EXHIBIT (c)(4)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of September
17, 1999, by and between Happy Kids Inc., a New York corporation (the
"Company"), and Xxxx X. Xxxxx ("Executive"). The Company and the Executive are
each referred to herein individually as a "Party" and collectively as the
"Parties."
WHEREAS, the Executive has entered into that certain Employment
Agreement, dated as of January 1, 1998 (the "Old Employment Agreement"), with
the Company.
WHEREAS, the Company and Executive wish to terminate the Old
Employment Agreement and the Company and Executive wish to enter into this
Agreement to set forth the new employment relationship between the Company and
Executive.
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. 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 upon the consummation of the
Merger and ending as provided in Section 4 hereof (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the
President and Chief Executive Officer of the Company and shall have the normal
duties, responsibilities and authority of the President and Chief Executive
Officer, subject to the power of the Board of Directors of the Company (the
"Board"), to expand or limit such duties, responsibilities and authority and to
override actions of the President and Chief Executive Officer.
(b) Executive shall report to the Board, and Executive shall
devote his best efforts and his 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.
Executive shall perform all duties and responsibilities to the best of his
abilities in a diligent, trustworthy, businesslike and efficient manner.
(c) For purposes of this Agreement, "Subsidiaries" shall mean any
corporation of which the securities having a majority of the voting power in
electing directors are, at the time of determination, owned by the Company,
directly or through one or more Subsidiaries.
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3. Base Salary and Benefits.
(a) Executive's base salary shall be $425,000 per annum during
the Employment Period (the "Base Salary"), which salary shall be payable in
regular installments in accordance with the Company's general payroll practices
and shall be subject to customary withholding.
(b) In addition to the Base Salary, Executive will be eligible to
receive an annual bonus based on the Company achieving the annual EBITDA targets
as follows:
(i) If EBITDA for calendar year 2000 ("2000 EBITDA") is an
amount greater than $29 million, then the 2000 bonus ("2000
Bonus") shall be $1.583, payable in cash, for every $1 by which
2000 EBITDA exceeds $29 million; provided, however, that the 2000
Bonus shall not exceed $1,583,333.33. Notwithstanding the above,
in the event that both (a) the 2000 EBITDA is greater than $30
million and (b) the sum of EBITDA for calendar year 1999 ("1999
EBITDA") and 2000 EBITDA is greater than $54 million, then the
2000 Bonus shall be increased by $1.583, payable in cash, for
every $1 by which 2000 EBITDA exceeds $30 million, provided
however that such increase shall not exceed $1,583,333.33.
(ii) If EBITDA for calendar year 2001 ("2001 EBITDA") is an
amount greater than or equal to $36 million, then the 2001 bonus
shall be paid by the issuance by the Company of stock options for
the Company's Common Stock (the "Option"). The Option shall be
for 37,075 shares of Common Stock (as adjusted for stock splits,
dividends, etc., occurring after the date hereof), which will be
1% of the issued and outstanding common stock immediately
following the consummation of the Merger (as defined below). The
exercise price of the Option shall be $7.164 (as adjusted for
stock splits, dividends, etc. occurring after the date hereof).
Notwithstanding the above, in the event that both (a) the 2001
EBITDA is greater than $36 million and (b) the sum of 2000 EBITDA
and 2001 EBITDA is greater than $65 million, then the 2001 Bonus
shall also include $1.583, payable in cash, for every $1 by which
2001 EBITDA exceeds $36 million, provided however that such
amount shall not exceed the 2000 Shortfall. The "2000 Shortfall"
shall mean the amount, if any, by which $1,583,333.33 exceeds the
2000 Bonus.
The bonus for 2000 will be payable no later than five days after receipt by
the Company of its audited financial statements, but in no event later than
April 30 of the following year. If the Company purchases, exchanges, or
otherwise acquires any material stock, assets or liabilities of another
company other than in the ordinary course of business consistent with past
practice (the "Acquisition"), the parties will mutually agree to reset the
above annual EBITDA targets to appropriately reflect the EBITDA of the
acquired business; provided, however, that in the absence of such mutual
agreement, the 1999 EBITDA, 2000 EBITDA and 2001 EBITDA will be adjusted to
ignore any impact relating to such Acquisition that occurred.
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(c) For purposes of this Agreement, "EBITDA" means, with respect
to any period, the Company's consolidated audited net income for such period
(including or excluding any Acquisition as appropriate, pursuant to Section
3(b)):
(i) plus interest expense for such period to the extent
deducted (included) in computing net income for such period;
(ii) plus federal, state, local and foreign income taxes for
such period to the extent deducted in computing net income for
such period;
(iii) plus depreciation expense and amortization expense for
such period to the extent deducted in computing net income for
such period;
(iv) plus non-recurring, non-operating expenses;
(v) less extraordinary gains for such period to the extent
included in computing net income for such period; and
(vi) plus the 2000 bonus if expensed in such period.
(d) During the Employment Period, Executive shall be entitled to
participate in all of the Company's employee benefit programs for which senior
executive employees of the Company and its Subsidiaries are generally eligible
and shall be entitled to a minimum of three weeks vacation each year and paid
holidays in accordance with the Company's policy as may be in effect from time
to time.
(e) The Company shall reimburse Executive for all reasonable
expenses incurred by him in the course of performing his 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) Notwithstanding the foregoing provisions of this Section 3,
upon the occurrence of an Approved Sale (as defined in that certain Shareholders
Agreement by and among the Company, HK Merger Corp. and the persons set forth on
Schedule I thereto, and dated the date hereof), after December 31, 1999 and
prior to December 31, 2000, the Executive shall be entitled to receive, at such
time and in full, the maximum 2000 Bonus, as applicable, only if Executive no
longer holds the role and responsibility of President and Chief Executive
Officer of the Company. Notwithstanding the foregoing, Executive shall have the
option to reduce such bonus payment to an amount which shall be no greater than
$1 less than 300% of Executive's "Base Amount," as such term is defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended, as
determined for the taxable year in which the Approved Sale occurs.
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4. Termination and Severance.
(a) The Employment Period shall end on September17, 2002;
provided that (i) the Employment Period shall terminate prior to such date upon
Executive's resignation, death or Permanent Disability or Incapacity and (ii)
the Employment Period may be terminated by the Company at any time prior to such
date for Cause (as defined below) or without Cause. The Employment Period shall
be automatically renewed for additional one year periods unless otherwise
terminated upon sixty (60) days prior written notice by the Company or the
Executive.
(b) If the Employment Period is terminated by the Company without
Cause or if Executive resigns for Good Reason prior to September 17, 2002,
Executive shall be entitled to receive immediately upon the date of termination:
(i) his Base Salary and health benefits for one hundred eighty (180) days after
the date of termination of Executive's employment and (ii) the maximum 2000
Bonus to which Executive would have been entitled had he been employed by the
Company through the end of the term of this Agreement and had he met the
applicable EBITDA targets, if and only if Executive (x) has not breached the
provisions of Sections 5, 6 and 7 hereof, and (y) has executed and delivered to
the Company a general release in form and substance satisfactory to the Company.
(c) If the Employment Period is terminated by the Company for
Cause or Executive resigns without Good Reason, Executive shall be entitled to
receive his Base Salary and accrued and unused vacation through the date of
termination.
(d) If the Employment Period is terminated by reason of the
Executive's death or Permanent Disability or Incapacity, Executive or his estate
or personal representative, as the case may be, shall be entitled to receive his
Base Salary at the then current rate for three (3) months after the termination
and the pro rata portion (based upon the number of days the Executive worked in
that year) of the Executive's annual bonus to which the Executive would have
been entitled had he been employed by the Company through the end of the year in
which the termination of the Executive's employment occurs. The cash portion of
Executive's annual bonus to which Executive would have been entitled but for
this Section 3(d) shall be paid to Executive or his estate or personal
representative, as the case may be. The Option portion of Executive's annual
bonus to which Executive would have been entitled but for this Section 3(d)
shall be divided equally among Xxxx X. Xxxxx and Xxxxx Xxxx.
(e) Except as provided above, all of Executive's rights to fringe
benefits and bonuses hereunder (if any) which accrue or become payable after the
termination of the Employment Period shall cease upon such termination.
(f) Definitions. For purposes of this Agreement:
(i) "Cause" shall mean (a) the commission of a felony or a
crime involving moral turpitude or the commission of any other
act or omission involving dishonesty, disloyalty or fraud with
respect to the Company or any of its Subsidiaries or any of their
customers or suppliers, (b) over a 365-day period, absenteeism
from work for 37 or more equivalent days,
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excluding illness, vacation days and Jewish holidays, (c) failure to perform
duties as reasonably directed by the Board after receiving written notice from
the Board and an opportunity to cure such failure within fifteen (15) days of
such written notice, (d) gross misconduct, gross negligence, willful malfeasance
or willful misconduct with respect to the Company or any of its Subsidiaries,
(e) for any calendar year after 1999, EBITDA for such year being less than $24
million or (f) any other material breach of this Agreement.
(ii) "Good Reason" shall mean (a) a material breach of this
Agreement by the Company, which breach shall not have been cured
by the Company within thirty (30) days of receipt of written
notice of such breach, (b) a substantial diminution in the powers
and duties of Executive as provided in Section 2 of this
Agreement, (c) the assignment of the Executive without his
consent of any duties inconsistent with the powers and duties of
the Executive as provided in Section 2 of this Agreement, or (d)
the Company's demand that Executive be reassigned to a location
other than New York, New York.
(iii) "Permanent Disability or Incapacity" shall mean that
the Executive shall be unable to perform the duties hereunder for
a period of ninety (90) consecutive calendar days or one hundred
eighty (180) days in any calendar year by reason of disability as
a result of illness, accident or other physical or mental
incapacity or disability.
5. Confidential Information. Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
concerning the business or affairs of the Company and its Subsidiaries
("Confidential Information") are the property of the Company and such
Subsidiaries. Therefore, Executive agrees that he shall not disclose to any
unauthorized person or use for his 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. Executive
shall deliver to the Company at the termination of the Employment Period, 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) relating to the Confidential Information, Work Product (as
defined below) or the business of the Company or any of its Subsidiaries which
he may then possess or have under his control.
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) which
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 which 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 Board and perform all actions
reasonably requested by the Board (whether during or after the Employment
Period) to establish and confirm such ownership (including, without limitation,
executing any assignments, consents, powers of attorney and other instruments).
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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 his employment
with the Company he shall become familiar, and during his prior employment with
the Company he has become familiar, with the Company's trade secrets and with
other Confidential Information concerning the Company and its Subsidiaries and
that his services have been and shall be of special, unique and extraordinary
value to the Company and its Subsidiaries. Therefore, Executive agrees that,
during the Employment Period and for two years thereafter (the "Noncompete
Period"), he shall not, directly or indirectly, either for himself or for any
other person, "participate" anywhere in the world in the business as conducted
by or as proposed to be conducted by the Company and its Subsidiaries during the
Employment Period, including but not limited to the manufacture, design,
marketing, distribution, licensing and sale of children's and teens' (i.e. ages
0-21) apparel or accessories. For purposes of this Agreement, the term
"participate" includes any direct or indirect interest in any enterprise,
whether as an officer, director, employee, partner, sole proprietor, agent,
representative, independent contractor, consultant, franchisor, franchisee,
creditor, owner or otherwise; provided, that the term "participate" shall not
include ownership of less than 5% of the stock of a publicly-held corporation
whose stock is traded on a national securities exchange or in the
over-the-counter market, or the continued participation by the Executive on the
Board of Directors of any company on which he serves as of the date hereof.
(b) During the Noncompete Period, Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any employee
of the Company or any of its Subsidiaries to leave the employ of the Company or
such Subsidiaries, or in any way interfere with the relationship between the
Company or any of its Subsidiaries and any employee thereof, (ii) hire any
person who was a salaried employee of the Company or any of its Subsidiaries at
any time during the Employment Period (except for Xxxx X. Xxxxx and Xxxxx Xxxx,
but only in the event that Xx. Xxxxx or Xx. Xxxx, as applicable, have been
terminated by the Company without Cause or for Good Reason, as defined in their
respective Employment Agreements) or (iii) induce or attempt to induce any
customer, supplier, licensee, licensor, franchisee or other business relation of
the Company or any of its Subsidiaries to cease doing business with the Company
or such Subsidiaries or in any way interfere with the relationship between any
such customer, supplier, licensee, licensor, franchisee or business relation and
the Company or any of its Subsidiaries (including, without limitation, making
any negative statements or communications about the Company or any of its
Subsidiaries).
(c) If, at the time of enforcement of this Section 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 Section 7 are reasonable.
(d) In the event of the breach or a threatened breach by
Executive of any of the provisions of this Section 7, the Company, in addition
and supplementary to other rights and
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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 Section 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 (a) 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 he is bound, (b) Executive is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity and (c) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of Executive. Executive hereby acknowledges and
represents that he has consulted with independent legal counsel regarding his
rights and obligations under this Agreement and that he fully understands the
terms and conditions contained herein.
9. Survival. Sections 5, 6 and 7 and Sections 9 through 17 shall
survive and continue in full force in accordance with their terms
notwithstanding any termination of the Employment Period.
10. Notices. Any notice provided for in this Agreement shall be in
writing and shall be personally delivered, mailed by first class mail, return
receipt requested, or sent by reputable overnight courier service to the
recipient at the address indicated below:
Notices to Executive:
Xxxx X. Xxxxx
c/o Happy Kids Inc.
000 Xxxx 00xx Xxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Notices to the Company:
Happy Kids Inc.
000 Xxxx 00xx Xxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Attention: Chairman
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. A copy of any notice to the Company shall be sent to Xxxxxxxx &
Xxxxx, 000 Xxxx Xxxxxxxx Xxxxx, Xxxxxxx, Xxxxxxxx 00000, Attn: Xxxxx X.
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Learner, P.C., and to H.I.G. Capital Management, Inc., 0000 Xxxxxxxx Xxx Xxxxx,
00xx Xxxxx, Xxxxx, Xxxxxxx 00000, Attn: Xxxx X. Xxxxx and Xxxx Xxxxx. A copy of
any notice to Executive shall be sent to Xxxxxxxx Ingersoll, P.C., College
Centre, 000 Xxxxxxx Xxxx Xxxx, Xxxxxxxxx, X.X. 00000, Attn: Xxxxx X. Xxxxx.
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, those documents expressly
referred to herein and other documents of even date herewith 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,
including, without limitation, the Old Employment Agreement.
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.
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
his rights or delegate his 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 the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of New York, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
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.
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18. Effectiveness. This Agreement shall not be effective for any
purpose unless and until the consummation of the merger of HK Merger Corp., a
New York Corporation ("HK") with and into the Company (the "Merger"), pursuant
to the Agreement and Plan of Merger (as the same may be amended or supplemented,
the "Merger Agreement"), entered into as of the date hereof, by and among HK and
the Company, in accordance with the Merger Agreement. If the Merger Agreement is
terminated prior to consummation of the Merger, this Agreement shall be deemed
void ab initio and of no further effect.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first written above.
HAPPY KIDS INC.
By: /s/ Xxxx X. Xxxxx
------------------------------
Xxxx X. Xxxxx
Name: -------------------------
President
Its: -------------------------
/s/ Xxxx X. Xxxxx
-----------------------------------
Xxxx X. Xxxxx
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of September
17, 1999, by and between Happy Kids Inc., a New York corporation (the
"Company"), and Xxxx X. Xxxxx ("Executive"). The Company and the Executive are
each referred to herein individually as a "Party" and collectively as the
"Parties."
WHEREAS, the Executive has entered into that certain Employment
Agreement, dated as of January 1, 1998 (the "Old Employment Agreement"), with
the Company.
WHEREAS, the Company and Executive wish to terminate the Old
Employment Agreement and the Company and Executive wish to enter into this
Agreement to set forth the new employment relationship between the Company and
Executive.
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. 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 upon the consummation of the
Merger and ending as provided in Section 4 hereof (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the
Executive Vice President and Secretary of the Company and shall have the normal
duties, responsibilities and authority of the Executive Vice President and
Secretary, subject to the power of the Board of Directors of the Company (the
"Board"), to expand or limit such duties, responsibilities and authority and to
override actions of the Executive Vice President and Secretary.
(b) Executive shall report to the President, and Executive shall
devote his best efforts and his 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.
Executive shall perform all duties and responsibilities to the best of his
abilities in a diligent, trustworthy, businesslike and efficient manner.
(c) For purposes of this Agreement, "Subsidiaries" shall mean
any corporation of which the securities having a majority of the voting power in
electing directors are, at the time of determination, owned by the Company,
directly or through one or more Subsidiaries.
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3. Base Salary and Benefits.
(a) Executive's base salary shall be $300,000 per annum during
the Employment Period (the "Base Salary"), which salary shall be payable in
regular installments in accordance with the Company's general payroll practices
and shall be subject to customary withholding.
(b) In addition to the Base Salary, Executive will be eligible to
receive an annual bonus based on the Company achieving the annual EBITDA targets
as follows:
(i) If EBITDA for calendar year 2000 ("2000 EBITDA") is an
amount greater than $29 million, then the 2000 bonus ("2000 Bonus")
shall be $1.583, payable in cash, for every $1 by which 2000 EBITDA
exceeds $29 million; provided, however, that the 2000 Bonus shall not
exceed $1,583,333.33. Notwithstanding the above, in the event that
both (a) the 2000 EBITDA is greater than $30 million and (b) the sum
of EBITDA for calendar year 1999 ("1999 EBITDA") and 2000 EBITDA is
greater than $54 million, then the 2000 Bonus shall be increased by
$1.583, payable in cash, for every $1 by which 2000 EBITDA exceeds $30
million, provided however that such increase shall not exceed
$1,583,333.33.
(ii) If EBITDA for calendar year 2001 ("2001 EBITDA") is an
amount greater than or equal to $36 million, then the 2001 bonus shall
be paid by the issuance by the Company of stock options for the
Company's Common Stock (the "Option"). The Option shall be for 37,075
shares of Common Stock (as adjusted for stock splits, dividends, etc.,
occurring after the date hereof), which will be 1% of the issued and
outstanding common stock immediately following the consummation of the
Merger (as defined below). The exercise price of the Option shall be
$7.164 (as adjusted for stock splits, dividends, etc. occurring after
the date hereof). Notwithstanding the above, in the event that both
(a) the 2001 EBITDA is greater than $36 million and (b) the sum of
2000 EBITDA and 2001 EBITDA is greater than $65 million, then the 2001
Bonus shall also include $1.583, payable in cash, for every $1 by
which 2001 EBITDA exceeds $36 million, provided however that such
amount shall not exceed the 2000 Shortfall. The "2000 Shortfall" shall
mean the amount, if any, by which $1,583,333.33 exceeds the 2000
Bonus.
The bonus for 2000 will be payable no later than five days after receipt by
the Company of its audited financial statements, but in no event later than
April 30 of the following year. If the Company purchases, exchanges, or
otherwise acquires any material stock, assets or liabilities of another
company other than in the ordinary course of business consistent with past
practice (the "Acquisition"), the parties will mutually agree to reset the
above annual EBITDA targets to appropriately reflect the EBITDA of the
acquired business; provided, however, that in the absence of such mutual
agreement, the 1999 EBITDA, 2000 EBITDA and 2001 EBITDA will be adjusted to
ignore any impact relating to such Acquisition that occurred.
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(c) For purposes of this Agreement, "EBITDA" means, with respect
to any period, the Company's consolidated audited net income for such period
(including or excluding any Acquisition as appropriate, pursuant to Section
3(b)):
(i) plus interest expense for such period to the extent
deducted (included) in computing net income for such period;
(ii) plus federal, state, local and foreign income taxes
for such period to the extent deducted in computing net income for
such period;
(iii) plus depreciation expense and amortization expense
for such period to the extent deducted in computing net income for
such period;
(iv) plus non-recurring, non-operating expenses;
(v) less extraordinary gains for such period to the
extent included in computing net income for such period; and
(vi) plus the 2000 bonus if expensed in such period.
(d) During the Employment Period, Executive shall be entitled to
participate in all of the Company's employee benefit programs for which senior
executive employees of the Company and its Subsidiaries are generally eligible
and shall be entitled to a minimum of three weeks vacation each year and paid
holidays in accordance with the Company's policy as may be in effect from time
to time.
(e) The Company shall reimburse Executive for all reasonable
expenses incurred by him in the course of performing his 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) Notwithstanding the foregoing provisions of this Section 3,
upon the occurrence of an Approved Sale (as defined in that certain Shareholders
Agreement by and among the Company, HK Merger Corp. and the persons set forth on
Schedule I thereto, and dated the date hereof), after December 31, 1999 and
prior to December 31, 2000, the Executive shall be entitled to receive, at such
time and in full, the maximum 2000 Bonus, as applicable, only if Executive no
longer holds the role and responsibility of President and Chief Executive
Officer of the Company. Notwithstanding the foregoing, Executive shall have the
option to reduce such bonus payment to an amount which shall be no greater than
$1 less than 300% of Executive's "Base Amount," as such term is defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended, as
determined for the taxable year in which the Approved Sale occurs.
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4. Termination and Severance.
(a) The Employment Period shall end on September 17, 2002;
provided that (i) the Employment Period shall terminate prior to such date upon
Executive's resignation, death or Permanent Disability or Incapacity and (ii)
the Employment Period may be terminated by the Company at any time prior to such
date for Cause (as defined below) or without Cause. The Employment Period shall
be automatically renewed for additional one year periods unless otherwise
terminated upon sixty (60) days prior written notice by the Company or the
Executive.
(b) If the Employment Period is terminated by the Company
without Cause or if Executive resigns for Good Reason prior to September 17,
2002, Executive shall be entitled to receive immediately upon the date of
termination: (i) his Base Salary and health benefits for one hundred eighty
(180) days after the date of termination of Executive's employment and (ii) the
maximum 2000 Bonus to which Executive would have been entitled had he been
employed by the Company through the end of the term of this Agreement and had he
met the applicable EBITDA targets, if and only if Executive (x) has not breached
the provisions of Sections 5, 6 and 7 hereof, and (y) has executed and delivered
to the Company a general release in form and substance satisfactory to the
Company.
(c) If the Employment Period is terminated by the Company for
Cause or Executive resigns without Good Reason, Executive shall be entitled to
receive his Base Salary and accrued and unused vacation through the date of
termination.
(d) If the Employment Period is terminated by reason of the
Executive's death or Permanent Disability or Incapacity, Executive or his estate
or personal representative, as the case may be, shall be entitled to receive his
Base Salary at the then current rate for three (3) months after the termination
and the pro rata portion (based upon the number of days the Executive worked in
that year) of the Executive's annual bonus to which the Executive would have
been entitled had he been employed by the Company through the end of the year in
which the termination of the Executive's employment occurs. The cash portion of
Executive's annual bonus to which Executive would have been entitled but for
this Section 3(d) shall be paid to Executive or his estate or personal
representative, as the case may be. The Option portion of Executive's annual
bonus to which Executive would have been entitled but for this Section 3(d)
shall be divided equally among Xxxx X. Xxxxx and Xxxxx Xxxx.
(e) Except as provided above, all of Executive's rights to
fringe benefits and bonuses hereunder (if any) which accrue or become payable
after the termination of the Employment Period shall cease upon such
termination.
(f) Definitions. For purposes of this Agreement:
(i) "Cause" shall mean (a) the commission of a felony or a
crime involving moral turpitude or the commission of any other act or
omission involving dishonesty, disloyalty or fraud with respect to the
Company or any of its Subsidiaries or any of their customers or
suppliers, (b) over a 365-day period, absenteeism from work for 37 or
more equivalent days,
-4-
excluding illness, vacation days and Jewish holidays, (c) failure to
perform duties as reasonably directed by the Board after receiving
written notice from the Board and an opportunity to cure such failure
within fifteen (15) days of such written notice, (d) gross misconduct,
gross negligence, willful malfeasance or willful misconduct with
respect to the Company or any of its Subsidiaries, (e) for any
calendar year after 1999, EBITDA for such year being less than $24
million or (f) any other material breach of this Agreement.
(ii) "Good Reason" shall mean (a) a material breach of
this Agreement by the Company, which breach shall not have been cured
by the Company within thirty (30) days of receipt of written notice of
such breach, (b) a substantial diminution in the powers and duties of
Executive as provided in Section 2 of this Agreement, (c) the
assignment of the Executive without his consent of any duties
inconsistent with the powers and duties of the Executive as provided
in Section 2 of this Agreement, or (d) the Company's demand that
Executive be reassigned to a location other than New York, New York.
(iii) "Permanent Disability or Incapacity" shall mean that
the Executive shall be unable to perform the duties hereunder for a
period of ninety (90) consecutive calendar days or one hundred eighty
(180) days in any calendar year by reason of disability as a result of
illness, accident or other physical or mental incapacity or
disability.
5. Confidential Information. Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
concerning the business or affairs of the Company and its Subsidiaries
("Confidential Information") are the property of the Company and such
Subsidiaries. Therefore, Executive agrees that he shall not disclose to any
unauthorized person or use for his 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. Executive
shall deliver to the Company at the termination of the Employment Period, 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) relating to the Confidential Information, Work Product (as
defined below) or the business of the Company or any of its Subsidiaries which
he may then possess or have under his control.
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) which 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 which 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 Board and perform all
actions reasonably requested by the Board (whether during or after the
Employment Period) to establish and confirm such ownership (including, without
limitation, executing any assignments, consents, powers of attorney and other
instruments).
-5-
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 his employment
with the Company he shall become familiar, and during his prior employment with
the Company he has become familiar, with the Company's trade secrets and with
other Confidential Information concerning the Company and its Subsidiaries and
that his services have been and shall be of special, unique and extraordinary
value to the Company and its Subsidiaries. Therefore, Executive agrees that,
during the Employment Period and for two years thereafter (the "Noncompete
Period"), he shall not, directly or indirectly, either for himself or for any
other person, "participate" anywhere in the world in the business as conducted
by or as proposed to be conducted by the Company and its Subsidiaries during the
Employment Period, including but not limited to the manufacture, design,
marketing, distribution, licensing and sale of children's and teens' (i.e. ages
0-21) apparel or accessories. For purposes of this Agreement, the term
"participate" includes any direct or indirect interest in any enterprise,
whether as an officer, director, employee, partner, sole proprietor, agent,
representative, independent contractor, consultant, franchisor, franchisee,
creditor, owner or otherwise; provided, that the term "participate" shall not
include ownership of less than 5% of the stock of a publicly-held corporation
whose stock is traded on a national securities exchange or in the over-the-
counter market, or the continued participation by the Executive on the Board of
Directors of any company on which he serves as of the date hereof.
(b) During the Noncompete Period, Executive shall not directly
or indirectly through another entity (i) induce or attempt to induce any
employee of the Company or any of its Subsidiaries to leave the employ of the
Company or such Subsidiaries, or in any way interfere with the relationship
between the Company or any of its Subsidiaries and any employee thereof, (ii)
hire any person who was a salaried employee of the Company or any of its
Subsidiaries at any time during the Employment Period (except for Xxxx X. Xxxxx
and Xxxxx Xxxx, but only in the event that Xx. Xxxxx or Xx. Xxxx, as applicable,
have been terminated by the Company without Cause or for Good Reason, as defined
in their respective Employment Agreements) or (iii) induce or attempt to induce
any customer, supplier, licensee, licensor, franchisee or other business
relation of the Company or any of its Subsidiaries to cease doing business with
the Company or such Subsidiaries or in any way interfere with the relationship
between any such customer, supplier, licensee, licensor, franchisee or business
relation and the Company or any of its Subsidiaries (including, without
limitation, making any negative statements or communications about the Company
or any of its Subsidiaries).
(c) If, at the time of enforcement of this Section 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 Section 7 are reasonable.
(d) In the event of the breach or a threatened breach by
Executive of any of the provisions of this Section 7, the Company, in addition
and supplementary to other rights and
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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 Section 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 (a) 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 he is bound, (b) Executive is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity and (c) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of Executive. Executive hereby acknowledges and
represents that he has consulted with independent legal counsel regarding his
rights and obligations under this Agreement and that he fully understands the
terms and conditions contained herein.
9. Survival. Sections 5, 6 and 7 and Sections 9 through 17 shall
survive and continue in full force in accordance with their terms
notwithstanding any termination of the Employment Period.
10. Notices. Any notice provided for in this Agreement shall be in
writing and shall be personally delivered, mailed by first class mail, return
receipt requested, or sent by reputable overnight courier service to the
recipient at the address indicated below:
Notices to Executive:
Xxxx X. Xxxxx
c/o Happy Kids Inc.
000 Xxxx 00xx Xxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Notices to the Company:
Happy Kids Inc.
000 Xxxx 00xx Xxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Attention: Chairman
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. A copy of any notice to the Company shall be sent to Xxxxxxxx &
Xxxxx, 000 Xxxx Xxxxxxxx Xxxxx, Xxxxxxx, Xxxxxxxx 00000, Attn: Xxxxx X.
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Learner, P.C., and to H.I.G. Capital Management, Inc., 0000 Xxxxxxxx Xxx Xxxxx,
00xx Xxxxx, Xxxxx, Xxxxxxx 00000, Attn: Xxxx X. Xxxxx and Xxxx Xxxxx. A copy of
any notice to Executive shall be sent to Xxxxxxxx Ingersoll, P.C., College
Centre, 000 Xxxxxxx Xxxx Xxxx, Xxxxxxxxx, X.X. 00000, Attn: Xxxxx X. Xxxxx.
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, those documents expressly
referred to herein and other documents of even date herewith 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,
including, without limitation, the Old Employment Agreement.
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.
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
his rights or delegate his 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 the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of New York, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
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.
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18. Effectiveness. This Agreement shall not be effective for any
purpose unless and until the consummation of the merger of HK Merger Corp., a
New York Corporation ("HK") with and into the Company (the "Merger"), pursuant
to the Agreement and Plan of Merger (as the same may be amended or supplemented,
the "Merger Agreement"), entered into as of the date hereof, by and among HK and
the Company, in accordance with the Merger Agreement. If the Merger Agreement is
terminated prior to consummation of the Merger, this Agreement shall be deemed
void ab initio and of no further effect.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first written above.
HAPPY KIDS INC.
By: /s/ Xxxx X. Xxxxx
------------------------------
Xxxx X. Xxxxx
Name: -------------------------
President
Its: -------------------------
/s/ Xxxx X. Xxxxx
-----------------------------------
Xxxx X. Xxxxx
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of September
17, 1999, by and between Happy Kids Inc., a New York corporation (the
"Company"), and Xxxxx Xxxx ("Executive"). The Company and the Executive are each
referred to herein individually as a "Party" and collectively as the "Parties."
WHEREAS, the Executive has entered into that certain Employment
Agreement, dated as of January 1, 1998 (the "Old Employment Agreement"), with
the Company.
WHEREAS, the Company and Executive wish to terminate the Old
Employment Agreement and the Company and Executive wish to enter into this
Agreement to set forth the new employment relationship between the Company and
Executive.
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. 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 upon the consummation of the
Merger and ending as provided in Section 4 hereof (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the
Senior Vice President of the Company and shall have the normal duties,
responsibilities and authority of the Senior Vice President, subject to the
power of the Board of Directors of the Company (the "Board"), to expand or limit
such duties, responsibilities and authority and to override actions of the
Senior Vice President.
(b) Executive shall report to the President, and Executive shall
devote his best efforts and his 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.
Executive shall perform all duties and responsibilities to the best of his
abilities in a diligent, trustworthy, businesslike and efficient manner.
(c) For purposes of this Agreement, "Subsidiaries" shall mean
any corporation of which the securities having a majority of the voting power in
electing directors are, at the time of determination, owned by the Company,
directly or through one or more Subsidiaries.
-1-
3. Base Salary and Benefits.
(a) Executive's base salary shall be $300,000 per annum during
the Employment Period (the "Base Salary"), which salary shall be payable in
regular installments in accordance with the Company's general payroll practices
and shall be subject to customary withholding.
(b) In addition to the Base Salary, Executive will be eligible
to receive an annual bonus based on the Company achieving the annual EBITDA
targets as follows:
(i) If EBITDA for calendar year 2000 ("2000 EBITDA") is an
amount greater than $29 million, then the 2000 bonus ("2000 Bonus")
shall be $1.583, payable in cash, for every $1 by which 2000 EBITDA
exceeds $29 million; provided, however, that the 2000 Bonus shall not
exceed $1,583,333.33. Notwithstanding the above, in the event that
both (a) the 2000 EBITDA is greater than $30 million and (b) the sum
of EBITDA for calendar year 1999 ("1999 EBITDA") and 2000 EBITDA is
greater than $54 million, then the 2000 Bonus shall be increased by
$1.583, payable in cash, for every $1 by which 2000 EBITDA exceeds $30
million, provided however that such increase shall not exceed
$1,583,333.33.
(ii) If EBITDA for calendar year 2001 ("2001 EBITDA") is an
amount greater than or equal to $36 million, then the 2001 bonus shall
be paid by the issuance by the Company of stock options for the
Company's Common Stock (the "Option"). The Option shall be for 37,075
shares of Common Stock (as adjusted for stock splits, dividends, etc.,
occurring after the date hereof), which will be 1% of the issued and
outstanding common stock immediately following the consummation of the
Merger (as defined below). The exercise price of the Option shall be
$7.164 (as adjusted for stock splits, dividends, etc. occurring after
the date hereof). Notwithstanding the above, in the event that both
(a) the 2001 EBITDA is greater than $36 million and (b) the sum of
2000 EBITDA and 2001 EBITDA is greater than $65 million, then the 2001
Bonus shall also include $1.583, payable in cash, for every $1 by
which 2001 EBITDA exceeds $36 million, provided however that such
amount shall not exceed the 2000 Shortfall. The "2000 Shortfall" shall
mean the amount, if any, by which $1,583,333.33 exceeds the 2000
Bonus.
The bonus for 2000 will be payable no later than five days after receipt by
the Company of its audited financial statements, but in no event later than
April 30 of the following year. If the Company purchases, exchanges, or
otherwise acquires any material stock, assets or liabilities of another
company other than in the ordinary course of business consistent with past
practice (the "Acquisition"), the parties will mutually agree to reset the
above annual EBITDA targets to appropriately reflect the EBITDA of the
acquired business; provided, however, that in the absence of such mutual
agreement, the 1999 EBITDA, 2000 EBITDA and 2001 EBITDA will be adjusted to
ignore any impact relating to such Acquisition that occurred.
-2-
(c) For purposes of this Agreement, "EBITDA" means, with respect
to any period, the Company's consolidated audited net income for such period
(including or excluding any Acquisition as appropriate, pursuant to Section
3(b)):
(i) plus interest expense for such period to the extent
deducted (included) in computing net income for such period;
(ii) plus federal, state, local and foreign income taxes
for such period to the extent deducted in computing net income for
such period;
(iii) plus depreciation expense and amortization expense
for such period to the extent deducted in computing net income for
such period;
(iv) plus non-recurring, non-operating expenses;
(v) less extraordinary gains for such period to the
extent included in computing net income for such period; and
(vi) plus the 2000 bonus if expensed in such period.
(d) During the Employment Period, Executive shall be entitled to
participate in all of the Company's employee benefit programs for which senior
executive employees of the Company and its Subsidiaries are generally eligible
and shall be entitled to a minimum of three weeks vacation each year and paid
holidays in accordance with the Company's policy as may be in effect from time
to time.
(e) The Company shall reimburse Executive for all reasonable
expenses incurred by him in the course of performing his 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) Notwithstanding the foregoing provisions of this Section 3,
upon the occurrence of an Approved Sale (as defined in that certain Shareholders
Agreement by and among the Company, HK Merger Corp. and the persons set forth on
Schedule I thereto, and dated the date hereof), after December 31, 1999 and
prior to December 31, 2000, the Executive shall be entitled to receive, at such
time and in full, the maximum 2000 Bonus, as applicable, only if Executive no
longer holds the role and responsibility of President and Chief Executive
Officer of the Company. Notwithstanding the foregoing, Executive shall have the
option to reduce such bonus payment to an amount which shall be no greater than
$1 less than 300% of Executive's "Base Amount," as such term is defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended, as
determined for the taxable year in which the Approved Sale occurs.
-3-
4. Termination and Severance.
(a) The Employment Period shall end on September 17, 2002;
provided that (i) the Employment Period shall terminate prior to such date upon
Executive's resignation, death or Permanent Disability or Incapacity and (ii)
the Employment Period may be terminated by the Company at any time prior to such
date for Cause (as defined below) or without Cause. The Employment Period shall
be automatically renewed for additional one year periods unless otherwise
terminated upon sixty (60) days prior written notice by the Company or the
Executive.
(b) If the Employment Period is terminated by the Company
without Cause or if Executive resigns for Good Reason prior to September 17,
2002, Executive shall be entitled to receive immediately upon the date of
termination: (i) his Base Salary and health benefits for one hundred eighty
(180) days after the date of termination of Executive's employment and (ii) the
maximum 2000 Bonus to which Executive would have been entitled had he been
employed by the Company through the end of the term of this Agreement and had he
met the applicable EBITDA targets, if and only if Executive (x) has not breached
the provisions of Sections 5, 6 and 7 hereof, and (y) has executed and delivered
to the Company a general release in form and substance satisfactory to the
Company.
(c) If the Employment Period is terminated by the Company for
Cause or Executive resigns without Good Reason, Executive shall be entitled to
receive his Base Salary and accrued and unused vacation through the date of
termination.
(d) If the Employment Period is terminated by reason of the
Executive's death or Permanent Disability or Incapacity, Executive or his estate
or personal representative, as the case may be, shall be entitled to receive his
Base Salary at the then current rate for three (3) months after the termination
and the pro rata portion (based upon the number of days the Executive worked in
that year) of the Executive's annual bonus to which the Executive would have
been entitled had he been employed by the Company through the end of the year in
which the termination of the Executive's employment occurs. The cash portion of
Executive's annual bonus to which Executive would have been entitled but for
this Section 3(d) shall be paid to Executive or his estate or personal
representative, as the case may be. The Option portion of Executive's annual
bonus to which Executive would have been entitled but for this Section 3(d)
shall be divided equally among Xxxx X. Xxxxx and Xxxx X. Xxxxx.
(e) Except as provided above, all of Executive's rights to
fringe benefits and bonuses hereunder (if any) which accrue or become payable
after the termination of the Employment Period shall cease upon such
termination.
(f) Definitions. For purposes of this Agreement:
(i) "Cause" shall mean (a) the commission of a felony or a
crime involving moral turpitude or the commission of any other act or
omission involving dishonesty, disloyalty or fraud with respect to the
Company or any of its Subsidiaries or any of their customers or
suppliers, (b) over a 365-day period, absenteeism from work for 37 or
more equivalent days,
-4-
excluding illness, vacation days and Jewish holidays, (c) failure to
perform duties as reasonably directed by the Board after receiving
written notice from the Board and an opportunity to cure such failure
within fifteen (15) days of such written notice, (d) gross misconduct,
gross negligence, willful malfeasance or willful misconduct with
respect to the Company or any of its Subsidiaries, (e) for any
calendar year after 1999, EBITDA for such year being less than $24
million or (f) any other material breach of this Agreement.
(ii) "Good Reason" shall mean (a) a material breach of
this Agreement by the Company, which breach shall not have been cured
by the Company within thirty (30) days of receipt of written notice of
such breach, (b) a substantial diminution in the powers and duties of
Executive as provided in Section 2 of this Agreement, (c) the
assignment of the Executive without his consent of any duties
inconsistent with the powers and duties of the Executive as provided
in Section 2 of this Agreement, or (d) the Company's demand that
Executive be reassigned to a location other than New York, New York.
(iii) "Permanent Disability or Incapacity" shall mean that
the Executive shall be unable to perform the duties hereunder for a
period of ninety (90) consecutive calendar days or one hundred eighty
(180) days in any calendar year by reason of disability as a result of
illness, accident or other physical or mental incapacity or
disability.
5. Confidential Information. Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
concerning the business or affairs of the Company and its Subsidiaries
("Confidential Information") are the property of the Company and such
Subsidiaries. Therefore, Executive agrees that he shall not disclose to any
unauthorized person or use for his 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. Executive
shall deliver to the Company at the termination of the Employment Period, 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) relating to the Confidential Information, Work Product (as
defined below) or the business of the Company or any of its Subsidiaries which
he may then possess or have under his control.
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) which 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 which 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 Board and perform all
actions reasonably requested by the Board (whether during or after the
Employment Period) to establish and confirm such ownership (including, without
limitation, executing any assignments, consents, powers of attorney and other
instruments).
-5-
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 his employment
with the Company he shall become familiar, and during his prior employment with
the Company he has become familiar, with the Company's trade secrets and with
other Confidential Information concerning the Company and its Subsidiaries and
that his services have been and shall be of special, unique and extraordinary
value to the Company and its Subsidiaries. Therefore, Executive agrees that,
during the Employment Period and for two years thereafter (the "Noncompete
Period"), he shall not, directly or indirectly, either for himself or for any
other person, "participate" anywhere in the world in the business as conducted
by or as proposed to be conducted by the Company and its Subsidiaries during the
Employment Period, including but not limited to the manufacture, design,
marketing, distribution, licensing and sale of children's and teens' (i.e. ages
0-21) apparel or accessories. For purposes of this Agreement, the term
"participate" includes any direct or indirect interest in any enterprise,
whether as an officer, director, employee, partner, sole proprietor, agent,
representative, independent contractor, consultant, franchisor, franchisee,
creditor, owner or otherwise; provided, that the term "participate" shall not
include ownership of less than 5% of the stock of a publicly-held corporation
whose stock is traded on a national securities exchange or in the over-the-
counter market, or the continued participation by the Executive on the Board of
Directors of any company on which he serves as of the date hereof.
(b) During the Noncompete Period, Executive shall not directly
or indirectly through another entity (i) induce or attempt to induce any
employee of the Company or any of its Subsidiaries to leave the employ of the
Company or such Subsidiaries, or in any way interfere with the relationship
between the Company or any of its Subsidiaries and any employee thereof, (ii)
hire any person who was a salaried employee of the Company or any of its
Subsidiaries at any time during the Employment Period (except for Xxxx X. Xxxxx
and Xxxx X. Xxxxx, but only in the event that Xxxx X. Xxxxx or Xxxx X. Xxxxx, as
applicable, have been terminated by the Company without Cause or for Good
Reason, as defined in their respective Employment Agreements) or (iii) induce or
attempt to induce any customer, supplier, licensee, licensor, franchisee or
other business relation of the Company or any of its Subsidiaries to cease doing
business with the Company or such Subsidiaries or in any way interfere with the
relationship between any such customer, supplier, licensee, licensor, franchisee
or business relation and the Company or any of its Subsidiaries (including,
without limitation, making any negative statements or communications about the
Company or any of its Subsidiaries).
(c) If, at the time of enforcement of this Section 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 Section 7 are reasonable.
(d) In the event of the breach or a threatened breach by
Executive of any of the provisions of this Section 7, the Company, in addition
and supplementary to other rights and
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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 Section 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 (a) 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 he is bound, (b) Executive is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity and (c) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of Executive. Executive hereby acknowledges and
represents that he has consulted with independent legal counsel regarding his
rights and obligations under this Agreement and that he fully understands the
terms and conditions contained herein.
9. Survival. Sections 5, 6 and 7 and Sections 9 through 17 shall
survive and continue in full force in accordance with their terms
notwithstanding any termination of the Employment Period.
10. Notices. Any notice provided for in this Agreement shall be in
writing and shall be personally delivered, mailed by first class mail, return
receipt requested, or sent by reputable overnight courier service to the
recipient at the address indicated below:
Notices to Executive:
Xxxxx Xxxx
c/o Happy Kids Inc.
000 Xxxx 00xx Xxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Notices to the Company:
Happy Kids Inc.
000 Xxxx 00xx Xxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Attention: Chairman
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. A copy of any notice to the Company shall be sent to Xxxxxxxx &
Xxxxx, 000 Xxxx Xxxxxxxx Xxxxx, Xxxxxxx, Xxxxxxxx 00000, Attn: Xxxxx X.
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Learner, P.C., and to H.I.G. Capital Management, Inc., 0000 Xxxxxxxx Xxx Xxxxx,
00xx Xxxxx, Xxxxx, Xxxxxxx 00000, Attn: Xxxx X. Xxxxx and Xxxx Xxxxx. A copy of
any notice to Executive shall be sent to Xxxxxxxx Ingersoll, P.C., College
Centre, 000 Xxxxxxx Xxxx Xxxx, Xxxxxxxxx, X.X. 00000, Attn: Xxxxx X. Xxxxx.
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, those documents expressly
referred to herein and other documents of even date herewith 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,
including, without limitation, the Old Employment Agreement.
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.
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
his rights or delegate his 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 the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of New York, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
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.
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18. Effectiveness. This Agreement shall not be effective for any
purpose unless and until the consummation of the merger of HK Merger Corp., a
New York Corporation ("HK") with and into the Company (the "Merger"), pursuant
to the Agreement and Plan of Merger (as the same may be amended or supplemented,
the "Merger Agreement"), entered into as of the date hereof, by and among HK and
the Company, in accordance with the Merger Agreement. If the Merger Agreement is
terminated prior to consummation of the Merger, this Agreement shall be deemed
void ab initio and of no further effect.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement as of the date first written above.
HAPPY KIDS INC.
/s/ Xxxx X. Xxxxx
By: -------------------------------
Xxxx X. Xxxxx
Name: -------------------------
President
Its: --------------------
/s/ Xxxxx Xxxx
---------------------------------
Xxxxx Xxxx
