1
EXHIBIT 10.42
SEVERANCE, CONSULTING AND NONCOMPETE AGREEMENT
THIS SEVERANCE, CONSULTING AND NONCOMPETE AGREEMENT (the "Agreement")
is entered into as of September 13, 1999 (the "Effective Date") among Claremont
Restaurant Group, LLC, a North Carolina limited liability company ("Claremont"),
Fresh Foods, Inc., a North Carolina corporation and the sole member and manager
of Claremont ("Fresh Foods"), HERTH Management, Inc., a North Carolina
corporation ("HERTH"), and Xxxxx X. Xxxxxxxxx (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive is an executive employee of Claremont, having
provided management services through HERTH, thereby acquiring an intimate
knowledge of the business and affairs of Claremont; and
WHEREAS, the Executive and Fresh Foods entered into a certain Change in
Control Agreement dated as of August 29, 1997 (the "Change in Control
Agreement"); and
WHEREAS, the Executive and Fresh Foods desire to terminate the Change
in Control Agreement and to set forth their agreement with respect to such
termination; and
WHEREAS, the Executive, HERTH, Claremont and Fresh Foods desire to set
forth their agreement with respect to certain matters relating to the
Executive's employment, through HERTH, by Claremont; and
WHEREAS, Claremont desires to engage the services of the Executive,
through HERTH, as a consultant in the event of a sale or other disposition of
Claremont by Fresh Foods and the Executive desires to be so engaged upon the
terms and conditions provided herein; and
WHEREAS, the Executive, HERTH and Claremont desire to set forth their
agreement with respect to certain noncompete obligations of the Executive;
NOW, THEREFORE, in consideration of the covenants contained herein,
together with other valuable consideration, the receipt and legal sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
1. CHANGE IN CONTROL AGREEMENT TERMINATED. The parties agree that the
Change in Control Agreement is hereby terminated in its entirety without
liability on the part of any party as a consequence thereof. Without limiting
the generality of the foregoing, neither Fresh Foods nor Claremont shall have
any liability to the Executive, upon the sale of Claremont or Fresh Foods (or
otherwise), pursuant to the Change in Control Agreement.
2. EXECUTIVE'S EMPLOYMENT TERMINATED. The parties agree that the
Executive's employment (through HERTH or otherwise) with any and all of
Claremont, Fresh Foods and their subsidiaries, is hereby terminated in its
entirety.
2
3. CONSULTING SERVICES. Claremont agrees to engage the Executive,
through HERTH, as a consultant as of the Effective Date, and the Executive
hereby accepts such engagement, in each case upon the terms and conditions set
forth in this Agreement. Throughout the term of this Agreement, the Executive
shall report to the President of Claremont (or, if none exists, then the
Manager(s) of Claremont) and shall perform such Consulting Services (as defined
in Section 4) as the President or such Manager(s), as the case may be (the
"Superior Officer"), may reasonably request.
4. CONSULTING DUTIES. The Executive shall, to the extent reasonably
requested by the Superior Officer, at reasonable times and places (a) consult
with and advise Claremont on management of Claremont's restaurant operation and
franchising business and (b) market and promote Claremont's restaurant operation
and franchising business in the southeastern United States (collectively,
"Consulting Services"). The Executive need not devote more than twenty hours per
calendar week or 500 hours per calendar year to Consulting Services. Except as
otherwise provided in this Agreement, the Executive is not entitled to payment
of any fee or other compensation for his Consulting Services, but Claremont
shall reimburse him for the reasonable out-of-pocket expenses that he incurs
while performing Consulting Services upon presentation of receipts or other
documentation in reasonable detail.
5. INDEPENDENT CONTRACTOR. Claremont, HERTH and the Executive hereby
agree that the Executive is an independent contractor, solely responsible for
the manner and form in which he performs Consulting Services. Nothing contained
herein shall be construed as creating an employer/employee, master/servant,
principal/agent, partnership, joint venture or other similar kind of
relationship. The Executive agrees that he will not take any action on behalf of
Claremont without specific instructions from, and the prior approval of, the
Superior Officer and that he does not have any right or power in any manner to
bind or commit Claremont to any contract or other obligation with any individual
or entity except upon the specific prior written approval of the Superior
Officer.
6. TERM. This Agreement shall terminate five years from the Effective
Date, unless it is terminated earlier as provided elsewhere in this Section.
Claremont may, by written notice to each of the Executive and HERTH, terminate
this Agreement at any earlier date, it being understood that no termination of
this Agreement shall affect (1) the Executive's obligations under Sections 8 and
9 of this Agreement, which shall remain in full force and effect, or (2) the
obligations of Fresh Foods and Claremont under Section 7. This Agreement shall
in any event terminate upon the death of the Executive.
7. COMPENSATION.
(a) Fresh Foods shall pay to HERTH, for the benefit of the
Executive, as a lump sum payment, an amount equal to the sum of
(i) $315,000 plus
(ii) an amount determined by Fresh Foods to be equal to the
aggregate of any and all federal, state and local income tax and
excise tax liabilities of the
2
3
Executive resulting from the payments due pursuant to clauses (i)
and (ii) hereof; provided, however, that, if Fresh Foods determines
that the total of all payments to HERTH for the benefit of the
Executive under this Agreement after reduction for any and all
federal, state and local income tax and excise tax liabilities of
the Executive resulting therefrom (the "After-Tax Payments") would
be increased by the limitation or elimination of any payment under
this Section 7, then amounts payable under this Section 7 shall be
reduced to the extent, and only to the extent, determined necessary
by Fresh Foods to maximize the After-Tax Payments; and provided
further that Fresh Foods shall withhold from all payments to be made
to HERTH for the benefit of the Executive pursuant to this Agreement
all taxes that, by applicable federal, state or local law, Fresh
Foods determines that it is required to withhold.
The payment required to be made to HERTH for the benefit of the
Executive pursuant to the foregoing provisions of this Section 7 shall
be made by bank check or other good funds on the Effective Date. The
compensation payable pursuant to the foregoing provisions of this
Section 7 is allocated as set forth on EXHIBIT A hereto among: (i)
consideration for the Executive's consulting obligations, (ii)
consideration for the Executive's noncompete obligations, (iii) a
transaction success bonus and (iv) severance.
(b) COMPANY CAR. On the Effective Date, Fresh Foods and
Claremont will transfer and convey to the Executive all of their right,
title and interest in and to the motor vehicle currently used by the
Executive for business purposes. Upon request by the Executive, Fresh
Foods and Claremont will execute and deliver all such documents and
take all such other actions as the Executive may reasonably request to
better evidence such transfer and conveyance.
(c) INSURANCE PREMIUMS. On the Effective Date, Fresh Foods
will deliver to the Executive a bank check in an amount equal to the
present value, discounted at 4.5%, of all future premium payments due
on the term life insurance policy (no. 0030026670-0) issued by Security
Life and Trust Insurance Company insuring the Executive's life (such
amount not to exceed $34,823.86).
8. COVENANT NOT TO DISCLOSE CONFIDENTIAL INFORMATION. During the
Executive's prior positions with Claremont and Fresh Foods and during the term
of this Agreement, the Executive has and will become acquainted with
confidential information of Claremont, Fresh Foods and their affiliates,
including, but not limited to, customer files, customer lists, special customer
matters, sales methods and techniques, merchandising concepts and plans,
business plans, sources of supply and vendors, special business relationships
with vendors, agents and brokers, promotional materials and information,
financial matters, mergers, acquisitions, personnel matters and confidential
processes, designs, formulas, ideas, plans, devices and materials and other
similar matters that are kept confidential (any and all such information being
referred to herein as "Confidential Information"). The use of Confidential
Information against Claremont or Fresh Foods would seriously damage its
business. Accordingly, the Executive agrees:
3
4
(a) He shall not, directly or indirectly, use, divulge, publish or
otherwise reveal or allow to be revealed any Confidential Information
to any individual or entity except with the prior, express and written
consent of either Claremont or Fresh Foods, as applicable, or as
required by law;
(b) He shall refrain from any action or conduct that might
reasonably or foreseeably be expected to compromise the confidentiality
or proprietary nature of any Confidential Information; and
(c) He shall have no right to apply for, or to obtain any patent,
copyright or other form of intellectual property protection regarding,
any Confidential Information.
9. COVENANT NOT TO COMPETE.
(a) COVENANT. The Executive hereby stipulates, covenants and agrees
that, during the Restrictive Period (as defined below), he shall not,
directly or indirectly, other than on behalf of Claremont, without
Claremont's prior, express and written consent:
(i) Engage in Competition (as defined below) with Claremont or
any of its successors or assigns; or
(ii) Employ or solicit the employment of any individual who is,
or has been, at any time during the Restrictive Period or during the
twelve complete calendar months immediately preceding the Effective
Date, an employee of Claremont.
(b) DEFINITIONS. As used in this Section, the following terms shall
have the following meanings:
(i) "Business" shall mean the business conducted by Claremont at
the Effective Date, including the business of restaurant operation
and restaurant franchising, but excluding the business conducted by
any entity in which the Executive has an equity interest at the
Effective Date.
(ii) "Competition" shall mean:
(1) Engaging in the Business within the Territory;
(2) Assisting any individual or entity, whether in a
financial, managerial, employment, advisory or other material
capacity, to engage in the Business within the Territory;
provided, however, that nothing herein shall preclude the
Executive, directly or indirectly, from leasing restaurant
property to a tenant as a bona fide lessor; or
(3) Owning any interest in, or organizing an entity that
engages in, the Business within the Territory; provided, however,
that nothing herein
4
5
shall preclude the Executive, directly or indirectly, from
holding not more than one percent of the outstanding shares of
common stock of any company whose shares of common stock are
listed on a national securities exchange or authorized for
quotation by NASDAQ.
(iii) "Restrictive Period" shall mean the five-year period
beginning on the Effective Date.
(iv) "Territory" shall mean the 25-mile radius from (A) any
restaurant owned or franchised directly or indirectly by Claremont
or (B) any other site used directly or indirectly by Claremont, to
the extent that the business of the restaurant or site was assisted
by the Executive during the term of his service to Fresh Foods or
Claremont.
10. ENFORCEMENT. In the event of any breach of this Agreement,
Claremont, Fresh Foods and their successors and assigns shall be entitled to any
and all of the following remedies in addition to such other remedies as they may
have in equity or at law:
(a) In that a breach or anticipatory breach by the Executive of
Section 8 or 9 of this Agreement will cause irreparable damage to
Claremont or Fresh Foods, Claremont or Fresh Foods, as applicable,
shall be entitled to an injunction restraining the Executive from
attempting to violate, violating or continuing a violation of Section 8
or 9 of this Agreement. The existence of any claim or cause of action
on the part of the Executive against Claremont, Fresh Foods or their
successors or assigns, whether arising from this Agreement or
otherwise, shall in no way constitute a defense to the enforcement of
Sections 8 and 9.
(b) The Restrictive Period shall be extended by any time period
during which the Executive is in violation of this Agreement.
11. RELEASES.
(a) The Executive hereby releases, discharges and acquits each of
Claremont and Fresh Foods and each of their affiliates, subsidiaries,
agents, employees, officers, directors, shareholders, attorneys,
accountants, agents, representatives, successors and assigns
(collectively referred to as the "Released Persons") of and from any
and all claims, demands, actions, rights, causes of action, obligations
and liabilities, known and unknown, that the Executive has against the
Released Persons (or any of them) relating to or arising out of the
Executive's employment (through HERTH or otherwise) by Claremont and
Fresh Foods, including, but not limited to, wrongful discharge, breach
of contract, tort, the Civil Rights Act, Age Discrimination in
Employment Act, Employee Retirement Income Security Act or any other
federal, state or local legislation or common law relating to
employment or discrimination in employment or otherwise.
(b) The Executive hereby releases, discharges and acquits the
Released Persons of and from any and all claims, demands, actions,
rights, causes of action,
5
6
obligations and liabilities, known and unknown, that the Executive has
against the Released Persons (or any of them) relating to or arising
out of his status as a shareholder of Fresh Foods.
12. ACKNOWLEDGEMENT OF ADEQUATE CONSIDERATION. The parties stipulate
and agree that the payments and other benefits owed to the Executive and to
HERTH for the benefit of the Executive by Fresh Foods and Claremont under this
Agreement and the performance of Fresh Foods' and Claremont's obligations
hereunder constitute sufficient consideration to support enforcement of the
covenants of this Agreement.
13. ACKNOWLEDGEMENT OF REASONABLENESS. The Executive has carefully read
and considered the provisions of this Agreement in consultation with attorneys
of his choice and agrees that the restrictions set forth herein are fair and
reasonably required for Claremont's protection. In the event that any provision
relating to the Restrictive Period or the Territory (or both) shall be declared
by a court of competent jurisdiction to exceed the maximum time period or
geographical area such court deems reasonable and enforceable under applicable
law, the time period or area of restriction considered reasonable and
enforceable by the court shall thereafter be the applicable Restrictive Period
or Territory under this Agreement.
14. ATTORNEYS' FEES. Should it become necessary for Claremont or Fresh
Foods to institute legal proceedings as a result of a breach of any terms or
covenants contained in this Agreement, Claremont or Fresh Foods, as applicable,
shall, if it is the prevailing party in such litigation, be entitled to have and
recover from the non-prevailing party reasonable attorneys' fees plus court
costs in addition to any and all relief otherwise available to it, either at law
or in equity. Should it become necessary for the Executive or HERTH to institute
legal proceedings as a result of a breach of any terms or covenants contained in
this Agreement, the Executive or HERTH, as applicable, shall, if he or it is the
prevailing party in such litigation, be entitled to have and recover from the
non-prevailing party reasonable attorneys' fees plus court costs in addition to
any and all relief otherwise available to him, either at law or in equity.
15. SEVERABILITY. The illegality, unenforceability or invalidity of any
one or more covenants, phrases, clauses, sentences or paragraphs of this
Agreement, as determined by a court of competent jurisdiction, shall not affect
the remaining portions of this Agreement, or any part thereof; and, in case of
any such illegality, unenforceability or invalidity, this Agreement shall be
construed as if such covenants, phrases, clauses, sentences or paragraphs, to
the extent and only to the extent determined to be illegal, unenforceable or
invalid, had not been inserted.
16. WAIVER OF BREACH. The waiver by either party of any breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach of any provision of this Agreement.
17. ENTIRE AGREEMENT; NO EFFECT ON OPTIONS. This Agreement sets forth
the entire understanding between the parties relating to the subject matter
hereof and supersedes all previous and contemporaneous understandings or
agreements, written and oral. This Agreement may be modified only by an
agreement in writing, signed by all parties, purporting to modify it. This
Agreement shall not be construed as having any effect on the rights of the
Executive under
6
7
the stock option agreements and related stock option plans that govern stock
options that have been granted by Fresh Foods to the Executive and may be held
by the Executive at the Effective Date.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina without regard to the
principles of conflict of laws thereof.
19. NOTICES. Any notice that may be given hereunder shall be in writing
and shall be deemed to have been given on the earlier to occur of (a) actual
receipt or (b) the second business day after the same shall have been mailed by
certified mail, postage prepaid, return receipt requested, to the parties at the
addresses listed below:
If to Claremont: Claremont Restaurant Group, LLC
X.X. Xxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxx
If to Fresh Foods: Fresh Foods, Inc.
X.X. Xxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxx
If to HERTH: HERTH Management, Inc.
X.X. Xxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxxxxx, Xx.
If to Executive: Xxxxx X. Xxxxxxxxx
X.X. Xxx 00
Xxxxxx, XX 00000
or, in any case, to such other address as the party to whom or to which such
notice is to be given shall have specified by notice given to the other parties.
20. SUCCESSORS, HEIRS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, their successors, heirs and
assigns.
21. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall constitute an original and all of which, taken together, shall
constitute one and the same Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
7
8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CLAREMONT RESTAURANT GROUP, LLC
By: FRESH FOODS, INC.,
Its Sole Member and Manager
By: /s/ XXXXX X. XXXXX
---------------------------
Xxxxx X. Xxxxx
President
FRESH FOODS, INC.
By: /s/ XXXXX X. XXXXX
--------------------------------
Xxxxx X. Xxxxx
President
HERTH MANAGEMENT, INC.
By: /s/ XXXXX X. XXXXXXXXXX, XX.
--------------------------------
Xxxxx X. Xxxxxxxxxx, Xx.
President
THE EXECUTIVE:
/s/ XXXXX X. XXXXXXXXX (SEAL)
--------------------------------
Xxxxx X. Xxxxxxxxx
8
9
EXHIBIT A
DOLLAR AMOUNT PURSUANT PERCENTAGE OF TOTAL
TO SECTION 7(a) PAYMENTS PURSUANT TO
(BEFORE ADJUSTMENT SECTIONS 7(a) AND 7(b)
ALLOCATION CATEGORY UNDER SECTION 7(b)) OF THIS AGREEMENT
------------------- ---------------------- ---------------------
Consulting $ 70,961 23%
Noncompete 236,538 75%
Transaction Success Bonus 0 0%
Severance 7,501 2%
------------- ---
TOTAL $ 315,000 100%
========== ====
9
