million Q3 2002 $2.5 million
Q4 2001 $2.0 million Q4 2002 $2.5 million
Q1 2002 Bonus Calculation:
Increase in revenue for Q1 2002 from Q1 2001: $2.0 million - $1.5 million =
$500,000 $500,000 times 5% = $25,000 Bonus Payment for Q1 paid on 5/15/02 (10-Q
filing date) = $25,000 times 1/3 = $8,250
Q2 2002 Bonus Calculation for six month period ended June 30:
Increase in revenue for period in 2002 over same period in 2001: $4.0 million -
$3.0 million = $1,000,000 $1,000,000 times 5% = $50,000 Bonus Payment for six
months ended paid on 8/15/02 (10-Q filing date) = $50,000 times 1/3 = $16,500
Q2 2002 Bonus Calculation for nine month period ended September 30:
Increase in revenue for period in 2002 over same period in 2001: $6.5 million -
$5.0 million = $1,500,000 $1,500,000 times 5% = $75,000 Bonus Payment for nine
months ended paid on 11/15/02 (10-Q filing date) = $75,000 times 1/3 = $24,750
Q2 2002 Bonus Calculation for year ended December 31:
Increase in revenue for period in 2002 over same period in 2001: $9.0 million -
$7.0 million = $2,000,000 $2,000,000 times 5% = $100,000 Bonus payment on 4/15
of following year (10-K filing date) = $100,000 MINUS $49,500 (total bonus
already paid during prior quarters) - $50,500
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