EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, entered into the 1st day of August,
1998, effective as of the 1st day of February, 1999, between XXX SHOPS, INC., a
Pennsylvania corporation with its principal offices at 0000 Xxxx Xxxxx Xxxx,
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000 (the "Company") and XXXXX XXXXXXXXXX, an
individual residing at 0000 Xxxxxxx Xxxx Xxxxx, Xxxxxx Xxxx, Xxx Xxxxxx 00000
(the "Employee").
NOW, THEREFORE, in consideration of the foregoing and the
promises and covenants hereinafter set forth, the parties, intending to be
legally bound, hereby agree as follows:
1. Employment. The Company hereby continues the employment of
the Employee and the Employee agrees to continue his employment with the Company
on the terms and conditions hereinafter set forth.
2. Term. The term of this Agreement shall commence on February
1, 1999 and shall expire on January 31, 2002 (the "Term"), unless this Agreement
is sooner terminated in accordance with Paragraphs 5 or 6.
3. Duties. The Employee is presently engaged as the Company's
Senior Vice President-Merchandising and he agrees to continue to perform the
duties and services incident to that position, or such other or further duties
and services of a similar nature as may be reasonably required of him by the
Company. The Employee shall report to, and be subject to the direction and
control of, the President of the Company. The Employee shall perform his duties
for the Company primarily from the Company's facilities at 0000 Xxxx Xxxxx Xxxx,
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000, or such other similarly situated locations of
the Company to which the Employee may be assigned to from time to time by the
Company. Notwithstanding the foregoing, Employee acknowledges and agrees that
from time to time, in the ordinary course of the business of the Company that
the Employee will be required to travel, and Employee hereby agrees to undertake
such travel. The Employee shall devote his full business time, attention,
energies and best efforts to the performance of his duties hereunder and to the
promotion of the business and interests of the Company and of any corporate
subsidiaries or affiliated companies. Nothing contained in this Section 3 shall
be construed as preventing Employee from investing his personal assets, provided
that no such investment (a) shall violate the provisions of Section 7 or 8 of
this Agreement or (b) constitute the usurpation of a corporate opportunity of
the Company. For purposes of this Section 3, a corporate opportunity shall be
(i) one presented to or made available to the Company or any affiliate of the
Company and known by the Employee or (ii) an investment or acquisition known by
Employee as being considered by the Company or any affiliate of the Company, but
a corporate opportunity shall not include any investment opportunity presented
to or made to the Company or any affiliate of the Company which neither the
Company nor such affiliate elects to pursue within a reasonable time. In
addition, during the Term or extended term of this Agreement, the Employee may
serve on corporate, civic or charitable boards or committees, except boards or
committees of corporations that compete with the Company.
4. Compensation; Expenses.
(a) Salary. The Employee shall be paid a salary at the rate
of $325,000 per annum (the "Base Salary"). The Base Salary shall be paid in
arrears in accordance with the Company's regular payroll practices. The Base
Salary may be increased, but shall not be decreased, during the Term or extended
term of this Agreement.
(b) Bonus.
(i) Employee shall be entitled to receive an annual
bonus ("Bonus"), in the manner set forth below, based on the
increase in earnings before interest and taxes ("EBIT") of the
Company, including its apparel subsidiaries, but excluding any
subsidiary not engaged in the apparel business and further
excluding Tops `N Bottoms of New York, Inc., on a consolidated
basis, in accordance with GAAP consistantly applied (the "Base
Company").
(ii) In the event of an acquisition by the Company of a
subsidiary whose merchandising does not come under the
supervision of Employee, the EBIT for such subsidiary shall be
excluded from the EBIT of the Company for purposes of
determining Employee's Bonus.
(iii) The Bonus shall be determined as follows:
(A) The Bonus will equal four (4%) percent of
the increase in EBIT for each fiscal year over the
preceding fiscal year.
(B) Notwithstanding the preceding Subsection
4(b)(iii)(A), in the event that the Base Company
sustains an operating loss in any fiscal year, the
Bonus will be deemed earned if such operating loss
is less than any operating loss sustained by the
Base Company in the preceding fiscal year; in any
such event, the Bonus will be four percent (4%) of
the reduction in the operating loss from the
previous year to the current year.
(C) Notwithstanding the preceding Subsection
4(b)(iii)(A) and (B), in the event that the EBIT for
any fiscal year during the term of this Agreement
decreases, then and in such event, the Bonus for an
increase in EBIT in a subsequent fiscal year during
the term of this Agreement shall be based on the
increase in EBIT for such fiscal year over the
preceding fiscal year which did not experience a
decrease in EBIT.
(iv) The Bonus shall be calculated (based on the audited
financial statements of the Company) and paid no later than
April 15 of each fiscal year for the fiscal year ending
January 31 of each year. The first calculation of the Bonus
shall be for the fiscal year ending January 31, 2000.
(v) Notwithstanding the provisions of this Section 4(b),
in no event shall the Bonus exceed $300,000.
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(c) Stock Options. On or before October 31, 1998, the
Company shall issue to Employee options to purchase up to 150,000 shares of the
Common Stock of the Company in accordance with the vesting schedule set forth on
Schedule 4(c) attached, and pursuant to the provisions of the Company's
Incentive Stock Option Plan, and subject to applicable law. A copy of the
Company's Incentive Stock Option Plan was delivered to the Employee. In the
event that the Employee voluntarily terminates his employment, or in the event
that the Company terminates the Employee for cause as provided in Section 6(a)
of this Agreement, any options which have not vested as of the date of such
termination of employment shall be deemed to have terminated.
(d) Fringe Benefits. The Employee shall be entitled to such
benefits and perquisites as are provided under the Company's standard executive
benefit package to the extent and on the same terms and conditions as are
accorded to other executives of the Company, provided however nothing herein,
except as provided in Section 4(c) above, shall be deemed to require grants or
awards to Employee under any benefit plans which provide for grants or awards at
the discretion of any Board of Directors or any committee thereof or
administrator. Throughout the Term of this Agreement, the Company will furnish
the Employee with an automobile similar to that provided to other executive
officers in accordance with Company policy and will pay all reasonable expenses
incurred in connection with its operation. Nothing herein shall require Company
to establish, maintain or continue any of the fringe benefits already in
existence or hereafter adopted for employees of the Company, nor restrict the
right of the Company to amend, modify or terminate such fringe benefit programs
in a manner which does not discriminate against Employee as compared to other
executive employees of the Company. The Employee shall also be entitled to up to
three (3) weeks' paid vacation during each year of this Agreement. Any vacations
shall be taken at such times as are mutually convenient for the Company and the
Employee.
(e) Business Expenses. The Company will pay, or reimburse
the Employee for, all ordinary and reasonable out-of-pocket business expenses
incurred by Employee in connection with his performance of services hereunder
upon the Employee's submission of a written, itemized account of such business
expenses in accordance with the Company's expense authorization and approval
procedures then in effect.
5. Death or Disability of the Employee.
(a) Death. In the event of the death of the Employee during
the Term or extended term of this Agreement, this Agreement shall terminate
effective as of the date of the Employee's death, and the Company shall not have
any further obligation or liability hereunder except that the Company shall pay
to Employee's estate, as soon as practicable (i) any accrued and unpaid Base
Salary, (ii) a pro rata portion of any Bonus (based upon the period of
Employee's employment) otherwise payable with respect to the fiscal year in
which Employee died, (iii) the amount of any Bonus for prior periods which Bonus
was earned but not paid prior to Employee's death, and (iv) unreimbursed
business expenses for which Employee is entitled to be reimbursed under Section
4 of this Agreement to the date of the Employee's death.
(b) Disability. In the event of the Total Disability (as
hereafter defined) of the Employee, the Company shall have the right to
terminate the Employee's employment hereunder by giving the Employee 90 days
prior written notice thereof, and, upon expiration of such 90-day period, the
Company shall not have any further obligation or liability under this Agreement
except that the Company shall pay to the Employee, as soon as practicable (i)
any accrued and unpaid Base Salary, (ii) a pro rata portion (based upon the
period of Employee's employment) of any Bonus otherwise payable with respect to
the fiscal year in which Employee became totally Disabled, (iii) the amount of
any Bonus for prior periods which Bonus was earned but not paid prior to
Employee's Total Disability, and (iv) any unreimbursed business expenses in
accordance with the provisions of Paragraph 4 hereof to the date of such Total
Disability; provided, however, that if the Employee, during any period of
disability, receives any periodic payments representing lost compensation under
any disability insurance plan, the premiums for which have been paid by the
Company, the amount of compensation that the Employee would be entitled to
receive from the Company during such period of disability shall be decreased by
the amounts of such payments.
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The term "Total Disability", when used herein, shall mean a
mental, emotional or physical condition which has rendered the Employee for a
period of 180 consecutive days, or for a total of 180 days during any period of
12 consecutive months, during the term of this Agreement unable or incompetent
to carry out, on a substantially full time basis, the Employee's normal and
customary job responsibilities he held or tasks that he was assigned at the time
the disability was incurred. The Employee agrees, in the event of any dispute as
to the determination made pursuant to this Paragraph 5, to submit to a physical
or other examination by a licensed physician approved by Company, and such
physician's determination and resolution of the dispute shall be binding and
conclusive. During the period in which the determination of the Employee's Total
Disability shall be under review, the Employee shall continue to be treated for
all purposes of this Agreement as an employee of the Company, enjoying the full
status with full pay to which he would otherwise be entitled under this
Agreement.
6. Termination.
(a) Termination by Company for Cause. Company shall have the
right to terminate this Agreement and employment hereunder "for cause" by giving
Employee ten (10) days advance written notice to that effect. Any such
termination of employment shall be effective on the date specified in such
notice. In the event of such termination for cause, Company shall pay to
Employee (i) his accrued and unpaid Base Salary to the effective date of the
termination, and (ii) any business expenses remaining unpaid on the effective
date of the termination for which Employee is entitled to be reimbursed under
Section 4 of this Agreement. For the purpose of this Agreement, "for cause"
shall mean (i) commission of a willful act of dishonesty in the course of
Employee's duties hereunder which injures Company, (ii) conviction by a court of
competent jurisdiction of a crime constituting a felony or conviction in respect
of any act involving fraud, dishonesty, or moral turpitude, (iii) Employee's
continued, habitual intoxication or performance under the influence of
controlled substances, after Company shall have provided written notice to
Employee and given Employee 30 days within which to commence rehabilitation with
respect thereto, and Employee shall have failed to commence or thereafter
complete such rehabilitation, (iv) frequent or extended absenteeism (not as a
result of incapacity or disability) resulting in a material failure by Employee
in the performance of his duties hereunder and which shall not have been cured
within 30 days after Company shall have advised Employee in writing of its
intention to terminate Employee's employment in accordance with the provisions
of this Subsection 6(a), in the event such condition shall not have been cured,
(v) engaging in any act which has the potential for material injury to Company
and which shall not have been cured within thirty days after Company shall have
advised Employee in writing of its intention to terminate Employee's employment
in accordance with the provisions of this Subsection 6(a), in the event such act
shall not have been cured, (vi) any act constituting a violation of the written
firearm and dangerous weapons policy of Company, a copy of which has been
provided to the Employee, or (vii) breach of any of the provisions of Sections 7
or 8 of this Agreement or non-compliance with or breach of any of the material
terms or provisions of this Agreement, which shall not have been cured within
thirty (30) days after the Company shall have advised the Employee in writing of
its intention to terminate the Employee's employment in accordance with the
provisions of this Subsection 6(a), in the event such act shall not have been
cured.
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(b) Termination Without Cause. The Company shall have the
right to terminate Employee's employment without cause. In the event of such
termination, or if the Employee resigns for Good Reason (as hereafter defined)
Company shall pay Employee an amount equal to the lesser of (i) Employee's
remaining Base Salary for the balance of the Term or (ii) six (6) months Base
Salary. This provision shall only apply to the initial Term of this Agreement
and not to any extensions of this Agreement. Upon such payment, Company shall
have no further obligations with respect to Employee. "Good Reason" shall mean
the resignation of the Employee from employment by the Company as a result of a
reduction in his Base Salary or Bonus, or a substantial diminution in his
duties, responsibilities or reporting responsibility, without his express prior
written consent.
(c) Pro Rata Payments. In the event of the termination of
Employee as described in Sections 6 (a) and (b), Company shall pay to Employee
(i) a pro rata portion of any Bonus for the year in which termination occurs,
such bonus prorated based upon the date of such termination, (ii) the amount of
any Bonus for prior fiscal years which Bonus was earned but not paid prior to
Employee's termination and (iii) unreimbursed business expenses for which
Employee is entitled to be reimbursed under Section 4 of this Agreement to the
date of Employee's termination. In the event that the Employee's employment is
terminated in connection with any Change in Control of the Company (as hereafter
defined) the Company shall pay to the Employee as liquidated damages the
remaining portion of employee's Base Salary under this Agreement, in which event
the Employee's Base Salary shall be paid in the manner described in Section
4(a). A "Change in Control of the Company" shall mean (i) an acquisition (other
than directly from the Company) of any Voting Securities by any "Person" (as
such term is defined in Sections 13(d) or 14(d) of the Securities Exchange Act
of 1934 ("Exchange Act")) immediately after which such Person has "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of the combined voting power of the Company's then outstanding
Voting Securities, provided that Xxxxxx Xxxxxxx and Xxxxxx Xxxxxx own less than
50% of the Company's then outstanding Voting Securities, or (ii) approval by
stockholders of the Company of (A) a merger, consolidation or reorganization
involving the Company, pursuant to which Xxxxxx Xxxxxxx and Xxxxxx Xxxxxx own
less than 50% of the Company's then outstanding Voting Securities, (B) a
complete liquidation or dissolution of the Company, or (C) an agreement for the
sale or other disposition of all or substantially all of the assets of the
Company to any Person (other than a transfer to a Subsidiary or affiliate of the
Company).
7. Confidential and Proprietary Information. Employee
recognizes and acknowledges that he will have access to certain confidential
information of the Company and its affiliates and that such information
constitutes valuable, special and unique property of the Company and its
affiliates. Employee agrees that he will not, for any reason or purpose
whatsoever, during or after the term of his employment, disclose any of such
confidential information to any party without express authorization of the
Company, except as necessary in the ordinary course of performing his duties
hereunder. Employee further specifically agrees:
5
(a) All proprietary business and technical information
(whether written or oral) disclosed in connection with this Agreement or
otherwise known to the Employee regarding the Company shall be received and
retained by the Employee as strictly confidential, and such information shall
only be disseminated internally within the Company and its affiliates and on a
need-to-know basis.
(b) All business or technical information identified by the
Company or reasonably identifiable and of which the Employee became aware in the
conduct of his duties hereunder and which is proprietary to the Company shall be
and remain the exclusive property of the Company at all times and shall be
returned to the Company upon its request or upon termination or cancellation of
this Agreement. In the event that Employee is required by legal process to
disclose any confidential information, Employee shall, provided Employee is not
prohibited by law or has reasonable grounds to believe Employee is not
prohibited by law provide the Company with prompt notice of such requirement so
that the Company may seek a protective order or other appropriate remedy or
waive compliance with the provisions of this Agreement. In the event that a
protective order is obtained, Employee shall use reasonable efforts to assure
that all such information disclosed will be covered by such order or other
remedy. Whether or not such protective order or other remedy is obtained, or
that the Company waives compliance with the provisions of this Agreement,
Employee will disclose only that portion of such information which Employee is
legally required to disclose.
Notwithstanding the foregoing, there shall be no obligation to
retain as confidential information which is in the public domain at the time of
receipt or comes into the public domain without breach of this Agreement.
8. Equitable Relief.
(a) The Employee acknowledges that by reason, among others,
of the uniqueness of the Company's business, that the covenants set forth in
Section 7 are reasonable and necessary for the protection of the Company's
legitimate business interests.
(b) The Employee hereby acknowledges that irreparable harm
will result to the Company in the event of the breach of any of the covenants
contained in Section 7. In the event that the Employee breaches any of the
covenants contained in Section 7, the Employee agrees that in addition to all
other remedies or damages which may be available to the Company, the Company
shall be entitled to seek and obtain both temporary and permanent restraining
orders or injunctions or similar equitable relief issued by a court to prevent
the violation of any of the covenants made by the Employee pursuant to this
Agreement, without any necessity to prove actual damages.
(c) The Employee expressly acknowledges and agrees that the
provisions of Section 7 shall survive the termination of this Agreement.
9. Severability; Governing Law; Jurisdiction.
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(a) Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision of Section 7 hereof
is invalid or unenforceable, the parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope of the term or provision, to delete specific words or phrases, or to
replace any invalid or unenforceable term or provision with a term or provision
that is valid and enforceable and that comes closest to expressing the intention
of the invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time within which the
judgment may be appealed.
(b) This Agreement shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Pennsylvania without
giving effect to any choice or conflict of law provision or rule (whether of the
Commonwealth of Pennsylvania or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the internal laws of the
Commonwealth of Pennsylvania.
(c) Each of the parties hereto submits to the exclusive
jurisdiction and venue of the appropriate state court in Xxxxxxxxxx County,
Pennsylvania or the federal courts of the Eastern District of Pennsylvania, in
any action or proceeding arising out of or relating to this Agreement, agrees
that all claims in respect of the action or proceeding shall be heard and
determined exclusively in such court, and agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court.
10. Notices. All notices, requests, demands, claims, and other
communications hereunder (each, a "Notice") will be in writing, and sent by
registered or certified mail, return receipt requested, postage prepaid, by
overnight courier service, or by any other means reasonably calculated to
provide notice (including personal delivery, expedited courier, messenger
service, telecopy, telex, or ordinary mail) and addressed to the intended
recipient as set forth below:
If to the Employee: Copy to:
Xxxxx Xxxxxxxxxx Xxxxxx X. Xxxxxxxxx, Esquire
0000 Xxxxxxx Xxxx Xxxxx Xxxxxx, Xxxxxxx & Xxxxxxxxx, PC
Xxxxxx Xxxx, XX 00000 000 Xxxxx Xxxxxx
Xxx Xxxx Xxxx, XX 00000
If to the Company: Copy to:
Xxxxxx Xxxxxxx, President Xxxxx X. Xxxxx, Esquire
Xxx Shops, Inc. Mesirov Xxxxxx Xxxxx
9401 Blue Grass Road Xxxxxx & Xxxxxxxx, LLP
Xxxxxxxxxxxx, XX 00000 0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
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A Notice shall be deemed to have been duly given when it
actually is received or when receipt is refused by the intended recipient. Any
party may change the address to which Notices hereunder are to be delivered by
giving the other party notice in the manner herein set forth.
11. Miscellaneous.
(a) This Agreement constitutes the entire agreement between
the parties hereto relating to the subject matter hereof and supersedes any
prior or contemporaneous understandings, agreements, or representations by or
between the parties hereto, written or oral, to the extent they relate in any
way to the subject matter hereof.
(b) This Agreement shall be binding upon and inure to the
benefit of the parties named herein and their successors and permitted assigns.
The services provided by the Employee under this Agreement are of a personal
nature, and the Employee shall not assign, convey or transfer this Agreement or
any part of his rights under this Agreement without the prior written consent of
the Company. The Company may directly or indirectly assign any or all of its
rights hereunder to any affiliate, or to any successor to substantially all of
the assets or business of the Company. In the event that Company assigns any of
its rights or obligations hereunder to any of its affiliates, the Company will
remain liable for the obligations hereunder. In the event that the Company
assigns this Agreement to a purchaser of all or substantially all of the assets
and business of the Company, the Company's obligations hereunder will cease,
provided the purchaser assumes such obligations in writing, and further provided
that such purchaser is not an affiliate of the Company. As used in this
Agreement the term "Company" shall mean both the Company as defined above and
any such successor that assumes this Agreement by operation of law or otherwise.
(c) No amendment of any provision of this Agreement shall be
valid unless the same shall be in writing and signed by the parties hereto. No
waiver by any party of any provision hereof shall be deemed to extend to any
prior or subsequent breach of any such provision or constitute a waiver of any
other provision hereof or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
(d) The headings contained herein are inserted for
convenience only and shall not be deemed to have any substantive meaning.
(e) The Company shall reimburse the Employee for reasonable
attorneys' fees incurred by the Employee in the review and negotiation of this
Agreement, up to a maximum of $2,000.
(f) The Company shall maintain officer's liability insurance
on behalf of the Employee during the Term and any extended term of this
Agreement. Following the termination of the Employee's employment, the Employee
shall retain all rights to indemnification under applicable law or under the
Company's Certificate of Incorporation or By-Laws, as they may be amended or
restated from time to time.
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IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement on the date first above written.
XXX SHOPS, INC.
By: /s/ XXXXXX XXXXXXX
-------------------------------------
XXXXXX XXXXXXX, PRESIDENT
/s/ XXXXX XXXXXXXXXX
-------------------------------------
XXXXX XXXXXXXXXX
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SCHEDULE 4(c)
The Employee's entitlement to exercise the options described
in Section 4(c) of the Employment Agreement effective February 1, 1999, between
Xxx Shops, Inc. and the Employee shall vest in accordance with the following
schedule:
Number of Shares which may
be Acquired pursuant
Vesting Date to Option Exercise
------------ ------------------
January 31, 2000 50,000
July 31, 2000 25,000
January 31, 2001 25,000
July 31, 2001 25,000
January 31, 2002 25,000
-------
TOTAL 150,000
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