Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is signed September 6, 2006 to be effective as of September
13, 2006, or earlier after the signature date hereof as permitted by Executive's
current employer (the "Effective Date"), between X. X. Xxxxx Arts & Crafts,
Inc., a Pennsylvania corporation (the "Company"), and Xxxx X. Xxxx
("Executive"). This Agreement replaces and supersedes any and all prior
discussions, offers, communications or agreements of any sort whatsoever,
existing between the Company and Executive, of whatsoever nature.
NOW THEREFORE,
In consideration of the mutual covenants contained herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment.
(a) The Company shall employ Executive, and Executive hereby accepts
employment with the Company, upon the terms and conditions set forth in this
Agreement for the period beginning on the effective date and ending as provided
in paragraph 4 hereof (the "Employment Term").
(b) The Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined in Appendix I to this Agreement) of the Company. The Board believes it
is imperative to diminish the inevitable distraction of the Executive by virtue
of the personal uncertainties and risks created by a pending or threatened
Change of Control and to encourage the Executive's full attention and dedication
to the Company currently and in the event of any threatened or pending Change of
Control, and to provide the Executive with compensation and benefits
arrangements upon a Change of Control which ensure that the compensation and
benefits expectations of the Executive will be satisfied and which are
competitive with those of other corporations. Therefore, in order to accomplish
these objectives if a Change of Control occurs, paragraphs 1 through 4 of this
Agreement (except paragraphs 3(b) through (h) which shall continue) shall be
superseded by Appendix I.
2. Position and Duties.
(a) During the Employment Term, Executive shall serve as Chief
Financial Officer and Executive Vice President of the Company. Executive shall
report directly to the Chief Executive Officer of the Company and shall have
such duties and responsibilities as is customary for a Chief Financial Officer
for companies of like size and type and shall be responsible for the oversight
of all of the Company's information technology.
(b) Executive shall devote Executive's best efforts and Executive's
full business time and attention (except for permitted vacation periods and
reasonable periods of
illness or other incapacity) to the business and affairs of the Company and its
Subsidiaries (as defined below); provided that Executive shall, with the prior
written approval of the Board, be allowed to serve as (i) a director or officer
of any non-profit organization including trade, civic, educational or charitable
organizations, or (ii) a director of any corporation which is not competing with
the Company or any of its Subsidiaries so long as such duties do not materially
interfere with the performance of Executive's duties or responsibilities under
this Agreement. Executive shall perform Executive's duties and responsibilities
under this Agreement to the best of Executive's abilities in a diligent,
trustworthy, businesslike and efficient manner.
(c) Executive shall be based at or in the vicinity of the Company's
headquarters in Berlin, New Jersey, but may be required to travel as necessary
to perform Executive's duties and responsibilities under this Agreement.
(d) For purposes of this Agreement, "Subsidiaries" shall mean any
entity of which the securities having a majority of the voting power in electing
directors or managers are, at the time of determination, owned by the Company,
directly or through one or more Subsidiaries.
3. Base Salary, Bonus, Options, Equity Compensation and Benefits.
Subject to the provisions of paragraph 4, which shall control,
Executive shall be entitled to the following compensation and benefits during
the Employment Term:
(a) Initially, Executive's base salary shall be $275,000 per year (the
"Base Salary"), which salary shall be payable in regular monthly installments in
accordance with the Company's general payroll practices. Executive's Base Salary
shall be reviewed at least annually by the Compensation Committee of the Board
and shall be subject to increase, as it shall determine based on among other
things, market practice and performance.
(b) (i) On Effective Date, Executive shall receive a cash sign-on lump
sum retention bonus of $90,000 (the "2006 Retention Bonus"). Each month (or any
portion of such month) that Executive remains employed by Company, Executive
will earn one-twenty fourth of the 2006 Retention Bonus. If Executive's
employment is terminated by the Company for Cause (as defined below) or by
Executive without Good Reason (as defined below), Executive shall repay the
unearned portion of the Retention Bonus to Company. In the event that
Executive's employment is terminated by the Company without Cause or by the
Executive with Good Reason, Executive shall be deemed to have earned One Hundred
Percent (100%) of the 2006 Retention Bonus as of the effective date of the
termination of his employment, and Executive shall not be required to repay any
portion of the 2006 Retention Bonus.
(ii) In 2007 and no later than March 31, 2007, Executive shall
receive a guaranteed cash lump sum retention bonus of $30,000 (the "2007
Retention Bonus"). Each month (or any portion of such month) after receipt of
the 2007 Retention Bonus that Executive remains employed by Company, Executive
will earn one-eighteenth of the 2007 Retention Bonus. If Executive's employment
is terminated by the Company for Cause (as defined below) or by Executive
without Good Reason (as defined below), Executive shall repay the unearned
portion of the Retention Bonus to Company. In the event that Executive's
employment is
2
terminated by the Company without Cause or by the Executive with Good Reason
after the payment of the 2007 Retention Bonus, Executive shall be deemed to have
earned One Hundred Percent (100%) of the 2007 Retention Bonus as of the
effective date of the termination of his employment, and Executive shall not be
required to repay any portion of the 2007 Retention Bonus.
(c) During each calendar year of the Company in which Executive
continues to be employed by the Company pursuant to this Agreement, Executive
shall be entitled to participate in the Company's annual bonus plan (the "Bonus
Plan") as administered and determined by the Compensation Committee of the Board
of Directors, which the Company expects will provide for the possibility of
Executive to earn a maximum of 100% of annual base salary in short and long-term
annual bonus upon the achievement of certain Company targets. If the Board or
the Compensation Committee modifies such Bonus Plan during the Employment Term
or any extension term, Executive shall continue to participate at a level no
lower than the highest level established for any executive vice president of the
Company.
(d) Executive shall be entitled to paid vacation in accordance with
the Company's general payroll practices for officers of the Company.
(e) The Company shall reimburse Executive for all reasonable expenses
incurred by Executive in the course of performing Executive's duties under this
Agreement which are consistent with the Company's policies in effect from time
to time with respect to travel, entertainment and other business expenses,
subject to the Company's requirements with respect to reporting and
documentation of such expenses.
(f) Executive will be entitled to all benefits as are, from time to
time, maintained for officers of the Company, including without limitation:
medical and other insurance plans (collectively, "Insurance Benefits"), and
retirement benefits.
(g) Pursuant and subject to the terms and conditions of the Company's
2002 Stock Option Plan or any successor plan:
(1) On September 13, 2006, Executive shall be granted a
non-qualified option (the "Initial Option") to purchase 50,000 shares of common
stock of the Company (the "Shares"). One third of the Shares shall become
exercisable on each of the first, second and third anniversaries of the date of
grant.
(2) For each calendar year that Executive continues to be
employed by Company, on the day of each such calendar year that the Board
otherwise grants options to management of the Company, Executive shall be
granted a non-qualified option to purchase shares of common stock of the Company
(each an "Annual Option"). The number of shares of the Company's common stock
subject to each Annual Option shall be a number not lower than the highest
number established for any executive vice president of the Company.
The grant of the Initial Option and each Annual Option shall be evidenced by and
subject to the terms of a Stock Option Agreement pursuant to the Company's 2002
Stock Option Plan.
3
(3) In the event that the Company adopts a new equity
compensation plan or program, Executive shall be entitled to receive grants of
stock options, restricted stock or other equity related awards pursuant to such
new plan or program, subject to the terms and conditions thereof, at amounts no
lower than the highest amount established for any executive vice president of
the Company.
(h) Company shall pay, for up to ten months from September 13, 2006,
Executive's current monthly car lease payment of approximately $1,100 per month.
Executive understands that after conclusion of his current car lease obligation,
Company will not reimburse him for a company car except for customary expenses
for mileage as available for all other executives under the Company's business
travel reimbursement policy.
4. Term.
(a) The Employment Term shall end on the twenty - fourth (24th) month
anniversary of the effective date of this Agreement; provided that (i) the
Employment Term shall be extended for successive periods of one (1) year each
(each of which is referred to as an "extension term" of the Employment Term) in
the event that written notice of termination hereof is not given by one party
hereof to the other at least sixty (60) days prior to the end of the Employment
Term or the then applicable extension term, as the case may be; provided further
that, and notwithstanding anything to the contrary in this Agreement, (ii) the
Employment Term or the then applicable extension term shall terminate prior to
such date (A) upon Executive's death or permanent disability or incapacity (as
determined by the Board in its good faith judgment), (B) upon the mutual
agreement of the Company and Executive, (C) by the Company's termination of this
Agreement for Cause (as defined below) or without Cause or (D) by Executive's
termination of this Agreement for Good Reason (as defined below) or without Good
Reason.
(b) If the Employment Term or any extension term is terminated
(including without limitation through a termination of any extension pursuant to
the 60 day notice under paragraph 4(a)) by the Company without Cause or is
terminated by the Executive for Good Reason, Executive (and Executive's family
with respect to clause (iii) of this paragraph 4(b)) shall be entitled to
receive (i) Executive's Base Salary through the twelfth month anniversary of
such termination and Executive's Pro Rata Bonus (as defined in paragraph (h)
below), if and only if Executive has not breached the provisions of paragraphs
5, 6 and 7 hereof, (ii) vested and earned (in accordance with the Company's
applicable plan or program) but unpaid amounts under incentive plans and other
employer programs (other than deferred compensation plans the payments under
which shall be determined in the plan of reference) of the Company in which
Executive is then participating (other than the Pro Rata Bonus), and (iii)
Insurance Benefits through the twelfth month anniversary of such termination
pursuant to the Company's insurance programs as in effect from time to time, to
the extent Executive participated immediately prior to the date of such
termination; provided that any such continuation of health insurance benefits
will run concurrently with and satisfy the continuation coverage requirements of
the Consolidated Omnibus Reconciliation Act of 1985 ("COBRA"). The amounts
payable pursuant to paragraph 4(b)(i) and (ii) shall be payable in equal
installments on the first day of each month during the said twelve month period.
No payment of any sum nor the receipt of any benefit shall be due to Executive
under this paragraph 4(b) unless and until Executive shall have executed and
4
delivered to the Company a release of any and all claims against the Company and
its Subsidiaries (and their respective present and former officers, directors,
employees and agents - collectively the "Released Parties") and a covenant not
to xxx the Released Parties, all in form and substance as provided by counsel to
the Company (the "Release") and any waiting period or revocation period provided
by law for the effectiveness of such Release shall have expired without
Executive's having revoked such Release. In the event Executive shall decline or
fail for any reason to execute and deliver such Release, the Executive shall be
entitled to receive only those amounts provided pursuant to paragraph 4(c)
provided for an Executive whose employment is terminated by the Company for
Cause or by Executive without Good Reason.
(c) If the Employment Term or any extension term is terminated by the
Company for Cause or by the Executive without Good Reason, Executive shall be
entitled to receive (i) Executive's Base Salary through the date of such
termination and (ii) vested and earned (in accordance with the Company's
applicable plan or program) but unpaid amounts under health plans of the Company
which Executive participates; provided, however, that Executive shall not be
entitled to payment of a Pro Rata Bonus.
(d) If the Employment Term or any extension term is terminated upon
Executive's death or permanent disability or incapacity (as determined by the
Board in its good faith judgment), Executive, or Executive's estate if
applicable, shall be entitled to receive the sum of (i) Executive's Base Salary
through the date of such termination and Executive's Pro Rata Bonus and (ii)
vested and earned (in accordance with the Company's applicable plan or program)
but unpaid amounts under incentive plans, health and welfare plans, and other
employer programs (other than deferred compensation as determined in such plans)
of the Company which Executive participates. The amounts payable pursuant to
this paragraph 4(d) shall be payable, in any manner consistent with the
Company's normal payment policies.
(e) Except as otherwise provided herein, fringe benefits and bonuses
(if any) which accrue or become payable after the termination of the Employment
Term or any extension term shall cease upon such termination. Notwithstanding
the foregoing, however, nothing herein shall be deemed to affect Executive's
entitlements and rights to any benefits in which his interests vested or to
which he otherwise became entitled prior to the termination of his employment
(e.g., pension, 401(K)), or his entitlement to receive health insurance
continuation coverage post-termination under COBRA.
(f) For purposes of this Agreement, "Cause" shall mean:
(i) the failure of the Executive to perform substantially the
Executive's duties with the Company or one of its affiliates (other than any
such failure resulting from incapacity due to physical or mental illness), after
a written demand for substantial performance is delivered to the Executive by
the Chief Executive Officer which specifically identifies the manner in which
the Chief Executive Officer believes that the Executive has not substantially
performed the Executive's duties; provided however, that Executive shall have
one opportunity to cure the failure so identified for sixty days from the
written demand, or
5
(ii) the engaging by the Executive in illegal conduct or gross
misconduct, in either case, in violation of the Company's Code of Business
Ethics and Conflict of Interest Policy.
Any act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or based upon the advice of counsel for the Company or
upon the instructions of the Chief Executive Officer shall be conclusively
presumed to be done, or omitted to be done, by the Executive in good faith and
in the best interests of the Company. The cessation of employment of the
Executive shall not be deemed to be for Cause unless and until there shall have
been delivered to the Executive a written notice of the Chief Executive Officer,
a copy of which has previously been delivered to the Board of Directors, finding
that, in the good faith opinion of the Chief Executive Officer, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(g) For purposes of this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent
with the Executive's position, authority, duties or responsibilities as
contemplated by paragraph 2 of this Agreement, or any other action by the
Company which results in a material diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the
provisions of paragraph 3 of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at any
location other than as provided in paragraph 2(c) hereof; or
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement.
(h) For purposes of this Agreement, "Pro Rata Bonus" shall mean the
pro rata portion (calculated as if the "target" amount under such plan has been
reached) under any current annual bonus plan from January 1 of the year of
termination through the date of termination.
5. Confidential Information.
Executive acknowledges that the information, observations and data
obtained by Executive while employed by the Company concerning the business or
affairs of the Company or any Subsidiary ("Confidential Information") are the
property of the Company or such Subsidiary. Therefore, Executive agrees that
Executive shall not disclose to any unauthorized person or use for Executive's
own purposes any Confidential Information without the prior written consent of
the Board, unless and to the extent that the aforementioned matters become
generally known to and available for use by the public other than as a result of
Executive's acts or omissions not within the ordinary course of business of the
Company. Executive shall deliver
6
to the Company at the termination of the Employment Term or any extension term,
or at any other time the Company may request, all memoranda, notes, plans,
records, reports, computer tapes, printouts and software and other documents and
data (and copies thereof) in any form or medium relating to the Confidential
Information, Work Product (as defined below) or the business of the Company or
any Subsidiary that Executive may then possess or have under Executive's
control.
7
6. Inventions and Patents.
Executive acknowledges that all inventions, innovations, improvements,
developments, methods, designs, analyses, drawings, reports and all similar or
related information (whether or not patentable) that relate to the Company's or
any of its Subsidiaries' actual or anticipated business, research and
development or existing or future products or services and that are conceived,
developed or made by Executive while employed by the Company ("Work Product")
belong to the Company or such Subsidiary. Executive shall promptly disclose such
Work Product to the Company's Chief Executive Officer or Chairman of the Board
and perform all actions reasonably requested by the Chief Executive Officer or
Board, as applicable (whether during or after the Employment Term or any
extension term) to establish and confirm such ownership (including, without
limitation, assignments, consents, powers of attorney and other instruments).
7. Non-Compete, Non-Solicitation.
(a) In further consideration of the compensation to be paid to
Executive hereunder, Executive acknowledges that in the course of Executive's
employment with the Company Executive shall become familiar with the Company's
trade secrets and with other Confidential Information concerning the Company and
its Subsidiaries and that Executive's services shall be of special, unique and
extraordinary value to the Company and its Subsidiaries. Therefore, Executive
agrees that, during the Employment Term or any extension term and for a period
of twelve (12) months thereafter (as applicable, the "Noncompete Period"),
Executive shall not directly or indirectly own any interest in, manage, control,
participate in, consult with, render services for, or in any manner engage in
any business competing with the businesses of the Company or its Subsidiaries,
as such businesses exist or are in process on the date of the termination of
Executive's employment, within any geographical area in which the Company or its
Subsidiaries engage or actively plan to engage in such businesses. Nothing
herein shall prohibit Executive from being a passive owner of not more than 2%
of the outstanding stock of any class of a corporation which is publicly traded,
so long as Executive has no direct or indirect active participation in the
business of such corporation. Furthermore, the foregoing shall not prevent
Executive from performing services for a competitive business if (i) such
competitive business is also engaged in other lines of business, (ii) the amount
of revenue of such competitive business derived from businesses competitive to
the Company was less than 20% of such competitive business's consolidated
revenue for its most recently completed fiscal year and (iii) Executive's
services are restricted to employment in such other (non-competitive) lines of
business; provided, however, that Executive shall continue to remain bound by
and observe the provisions of Section 5, Section 6 and Section 7(b) of this
Agreement.
(b) During the Noncompete Period, Executive shall not directly or
indirectly through another person or entity (i) induce or attempt to induce any
employee of the Company or any Subsidiary to leave the employ of the Company or
such Subsidiary, or in any way interfere with the relationship between the
Company or any Subsidiary and any employee thereof, (ii) hire an employee of the
Company or any Subsidiary, or (iii) induce or attempt to induce any customer,
supplier, licensee, licensor, franchisee or other business relation of the
Company or any Subsidiary to cease doing business with the Company or such
Subsidiary, or in any way interfere with the relationship between any such
customer, supplier, licensee, licensor,
8
franchisee, or business relation and the Company or any Subsidiary (including,
without limitation, making any negative statements or communications about the
Company or its Subsidiaries).
(c) The provisions of this paragraph 7 will be enforced to the fullest
extent permitted by the law in the state in which Executive resides or is
employed at the time of the enforcement of the provision. If, at the time of
enforcement of this paragraph 7, a court shall hold that the duration, scope or
area restrictions stated herein are unreasonable under circumstances then
existing, the parties agree that the maximum duration, scope or area reasonable
under such circumstances shall be substituted for the stated duration, scope or
area and that the court shall be allowed to revise the restrictions contained
herein to cover the maximum period, scope and area permitted by law. Executive
agrees that the restrictions contained in this paragraph 7 are reasonable.
(d) In the event of the breach or a threatened breach by Executive of
any of the provisions of this paragraph 7, the Company, in addition and
supplementary to other rights and remedies existing in its favor, may apply to
any court of law or equity of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or prevent any violations
of the provisions hereof (without posting a bond or other security). In
addition, in the event of an alleged breach or violation by Executive of this
paragraph 7, the Noncompete Period shall be tolled until such breach or
violation has been duly cured.
8. Executive's Representations.
Executive hereby represents and warrants to the Company that (i) the
execution, delivery and performance of this Agreement by Executive do not and
shall not conflict with, breach, violate or cause a default under any contract,
agreement, instrument, order, judgment or decree to which Executive is a party
or by which Executive is bound, (ii) Except for a Senior Executive Employment
Agreement between Executive and Foot Locker, Inc. dated June 2003, for which
Executive has properly terminated without breach pursuant to its terms,
Executive is not a party to or bound by any employment agreement, noncompete
agreement or confidentiality agreement with any other person or entity and (iii)
upon the execution and delivery of this Agreement by the Company, this Agreement
shall be the valid and binding obligation of Executive, enforceable in
accordance with its terms. Executive hereby acknowledges and represents that
Executive has had an opportunity to consult with independent legal counsel
regarding Executive's rights and obligations under this Agreement and that
Executive fully understands the terms and conditions contained herein.
9. Survival.
Paragraphs 5, 6 and 7 and paragraphs 9 through 16 shall survive and
continue in full force in accordance with their terms notwithstanding any
termination of the Employment Term or any extension term.
10. Notices.
9
Any notice provided for in this Agreement shall be in writing and
shall be either personally delivered, or mailed by certified first class mail,
return receipt requested, to the recipient at the address below indicated:
Notices to Executive:
Xxxx X. Xxxx
at his most recent address as reflected in the employment records of
the Company.
Notices to the Company:
130 X.X. Xxxxx Xxxxx
Xxxxxx, XX 00000
Attention: Chief Executive Officer
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or mailed.
11. Severability.
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
12. Complete Agreement.
This Agreement and Appendix I hereto and those documents expressly
referred to herein and therein, embody the complete agreement and understanding
among the parties and supersede and preempt any prior understandings, agreements
or representations by or among the parties, written or oral, which may have
related to the subject matter hereof in any way.
13. No Strict Construction.
The language used in this Agreement shall be deemed to be the language
chosen by the parties hereto to express their mutual intent, and no rule of
strict construction shall be applied against any party.
14. Counterparts.
This Agreement may be executed in separate counterparts, each of which
is deemed to be an original and all of which taken together constitute one and
the same agreement.
10
15. Successors and Assigns.
This Agreement is intended to bind and inure to the benefit of and be
enforceable by Executive, the Company and their respective heirs, successors and
assigns, except that Executive may not assign Executive's rights or delegate
Executive's obligations hereunder without the prior written consent of the
Company.
16. Choice of Law.
All issues and questions concerning the construction, validity,
enforcement and interpretation of this Agreement and Appendix I hereto shall be
governed by, and construed in accordance with, the laws of the State of New
Jersey, without giving effect to any choice of law or conflict of law rules or
provisions (whether of the State of New Jersey or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the State
of New Jersey.
17. Amendment and Waiver.
The provisions of this Agreement may be amended or waived only with
the prior written consent of the Company and Executive, and no course of conduct
or failure or delay in enforcing the provisions of this Agreement shall affect
the validity, binding effect or enforceability of this Agreement.
18. Confidentiality of this Agreement.
The parties agree that the terms of this Agreement are confidential
until this Agreement is filed by the Company with the Securities and Exchange
Commission.
19. Arbitration Provisions.
Except as to the right of the Company to resort to any court of
competent jurisdiction to obtain injunctive relief or specific enforcement of
the Executive's obligations of confidentiality, non-solicitation and
non-competition under this Employment Agreement (or otherwise), any dispute or
controversy between the Company and Executive arising out of or relating to
Executive's employment or termination of employment, this Agreement or the
breach of this Agreement, including but not limited to disputes involving
discrimination arising under common law, and/or federal, state and local laws,
shall be settled by arbitration administered by the American Arbitration
Association ("AAA") in accordance with its National Rules for the Resolution of
Employment Disputes then in effect, and judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. Any
arbitration shall be held before a single arbitrator who shall be selected by
the mutual agreement of the Company and Executive, unless the parties are unable
to agree to an arbitrator, in which case the arbitrator will be selected under
the procedures of the AAA. The arbitrator shall have the authority to award any
remedy or relief that a court of competent jurisdiction could order or grant,
including, without limitation, the issuance of an injunction. Executive agrees
to abide by and accept the final decision of the arbitrator as to the ultimate
resolution of any and all covered disputes and understands that arbitration
replaces any right to trial by a judge or jury. However, either party may,
without inconsistency with this arbitration provision, apply to any court
otherwise having
11
jurisdiction over such dispute or controversy and seek interim provisional,
injunctive or other equitable relief until the arbitration award is rendered or
the controversy is otherwise resolved. Except as necessary in court proceedings
to enforce this arbitration provision or an award rendered hereunder, or to
obtain interim relief, or as may otherwise be required by law, neither a party
nor an arbitrator may disclose the existence, content or results of any
arbitration hereunder without the prior written consent of the Company and
Executive. The Company and Executive acknowledge that this Agreement evidences a
transaction involving interstate commerce. Notwithstanding any choice of law
provision included in this Agreement, the United States Federal Arbitration Act
shall govern the interpretation and enforcement of this arbitration provision.
The arbitration proceeding shall be conducted in Camden County, New Jersey
unless the parties mutually agree to another location. The Company shall pay the
costs of any arbitrator appointed hereunder.
20. Withholding.
The Company may withhold any amounts payable under this Agreement for
such Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
21. Section 409A.
In the event that an amount becomes payable to the Executive after his
termination of employment, the Company shall determine whether such payment is
subject to the requirements of Section 409A (a) (2)(A)(i) and Section 409A
(a)(2)(B)(i) of the Internal Revenue Code of 1986, as amended (hereinafter
referred to as the "Specified Employee Rule"). The Company shall make such
determination and provide written notice thereof to the Executive prior to the
earlier of the date that any such amounts would be paid to the Executive without
regard to Code Section 409A or within 30 days after his termination of
employment. Upon the request of the Executive, the Company agrees to promptly
provide to him such information that the Executive may reasonably request with
regard to its determination. In the event that the Company determines that an
amount payable to the Executive after his termination of employment is subject
to the Specified Employee Rule, then no distribution of such amount shall be
made to the Executive on account of his separation from service before the date
which is six (6) months after the date of his separation from service (or if
earlier, the date of death of the Executive). The aggregate amount that would
have been payable to the Executive but for the restrictions imposed by Section
409A shall be paid to the Executive as soon as permitted by Section 409A.
22. Excise Tax on Parachute Payments
(a) The Executive shall bear all expense of, and be solely responsible
for, all federal, state, local or foreign taxes due with respect to any payment
received hereunder, including, without limitation, any excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code");
provided, however, that any payment or benefit received or to be received by the
Executive in connection with a Change in Control or the termination of the
Executive's employment (whether payable pursuant to the terms of this Agreement
("Contract Payments") or any other plan, arrangements or agreement with the
12
Company or any affiliate (collectively with the Contract Payments, the "Total
Payments") shall be reduced to the extent necessary so that no portion thereof
shall be subject to the excise tax imposed by Section 4999 of the Code but only
if, by reason of such reduction, the net after-tax benefit received by the
Executive shall exceed the net after-tax benefit that would be received by the
Executive if no such reduction was made.
(b) For purposes of this section, "net after-tax benefit" shall mean
(a) the total of all payments and the value of all benefits which the Executive
receives or is then entitled to receive from the Company that would constitute
"excess parachute payments" within the meaning of Section 280G of the Code, less
(b) the amount of all federal, state and local income taxes payable with respect
to the foregoing calculated at the maximum marginal income tax rate for each
year in which the foregoing shall be paid to the Executive (based on the rate in
effect for such year as set forth in the Code as in effect at the time of the
first payment of the foregoing), less (c) the amount of excise taxes imposed
with respect to the payments and benefits described in (a) above by Section 4999
of the Code.
(c) The foregoing determination shall be made by a nationally
recognized accounting firm (the "Accounting Firm") selected by the Company and
reasonably acceptable to the Executive (which may be, but will not be required
to be, the Company's independent auditors). The Accounting Firm shall submit its
determination and detailed supporting calculations to both the Executive and the
Company within fifteen (15) days after receipt of a notice from either the
Company or the Executive that the Executive may receive payments which may be
"parachute payments." If the Accounting Firm determines that a reduction is
required by this Section, the Executive, in the Executive's discretion, may
determine which of the Total Payments shall be reduced to the extent necessary
so that no portion of the Total Payments shall be subject to the excise tax
imposed by Section 4999 of the Code, and the Company shall pay such reduced
amount to the Executive; provided that, if the Executive does not make such
determination within ten (10) business days after the receipt of the
calculations made by the Accounting Firm, the Company shall elect which and how
much of the Total Payments shall be eliminated or reduced consistent with the
requirements of this Paragraph 10 and shall notify the Executive promptly of
such election.
(d) The Executive and the Company shall each provide the Accounting
Firm access to and copies of any books, records, and documents in the possession
of the Executive or the Company, as the case may be, reasonably requested by the
Accounting Firm, and otherwise cooperate with the Accounting Firm in connection
with the preparation and issuance of the determinations and calculations
contemplated by this Section. The fees and expenses of the Accounting Firm for
its services in connection with the determinations and calculations contemplated
by this Section shall be borne by the Company.
* * *
13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
X. X. XXXXX ARTS & CRAFTS, INC.
By: /s/ Xxxx X. Xxxxxx
-----------------------------------
Name: Xxxx X. Xxxxxx
Its: Chief Executive Officer
EXECUTIVE
/s/ Xxxx X. Xxxx
---------------------------------------
Name: Xxxx X. Xxxx
14
APPENDIX I
CHANGE OF CONTROL PROVISIONS
TO EMPLOYMENT AGREEMENT OF XXXX X. XXXX
If a Change of Control (as defined in this Appendix I) of the Company
occurs, paragraphs 1 through 4 of the Agreement (except paragraphs 3(b) through
3(h) which shall continue) shall be superseded by this Appendix I.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date.
For the purpose of this Appendix I, the "Effective Date" shall mean
the date on which a Change of Control (as defined in Section 2 of this Appendix
I) occurs. Anything in the Agreement to the contrary notwithstanding, if a
Change of Control occurs and if the Executive's employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of employment (i)
was at the request of a third party who has taken steps reasonably calculated to
effect a Change of Control or (ii) otherwise arose in connection with or
anticipation of a Change of Control, then for all purposes of the Agreement and
this Appendix I, the "Effective Date" shall mean the date immediately prior to
the date of such termination of employment.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50%
of either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened
I-1
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then-outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, more than 50% of, respectively, the then-outstanding shares of
common stock of the corporation resulting from such Business Combination, or the
combined voting power of the then-outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Term. The Company hereby agrees to continue the Executive in
its employ, and the Executive hereby agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the twelfth month anniversary of
such date (the "Employment Term"). Such period may be extended in writing by the
mutual agreement of the Company and Executive at any time prior to such
anniversary.
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Term, (A) the Executive's position,
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned to him at any time during the 120-day period immediately preceding the
Effective Date and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding the Effective
Date or any office or location less than 35 miles from such location.
I-2
(ii) During the Employment Term, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote Executive's best efforts and Executive's full business time and
attention to the business and affairs of the Company and its Subsidiaries.
During the Employment Term it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or committees,
(B) deliver lectures, fulfill speaking engagements or teach at educational
institutions, and (C) manage personal investments, so long as such activities do
not significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement. It is expressly understood and agreed that to the extent that any
such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Term, the Executive shall
receive an annual base salary ("Annual Base Salary"), which shall be paid at a
monthly rate, at least equal to twelve times the highest monthly base salary
paid or payable, including any base salary which has been earned but deferred,
to the Executive by the Company and its affiliated companies in respect of the
twelve-month period immediately preceding the month in which the Effective Date
occurs. During the Employment Term, the Annual Base Salary shall be reviewed no
more than 12 months after the last salary increase awarded to the Executive
prior to the Effective Date and thereafter at least annually. Any increase in
Annual Base Salary shall not serve to limit or reduce any other obligation to
the Executive under this Agreement. Annual Base Salary shall not be reduced
after any such increase and the term Annual Base Salary as utilized in this
Agreement shall refer to Annual Base Salary as so increased. As used in this
Appendix I, the term "affiliated companies" shall include any company controlled
by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each calendar year ending during the Employment
Term, an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's bonus under the Company's annual bonus plans or any comparable bonus
under any predecessor or successor plan or plans, for the last full calendar
year prior to the Effective Date (annualized in the event that the Executive was
not employed by the Company for the whole of such calendar year). Each such
Annual Bonus shall be paid no later than March 15th of the calendar year next
following the calendar year for which the Annual Bonus is awarded.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Term. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Term (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
the Agreement of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall
I-3
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 90 consecutive days as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during
the Employment Term for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the failure of the Executive to perform substantially the
Executive's duties with the Company or one of its affiliates (other than any
such failure resulting from incapacity due to physical or mental illness), after
a written demand for substantial performance is delivered to the Executive by
the Chief Executive Officer which specifically identifies the manner in which
the Chief Executive Officer believes that the Executive has not substantially
performed the Executive's duties; provided however, that Executive shall have
one opportunity to cure the failure so identified for sixty days from the
written demand, or
(ii) the engaging by the Executive in illegal conduct or gross
misconduct, in either case, in violation of the Company's Code of Ethics and
Conflict of Interest Policy.
Any act, or failure to act, based upon authority given pursuant to a resolution
duty adopted by the Board or upon the instructions of the Chief Executive
Officer or based upon the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The cessation of employment
of the Executive shall not be deemed to be for Cause unless and until there
shall have been delivered to the Executive a written notice from the Chief
Executive Officer, a copy of which notice has been previously delivered to the
Board of Directors, finding that, in the good faith opinion of the Chief
Executive Officer, the Executive is guilty of the conduct described in
subsection 5 (b)(i) or (ii) above, and specifying the particulars thereof in
detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position, authority, duties or responsibilities
as contemplated by Section 4(a) of this Appendix I, or any other action by the
Company which results in a material diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Appendix I, other than an isolated,
insubstantial and inadvertent failure
I-4
not occurring in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 4(a)(i)(B) of this Appendix
I;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Appendix I; or
(v) any failure by the Company to require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform the Agreement (including without limitation this
Appendix I) in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.
(d) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the notice of termination,
(ii) if the Executive's employment is terminated by the Company other than for
Cause or Disability, the date on which the Company notifies the Executive of
such termination and (iii) if the Executive's employment is terminated by reason
of death or Disability, the date of death of the Executive or the Disability
Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If, during
the Employment Term, the Company shall terminate the Executive's employment
other than for Cause, death or Disability or the Executive shall terminate
Executive's employment for Good Reason:
(i) the Company shall pay to the Executive in a single lump sum
payment in cash within 30 days after the Date of Termination the aggregate of
the following amounts:
(A) the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid, plus (2) the
product of (I) the target Annual Bonus paid or payable, for the most recently
completed calendar year during the Employment Term and (II) a fraction, the
numerator of which is the number of days in the current calendar year through
the Date of Termination, and the denominator of which is 365, plus (3) any
compensation previously deferred by the Executive and not theretofore previously
paid shall be paid in accordance with the terms of the plan pursuant to which
deferral was made and (4) the amount equal to the Executive's Annual Base Salary
through the twelfth month anniversary of the Date of Termination.
(ii) The Company shall provide all benefits as are, from time to
time, maintained for officers of the Company, including without limitation,
medical and other insurance plans to the Executive through the twelfth month
anniversary of the Date of the Termination of Executive's employment pursuant to
or, if not pursuant to, which are substantially
I-5
equal to the Company's insurance programs in effect and to the extent Executive
participated immediately prior to the date of such termination, provided that if
the Consolidated Omnibus Reconciliation Act of 1985 ("COBRA") applies to the
provision of health insurance benefits for any part of the period of benefit
continuation provided for by this paragraph, Executive will make all necessary
elections and such benefits will run concurrently with and satisfy the
continuation coverage requirements of this paragraph for the period to which
COBRA applies.
(iii) all options to purchase common stock in the Company to
which Executive would be entitled to be granted on the last day of the calendar
year if Date of Termination had not occurred in such year, shall immediately be
deemed granted, vested and become exercisable on the Date of Termination and
Executive shall have 18 months after the Date of Termination to exercise such
options, subject to the provisions of the plan under which they were granted.
No payment of any sum nor the receipt of any benefit shall be due to Executive
under this Section 6(a) unless and until Executive shall have executed and
delivered to the Company a release of any and all claims against the Company and
its Subsidiaries (and their respective present and former officers, directors,
employees and agents - collectively the "Released Parties") and a covenant not
to xxx the Released Parties, all in form and substance as provided by counsel to
the Company (the "Release") and any waiting period or revocation period provided
by law for the effectiveness of such Release shall have expired without
Executive's having revoked such Release. In the event Executive shall decline or
fail for any reason to execute and deliver such Release, the Executive shall be
entitled to receive only those amounts provided pursuant to Section 6(d)
provided for an Executive whose employment is terminated by the Company for
Cause or by Executive without Good Reason.
(b) Death. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Term, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, except that Executive, or Executive's estate if applicable, shall be
entitled to receive the sum of (i) Executive's Annual Base Salary through the
Date of Termination, (ii) Executive's Pro Rata Bonus (as defined below) and
(iii) the timely payment or provision of any other amounts or benefits required
to be paid or provided or which the Executive is eligible to receive under any
plan, program, policy or practice or contract or agreement of the Company and
its affiliated companies. The amounts set forth in Section 6(b)(i) and (ii)
shall be paid to the Executive's estate, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. For purposes of this Appendix I, "Pro
Rata Bonus" shall mean the pro rata portion (calculated as if the "target"
amount under such plan has been reached) under any current annual bonus plan
from the beginning of the year of termination through the date of termination.
(c) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Term, this Agreement shall
terminate without further obligations to the Executive, except that Executive
shall be entitled to receive the sum of (i) Executive's Annual Base Salary
through the Disability Effective Date and (ii) Executive's Pro Rata Bonus (as
defined in Section 6(b)) and (iii) the timely payment or provision of other
benefits required to be paid or provided to Executive or which Executive is
eligible to receive under any plan, program, practices or policies relating to
disability of the Company and its
I-6
affiliated Companies. The amounts set forth in Section 6(c)(i) and (ii) shall be
paid to the Executive in a lump sum in cash within 30 days of the Date of
Termination.
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause or Executive voluntarily terminates employment
without Good Reason during the Employment Term, this Agreement shall terminate
without further obligations to the Executive other than for the Executive's
Annual Base Salary through the Date of Termination and timely payment or
provision of any other applicable benefits, in each case to the extent
theretofore unpaid.
7. Options. All options to purchase common stock in the Company held by
Executive on the date of a Change in Control shall immediately be deemed vested
and become exercisable on the date of the Change in Control and Executive shall
have until the end of the applicable original term of each such option to
exercise such options; provided, however, that in the event that Executive's
employment with the Company is terminated for any reason (other than Cause)
after the Change in Control, Executive shall have until the earlier of (1) the
end of the applicable original term of each such option and (2) 18 months after
the Date of Termination to exercise such options post-termination. In the event
that Executive's employment with the Company is terminated for Cause, all
options held by Executive shall terminate immediately.
8. Nonexclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the date of termination of employment shall be payable in
accordance with such plan, policy, practice or program or contract or agreement
except as explicitly modified by this Agreement.
I-7
